7 Oktober 2004

Canada: Ethanol industry protests Brazilian imports

Claims subsidies in Brazil and tax exemptions here harm domestic producers

OTTAWA – Canada’s ethanol industry is crying foul over two large purchases of rival product from Brazil, complaining that the imports qualify for millions of dollars of Canadian tax exemptions while Brazil charges import tariffs on the alternative fuel and subsidizes its own producers.

The Canadian industry says it’s a question of fair trade and that the imports from Brazil – the first of which arrived in Montreal last week – are hurting domestic producers by discouraging new investment.

“It’s being dumped,” said Bob Gallant, chief executive officer of Commercial Alcohols Inc., a Toronto ethanol maker. “It has to be done on a level playing field.”

The shipments from Brazil are believed to mark the first time that a Canadian company has imported ethanol from outside North America.

But Peter Clark, an Ottawa trade lawyer, says it won’t be the last time that happens, so long as government policies continue to create demand that domestic suppliers aren’t yet able to meet. “It’s just basic economics.”

The Brazilian ethanol is being imported by Suncor Energy Products Inc., the only major Canadian retailer to sell ethanol gas blends on a large scale. The company plans to use the 30 million litres of Brazilian ethanol, purchased through Alcotra SA of Geneva, Switzerland, at about 500 gas stations in Ontario.

Suncor, which is a wholly owned subsidiary of Suncor Energy Inc. of Calgary, normally buys its ethanol from the United States and a Commercial Alcohols plant in Chatham, Ont., said Suncor spokesman Neil Levine. But the company is looking beyond its usual supply chain because domestic producers aren’t able to meet demand, he said.

The ethanol is in line for about $6-million in combined tax exemptions from the federal and Ontario governments. Canadian producers argue that the rebates would do more for the environment and the economy if they were used in other ways – such as encouraging more domestic ethanol production. Industry officials also say the rebates allow the Brazilian producers to undercut the market, given the advantage of their country’s sugar cane subsidies. Brazil also has a 20-per-cent tariff on ethanol imports.

“We don’t have access to their market, but when they export to Canada, the price reflects the subsidies they provide,” said Kory Teneycke, executive director of the Canadian Renewable Fuels Association.

Canadian ethanol makers aren’t alone in complaining about their Brazilian rivals. According to a document from Association for Fair Trade in Alcohol, a European lobby group, Brazil has a history of subsidies and product dumping.

Brazil says nobody has ever launched a complaint against its ethanol makers, which use their size to gain greater efficiencies.

But Brazil is by no means the only country to help out its sugar producers. The United States, India and a number of European countries have also been accused of using subsidies, tariffs and other so-called trade “distortions.”

Ethanol is made from the fermentation of plant sugars and emits fewer greenhouse gases when burned than regular gasoline. In Brazil, ethanol is made from sugar. In North America, it’s usually made from corn or wheat before being blended with gasoline.

But like most alternative fuels, cost has long been ethanol’s biggest problem. Some governments have helped fuel demand by reducing taxes. In Canada, the ethanol portion of blended gasoline is exempt from the 10-cent-a-litre excise tax on gasoline.

At the provincial level, Alberta and Ontario currently exempt the ethanol portion of blended gasoline from their road taxes. Saskatchewan and Manitoba offer road tax exemptions for ethanol produced and consumed within the province and Quebec and B.C. have made similar commitments. In Ontario, where the Brazilian ethanol will be sold, the combined net rebates amount to about 20 cents a litre. All producers are eligible for the rebates.

Some governments are also moving toward ensuring that all gas pumps offer at least 5-per-cent ethanol. Ontario is expected to approve the idea as soon as today.

But that’s not all that governments are doing to help ethanol. Last year, Ottawa launched a $100-million capital program to boost domestic production. The new facilities are expected to more than triple Canadian production.

Many motorists have already accepted the concept of blended gas, which is already offered in some cities and is compatible with regular internal combustion engines. Blended fuels are generally sold at the same price as low-octane unleaded gas, although the blends represent a tiny part of the market.

Brazil invested heavily in ethanol during the 1970s energy crisis and now has the world’s most advanced production and distribution systems. Most gas stations there sell ethanol for about half the price of regular gasoline.

Source: Globeandmail.com Oct. 06, 2004.

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