Canada Loses Ground on Home Ice: Ethanol Market Hijacked by US Subsidies

Canada has built a thriving ethanol market through its federal clean-fuel policy. However, instead of reaping the benefits of this demand, the country is increasingly importing heavily subsidized U.S. ethanol.

The trade data show that U.S. ethanol exports to Canada have more than doubled in five years, from 1.2 billion litres to 2.9 billion litres, a 135 per cent increase. This trend indicates that Canadian policy has not kept pace with the growth of demand for ethanol.

Ontario's ethanol sector is particularly affected by this imbalance, as it anchors one out of every three grain bushels and accounts for the majority of Canada's ethanol production. However, U.S. ethanol producers are eligible for a subsidy of up to 36 cents a litre under the 45Z production tax credit, while Canadian producers receive no equivalent support.

To address this issue, Ottawa needs to implement policies that recognize the competitive disadvantage created by U.S. subsidies and help turn growing Canadian demand into Canadian production and investment. A simple policy response would be to introduce a credit multiplier of at least 1.4x for Canadian-made ethanol under the Clean Fuel Regulations.