CD Howe Institute questions cost effectiveness of biofuels subsidies

The CD Howe Institute recently released "Going Green for Less: Cost-Effective Alternative Energy Sources", a comparative analysis of federal and provincial greenhouse gas ("GHG") mitigation incentive programs (the "Report"). The Report concludes that the government is currently over-investing expensive liquid bio-fuels programs and is under-investing in most cost-effective programs renewable heat and power programs.

The Report analyzes programs for liquid biofuels, renewable power, and renewable heat. The life-cycle emissions mitigation potential of each is measured against the technology that they would most likely replace (e.g., emissions from bio-diesel were compared against those from conventional diesel). The financial incentive for each program is then normalized using the calculated emissions mitigation potential to give a dollar-per-tonne measure of cost effectiveness. The Report acknowledges that the calculations are subject to many assumptions.

The Report summarizes the results as follows:

"The lowest-cost government incentive programs identified are for renewable heat and power technologies such as wind power, solar air and hot water heating, and biomass pellet heating, as well as energy retrofitting strategies. For these programs, mitigation could be realized at $10-to-$60 of government subsidy per tonne of carbon dioxide equivalent (CO2e) offset.

In contrast, the most expensive government incentives were found to be liquid biofuels, which ranged from $295-to-$430/tonne of CO2e for ethanol and $122-to-$175/tonne of CO2e for biodiesel. The federal government's $4.5 billion ecoENERGY program has dedicated over half of the total budget towards liquid biofuels." [emphasis added]

Having concluded that the government has a tendency to place big bets on the wrong technology, the Report recommends a technology-neutral alternative to existing programs. It suggests setting a carbon emissions "bounty" of between $30-50 per tonne CO2e, payable to any technology that could demonstrate verifiable reductions. However, the Report acknowledges that universal price on carbon, such as that established by a carbon tax or cap-and-trade system, would be preferrable to an improved carbon subsidy.