Economy wide impacts of ethanol and biodiesel policy in Canada: An input–output analysis

Abstract

ABSTRACTThe Government of Canada has committed that Canada’s total greenhouse gas (GHG) emissions be reduced by 17% from 2005 levels by 2020. The new Renewable Fuels Regulations required 2% renewable content in diesel fuel and heating distillate oil and 5% for gasoline. This represents approximately 2.1 billion liters of ethanol and 600 million liters of biodiesel requirement per year, which would reduce GHG emissions by more than four million tones. Canada is expected to consume more fuel ethanol compared to its production capacity. The above mandates as well as the gap in consumption and production of biofuel will have enormous impact on the Canadian economy. In this backdrop, an input–output model of the Canadian economy is developed to estimate the macroeconomic impact of the ethanol and biodiesel production in Canada. The impacts on sectoral prices have also been calculated. Simulation exercises have been attempted to reach the mandates using modified Leontief model. Results show that agriculture sector is affected because of feedstock use in the biofuel sector. Mining and manufacturing industries also show a considerable impact. In addition, the impact on commodity prices cannot be ignored. Finally, to meet the target of Copenhagen commitment, the nation needs to revise the blending capacity of ethanol and biodiesel.