Ethanol Production from Hybrid Poplar in Canada: A General Equilibrium Analysis

Hawley Campbell, James Rude, Marty K. Luckert, Vic Adamowicz.
Department of Resource Economics and Environmental Sociology, University of Alberta, Edmonton, Alberta, Canada.

Ethanol has been promoted in Canada as an alternative to fossil fuels in the transportation sector. Future changes in Canada’s emerging bioeconomy have the potential to cross industry boundaries, such as agricultural and forestry, and lead to inadvertent economic outcomes. As biofuel production technology develops, further production could come from first-generation grain-based feedstocks, or second-generation cellulosic feedstocks. This study evaluates potential economic impacts due to renewable fuel standards that double current ethanol production from first-generation ethanol, versus cellulosic ethanol produced from hybrid poplar feedstock in Canada. We also investigate the effect of current legislation restricting hybrid poplar growth on crown forestland. Finally, we consider impacts from increased crop productivity and oil prices on our simulated economic outcomes. Impacts are investigated in a general equilibrium economic framework. Overall, we find that doubling ethanol production in Canada results in price and output changes between 0 and 10%, with percentages generally higher in agricultural sectors than in forestry. Results further suggest that cellulosic ethanol leads to relatively lower inter-industry price and output impacts compared to first-generation ethanol, due to the availability of marginal land for hybrid poplar production. For both first-generation and cellulosic ethanol, estimated impacts to Canadian net exports can be substantial for some agricultural sectors. We find that the use of coarse grains for increased first-generation ethanol production leads to an approximately 21% decrease in coarse grain net exports, while increased production with cellulosic ethanol has a relatively larger impact on ruminant trade, with net exports decreasing between 27 – 34%. Results also indicate that the subsidy support required to double current ethanol is costly, at around USD 3.00/gallon. Sensitivity analysis suggests that a crop productivity increase leads to relatively larger benefits to first-generation ethanol, while a 100% oil price increase can double Canadian ethanol production, even without further government support.