This paper explores five key questions that require attention in the determination of the viability of an ethanol industry for a small jurisdiction with a small local ethanol demand. As a case study, we examine the province of Saskatchewan, which is currently encouraging a large scale ethanol industry expansion. The five questions pertaining to Saskatchewan are:
1. What are the major determinants of the economic viability of ethanol production in Saskatchewan, now and in the future?
2. Related to the previous question, can we reasonably expect to export ethanol produced in Saskatchewan that is beyond the locally mandated use?
3. What is likely to be the impact of expanded ethanol production on the livestock industry in the province?
4. Will broader rural economy benefits justify government support of the ethanol industry?
5. Will environmental benefits resulting from mandated use of ethanol justify government support of the ethanol industry?
Although additional research is required to answer these questions definitively, our survey of the existing literature suggests that in the foreseeable future the ethanol industry in Saskatchewan will not be viable in the absence of government subsidies and mandated use. Further, access to export markets seems a high risk basis for industry expansion, while impacts on the livestock industry require careful consideration. Positive impacts on the rural economy appear limited and occur at very high cost, while environmental benefits are uncertain. Good information and an objective assessment of the facts are necessary for informed decisions around private and public investment in an ethanol industry in Saskatchewan.
Rose Olfert and Simon Weseen