Escalating Fuel Prices Could Get Even Worse With Federal Biodiesel Mandate Says Consumer Coalition

OTTAWA -- Following the dramatic spike in fuel prices today, a coalition of Canadian on-road diesel fuel user associations is raising the alarm over the price impact that a government-imposed biodiesel mandate scheduled to come into force on July 1st of this year will have on their members. The federal government’s own regulatory impact analysis statement (RIAS) said the biodiesel mandate will cost taxpayers $2 ½ billion over the next 25 years and increase pump prices for diesel fuel and reduce the fuel efficiency of commercial vehicles while generating little in the way of GHG reductions.

The coalition, which comprises the Canadian Trucking Alliance (CTA), Motor Coach Canada (MCC), which is the national lobby group for bus companies and the Owner-Operator’s Business Association of Canada (OBAC), which represents small independent truck operators, say the national biofuel mandate, if it is to go ahead needs to be amended to provide protection for diesel fuel consumers from prices that exceed those of regular diesel, supply shortages and potential operational issues. They point to individual US states such as Massachusetts and New Mexico, whose biofuel mandates allow for the suspension of the regulations should the price of diesel fuel climb above that of regular diesel fuel.

Diesel prices in Canada have been on an upward tear for about two years and recently were within shouting distance of the average price of diesel fuel for 2008, the year that record prices were recorded. Overnight, retail prices of diesel fuel rose by another three cents per litre. Retail prices for diesel have escalated by over 27 per cent over the past year. At the wholesale level (as measured by the average rack price) prices are up by over 30 per cent during the same period.

According to the coalition consumer concerns have received short shrift from politicians eager to curry favour with and harvest votes from big agribusiness at the expense of the people and businesses that operate the vehicles that will have to use the fuel. They cite figures from the United States, where various states have introduced biodiesel mandates, showing prices running anywhere from one to eight cents per litre more than regular diesel despite federal subsidies. They argue that the price of canola – expected to be the prime feedstock for biodiesel in Canada – is already at record prices and volumes. It is common knowledge that Canada will need to import about 85 per cent of its biodiesel requirements to meet the demand created by the mandate. Moreover, prices will be vulnerable to all those things that impact on agricultural commodity prices that no one has any control over, such as the weather, floods, etc.

It’s not only trucks and buses that will be paying higher prices at the pump as a result of the planned biodiesel mandate. A growing number of car owners are switching to diesel-powered automobiles because of the greater efficiency and lower fuel costs. For these car owners, the biodiesel mandate will further drive up prices and expose individual diesel car owners to fuel that may void there warranties. Just as consumers received protection under the ethanol regulations, similar protections need to be adopted under a biodiesel regulation.

“The biodiesel mandate is going to exacerbate the problem of higher fuel costs through increased prices at the pump and through reduced fuel content of biodiesel,” said David Bradley, president and CEO of the 4,500 member trucking alliance. “The only question is by how much. We can’t control some of the things that are currently impacting fuel prices, but we can avoid introducing policies domestically that could make things worse.”

“In addition, the biodiesel program is completely inconsistent with the federal government’s announced intention to introduce a national fuel economy/GHG reduction standard for heavy truck engines,” he said.

Brian Crow, MCC president, says bus companies, like trucking fleets, are worried about the impact the biodiesel mandate will have on the costs of operating a motor coach, as well as on engine durability and operability. Currently there are no Canadian standards for biodiesel production, limited blending facilities to make the product and government plans to allow the retail sale of biodiesel above recommended manufacturer warranty levels for both light and heavy-duty vehicles putting consumers at risk for expensive repair bills.

“If governments want to go down this road they should mandate that all government vehicles – buses, trucks and cars – should be the guinea pigs, not the people and companies trying to stay afloat during these very difficult times”, said Crow.

Joanne Ritchie, OBAC’s executive director, says the cost increases associated with biodiesel will hurt her members – mostly single-truck operators. “Fuel is the largest single cost component for these small businesses; a few cents either way can be the difference of whether they survive or not. Even the most conservative estimates suggest this regulation will take $4,000 to $6,000 out of my members' pockets with no opportunity for a payback."

In addition to costs, there are real concerns about blending requirements and dubious product quality, says Ritchie. “Possible warranty issues because of blending problems, engines that quit because of winter gelling, and burdensome cost increases; this ill-conceived biodiesel mandate will just add to the challenges already facing owner-operators.”

The federal government has in recent years allocated over $2 billion in subsidies to the biofuel industry. Increasingly, there is public concern over whether the agricultural sector should qualify for subsidies related to non-food use of the land.