Subsidizing billionaires

Corncob BobI’d like to see a big renewable-fuels project smack in the heart of Alberta as a good thing, but I can’t. The Calgary Herald reported today on the progress of what’s supposedly the biggest bio-fuels refinery in North America, planned for Innisfail, between Calgary and Edmonton. It’ll make ethanol from corn, crush canola for transformation into biodiesel, and yes, actually refine biodiesel, too.

The Herald has learned that Dominion Energy Services, LLC along with New York-based private equity affiliates Riverstone Holdings LLC and The Carlyle Group will today formally announce plans for a 400-acre site outside of Innisfail for the project.

“The rail infrastructure is massive, that’s why we needed so much land,” said Dominion president and chief executive Curtis Chandler. “We have to be able to take unit car trains in, which are 111 cars, to cut down on our transportation costs.”

(Sounds like this is the announcement, doesn’t it?)

Note the Carlyle Group’s presence on the list. The corporate home of semi-retired conservative power brokers and various members of the Bush family see that the future of energy isn’t just in oil. If you want to be conspiracy-minded about it, you might see a connection between conservative governments’ legal mandates for ethanol in auto gas and the Carlyle Group’s investment in a plant that makes it.

This isn’t new — the Herald has reported on this before and noted at the time that the Alberta government intended to subsidize production to the tune of 14 cents a litre. With the plan being to produce about 374 million litres of of fuel a year, that’s an annual subsidy of $52 million, assuming all the plant’s production is eligible.

Leave aside completely, for the purposes of this discussion, the growing concern about ethanol’s driving up the price of food in the Third World (a serious problem) and the poor prospects for energy efficiency in corn-based ethanol (likewise a serious problem).

Why on earth is a provincial government paying even $1 million for this thing? The private equity investors — Carlyle and Riverstone — are multibillion-dollar operations, already making money hand over fist with investments in the oilpatch. When the price of oil climbs past $70 and eventually $80 a barrel, roughly the point where biofuels become competitive, the actual owners of the plant are going to need extra arms to grab all the cash. Surely it’s worth a flyer of a few million now.

Is Alberta concerned that the partners will build their biofuels refinery somewhere else? Let them, if it makes more economic sense to do it there. The last thing a rich jurisdiction like Alberta should be doing is using its wealth to artificially inflate its economy even further.


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