The brazen Ethanol stick-up

It is all so amateurish. A news report from the Ottawa Business Journal won’t send tremors through the corridors of Parliament Hill, but it warrants another perspective (read: opinion) nonetheless.

The story on Monday, in summary, referred to some hollow threats from the We-think-we-can-make-Ethanol-from-Straw crowd that (and I paraphrase) “if they don’t get a massive federal government grant in the next few hours, they’ll shoot to kill” the feds’ hopes of proving their green credentials in advance of the coming federal election. Like any terrorist threat, the government will be wise to ignore this one, as well.

The federal government cannot possibly benefit from dedicating $100 million + of taxpayers’ money to a single plant in Saskatchewan, founded on an-as-yet unproven technology. Environment Minister John Baird’s policy advisors need only look back at that last “energy of the future”, hydrogen, for a roadmap regarding this situation.

In the late 80’s, the Conservative government of the day was given the chance to help Ballard Power (BLD-TSX) with its commercialization efforts. As with the current situation, the proponents focussed on a local cabinet minister, the Hon. Mary Collins. Conveniently Vancouver-based, which was also Ballard’s hometown. Now its the Hon. John Baird. Conveniently Ottawa-based. Hometown of the current wunder-company.

With not much prodding, the Defence Department (Collins was Assoc MND) provided a decent, meaningful, but smallish grant to Ballard (less than $10 million). At the time, Ballard’s technology was going to eradicate North America of every diesel bus by 2010. Or thereabouts.

Ballard eventually went public and raised hundreds of millions of dollars of risk capital from private sector investors and strategic players. As it should be. And they’re still trying to get a foothold 20 years later.

The parallels to the present “miracle cure” are obvious. If you believe the propaganda in the OBJ piece, it would be anti-Canadian to NOT grant massive subsidies for an unproven technology, solely so that the current shareholders can avoid the dilution that comes from raising additional risk capital. Surely shareholders Petro Canada, Royal Dutch Shell and Goldman Sachs have the financial capacity and industry knowledge to decide IF they want to build a plant and WHICH markets (refineries) it should be located near.

In plain english: it appears that they want the government to help them get rich(er) with taxpayers dollars. Why else do they need a grant? Are they unsure of the economics of their technology? If so, why is the government going to get involved if some of the world’s top firms/experts aren’t even sure if the straw-into-ethanol scheme makes economic sense?

As it did with Ballard, the federal gov’t has already granted the Ottawa-based ethanol tech play some real seed money. The recent tranche was just under $8 million, according to the OBJ. There it is in full view – the feds are just as supportive of this “energy of the future” as they were of Ballard in its formative years.

The threat that the first ethanol-from-straw plant will be built in the USA if the Canadian government doesn’t act is as transparent as it is meaningless. The US DOE has dedicated something like 20% of the total cost to construct a plant in that country. Maybe. But you have to get it from Congress. Perhaps. And under certain terms. As part of a multi-billion commitment to corn Ethanol production. The straw $ pledge is a rounding error to show the world they are looking beyond Iowa farm subsidies.

My own experiences with this firm might been seen to have coloured my judgment, as I’ve not found the Ottawa ethanol-from-straw bunch to be entirely trustworthy from personal experience. But that might be no more than one man’s very bad outing. Or a pattern of questionable behaviour that many others have also witnessed.

But for federal policy makers, the ethics of that team shouldn’t (and probably don’t) matter; although the terrorist-like threats might serve as an insightful (and all too expected) warning of their approach to willing and generous partners. What should matter is a simple public policy question: is government best placed to determine, on a large scale, which technologies will make it and which will ultimately fail? And is it even possible?

In my mind, governments should create an environment that fosters innovation, risk taking and a fair market. Which is what they did with Ballard, and have done with this recent new ethanol grant. But if Hamilton-based Biox, for example, has already raised $100 million in true risk capital to build a biodiesel plant (also a nice thing for the environment) why should the feds give a similar sum to a competing, unproven ethanol technology that may never produce the quantities required to be truly commercially viable? Why not make biodiesel the winner instead, and give them $100 million for another plant in Ontario? At least biodiesel is proven. And the plant already exists.

The Ballard Power experience is evidence that great technology, with a definite societal need, real federal seed $ grants and perfect strategic partners still takes decades to meet its goals of improving our environment and reducing our dependence on oil.

None of those worthy/necessary goals can be accomplished before the next federal election, and Minister Baird knows the Canadian population won’t determine his fate based upon how he tackles this juvenille ransom note.

MRM