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The GreenField Ethanol Inc. plant in Chatham, Ont.MARK BLINCH

Federal law forces oil companies to sell gasoline in Canada with an ethanol content of 5 per cent, but the industry is going one better.

Oil refiners like ethanol so much, they've quietly begun selling gasoline with substantially more of the additive.

Adding ethanol – the same active ingredient that gives beer and wine drinkers a buzz – to gasoline has been controversial. While it leads to lower tailpipe emissions of air pollutants and reduced greenhouse gas emissions, the additive cuts car mileage by a few percentage points because it contains less energy than a similar volume of refined gasoline. Most ethanol is made from crops, such as corn, raising worries that turning it into fuel could raise food prices.

But it appears ethanol has at least one additional benefit, at least as far as the refining industry is concerned: It's boosting profit margins.

The price of ethanol on the futures market for the current delivery month is only 57 cents (U.S.) a litre, less than half the most recent average retail price of gasoline being paid by drivers of $1.32 (Canadian) a litre calculated by Natural Resources Canada. Ethanol is also cheaper than current prices of crude oil, and doesn't require costly refining, another plus.

Although the industry and federal government don't release figures on the national average ethanol content of gasoline in Canada, observers say it is likely around 6.5 per cent.

The industry is probably adding "25 per cent to 30 per cent more than is required," estimates Doug Nixon, publisher of the Canadian Report on Fuel Ethanol, a trade publication that recently offered one of the few available estimates on the oil industry's overcompliance with the environmental regulation.

He says the industry is buying ethanol in the U.S. at the wholesale price and selling it in Canada at retail gasoline prices, "which is fantastic" for them.

The industry, however, disputes claims that ethanol is a big factor in profitability, in part because taxes would be applied to the additive, raising its price.

"I don't think there would be a large margin difference" from ethanol content above the 5 per cent level, says Bill Simpkins, a spokesman for the Canadian Petroleum Products Institute. He said the industry group, which represents refiners, doesn't keep figures on the amount of ethanol added to gasoline.

Suspicions that the industry is topping the tank with ethanol have arisen because of a dramatic surge of imports from the U.S., which rose 150 per cent last year to 1.1 billion litres, the equivalent of more than 10,000 rail tank cars. While Canada does export some ethanol, it's a minor amount. Meanwhile, Canadian ethanol producers are cranking out about 1.6 billion litres a year, mainly by converting corn into the fuel additive.

Based on the amount of gasoline sold in Canada, there should be demand of about two billion litres of ethanol due to the 5 per cent national requirement.

"The fact that the obligated parties are voluntarily overcomplying is evidence that our fuel pool can handle additional renewable content. The key reason for overcompliance is that ethanol is cheaper than gasoline and the obligated parties pass that savings along to consumers," said Scott Thurlow, president of the Canadian Renewable Fuels Association, a trade group.

Under federal rules, the average amount of ethanol in gas has to meet the 5 per cent threshold. However, companies can sell gas with no ethanol in some places, provided they make up for it elsewhere in their sales network by adding more.

Newfoundland and Labrador is exempt from the federal rule, but Manitoba and Saskatchewan have introduced separate requirements for more, at 8.5 and 7.5 per cent, respectively. Bigger markets, such as Ontario and British Columbia, match the national requirement.

Jon Harding, a spokesman for Imperial Oil Ltd., said the company's gasoline contains up to 10 per cent but he said profit margins on fuel are complicated and subject to many factors other than the ethanol content. "We do comply with the federal and provincial renewable fuels regulations," he said.

Suncor Energy said it meets all federal and provincial standards. The company, which produces its own ethanol, has an average content of 7 per cent in its fuel, according to a spokesperson.

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