The Future of Ethanol in Canada: Beyond the Bridge Narrative

Why Canada’s ethanol “transition” will not retire itself, and what a credible one would require

Thorsten Arnold, PhD. Policy analysis, October 2026.

Key messages

• Ethanol demand in Canada is set by regulation superimposed on the fuel market. Environment and Climate Change Canada’s 2024 reference case has ethanol demand rising about 60% by 2030 while gasoline demand falls about 16%.
• A demand mandate with no end date works as farm-income support. However, gains tend to capitalize into land values. And the carbon accounting policy omits its land and structural costs.
• A credible transition needs a sunset with published withdrawal criteria, full (direct and indirect) land accounting, and direct income support, such that corn growers are not left carrying the financial burden when demand is withdrawn.

The bridge’s end remains out of sight

Every litre of ethanol builds on a complex production, processing and trading system. Corn seed, farmland, fertilizer and diesel, water, a farmer, an ethanol plant, a rail car, a processor who blends it with fossil gasoline. At each link of this value chain, investors earn a margin and have a say. From biofuel ethanol’s beginning, it was understood that crop-based biofuels are only a transition solution that requires too much farmland in a world where land is scarce. Yet the narrative that holds up ethanol has persisted in Canadian and global climate policy: ethanol is a bridge to something that actually makes sense. Crop-based biofuel is imperfect, temporary, and already on its way out.

After more than a quarter-century of bridging, regulation cast this bridge into permanence. Ontario mandated ethanol blending in gasoline in 2007. Current policy ratchets up the “renewable” content to 13% in 2028 and 15% from 2030 onward, with no end date [1]. Today,  Ottawa is preparing amendments to the Clean Fuel Regulations to shield domestic producers from cheaper U.S. imports [2, 3]. For a policy described as transitional, this is all quite incoherent.

I argue that the bridge story has become the main defense of biofuels as a permanent, demand-driving, market-management program. Farmers carry much of that program’s financial risk, and a collateral effect is that agricultural land expands further into natural areas, worldwide. Farmers and society at large would be served better by an honest transition: one with a defined end, more complete cost-benefit accounting, and direct farm income support in place of manufactured demand.

Corn ethanol was first a bridge to cellulosic ethanol. The 2007 U.S. Renewable Fuel Standard wrote 16 billion gallons of cellulosic biofuel into law for 2022. The volume the U.S. Environmental Protection Agency actually required only 0.63 billion that year, mostly from biogas [4]. Then ethanol turned into the bridge we would need until electric vehicles replace the combustion engine fleet. Now that electrification begins to threaten gasoline demand, the same biofuel plants and corn contracts are being pitched as feedstock for sustainable aviation and shipping fuel [5]. That’s the third new justification in only twenty years. And whenever someone questions this “transitional” policy, they are called a distraction from the climate fight, or anti-farmer.

Berti and Levidow, studying UK biofuel targets, called this a policy-promise lock-in. Government defends support for an incumbent yet contested technology as the launchpad for its successor, and that same support slows the shift of resources toward the successor [6]. Once programs are made public and investors have sunk significant money into processing plants, admitting the pathway was badly chosen would reveal a decade of poor decisions. So, in hope of a better future, actors defend a disappointing present.

Fuel use shrinks, ethanol use grows

People I respect – advocates, academics, professionals – have accepted this line of reasoning (yes, electric vehicles will replace gasoline cars soon and ethanol will go with the gasoline. So ethanol is dying and not worth the fight. And aviation has no alternative to biofuel). Taken individually, these arguments look solid. Yet, ethanol demand is a product of regulation more than of the fuel market – and right now, biofuel feedstocks occupy roughly 32 to 61 million hectares worldwide, depending on how co-products are credited [20]. Where technology enables potential demand, policy turns this potential into new corn acreage and less habitat and fewer ecosystem functions.

Ottawa’s own forecast reflects this dynamic. ECCC’s 2024 reference case, published with its December 2025 discussion paper on amending the Clean Fuel Regulations, projects the following [2]:

ECCC predicts that, measured by volume, ethanol’s share of the gasoline pool nearly doubles, from about 9% to about 17%. That is exactly the opposite of the “it will fade away” story.

The same ECCC paper notes that Canada does not produce enough ethanol to meet its own demand [2], and the Grain Farmers of Ontario warns that, without policy changes, the United States will soon ship 4 billion litres a year to Canada despite the trade war [3]. So the mandate that corn growers celebrate as stabilizing commodity prices is now supplied increasingly by U.S. ethanol imports, backed by U.S. tax credits that out-compete local farmers. And by default, U.S. ethanol assumes to have no landuse impact – saving the flawed climate story.

Ethanol relevance for agricultural markets

One cannot explain ethanol’s staying power without understanding its structural role in agricultural markets. North American grain farming runs on what Willard Cochrane in 1958 coined as a treadmill [7]. With innovation, yields grow faster than food demand and prices fall with oversupply and farm margins shrink while mortgages remain. Each farmer sensibly produces more to continue paying mortgages and protect income. Oversupply pressure intensifies and farmers are pushed out of business [7]. The treadmill affects prices for commodities and farmland, and even large investments into farm equipment [8]. Chronic overproduction depresses prices, reinforcing the “get big or get out” dynamic that became America’s agricultural policy mantra under Earl Butz that continues today [24].

Ethanol is a politically convenient and scalable outlet for the overproduction surplus that stabilizes prices. Biofuel crops now cover enormous areas of land that I find hard to picture. U.S. corn used for fuel ethanol is projected at 5.7 billion bushels in 2026/27, roughly 35% of total corn use [9]. Ontario is similar: by 2018 one-third of the corn harvest already went to ethanol plants [10]. When I drive through Grey County and see farmers removing tree lines and draining wetlands, I see them responding to market signals. Whatever its climate intent, the mandate works as farm-income support, at least in the short term.

Over the medium term, though, prices and costs re-adjust dynamically, and the farmer’s gain from a policy-backed demand floor leaks away into rent and land value – we observe capitalization. This is politically inconvenient territory that has received surprisingly little research attention. One recent exception: Le and Galvez-Soriano estimate that the post-2005 ethanol boom raised farmland values in high corn-suitability Midwestern counties by about US$1,147 an acre, or roughly 44% [11]. That “value creation” went to whoever owned the land at the time. Since we bought our farm in 2012, our own farmland appreciated from $2,000/acre to something like $15,000/acre – there is no way we could enter farming at today’s prices. For a young farmer trying to buy in, the entry price was pushed far beyond anything farm income can pay back [details in 8].

So when someone states that ethanol is good for farmers, I want to know: for which farmer? The landowner and the tenant who rents from him do not stand in the same place, and neither do the retiree cashing out and the young farmer priced out, or the shareholder of a processing plant, or the pension fund that holds farmland to spread its risk. Over two decades the benefit has drifted toward whoever owns the assets, while the people working the land expand their acreage to keep up with the mortgage. Instead of a reliable basis for prosperous living, biofuel policy has given farmers a faster treadmill. And because farmers are caught on that treadmill, any exit from a biofuel mandate has to be designed together with them.

The shortfall of carbon accounting for ethanol

Ontario’s regulation suggests a simple and justifiable rule: renewable content must beat gasoline’s lifecycle emissions by 45% today, and by 50% from 2030 [1]. The most favourable estimate in the academic literature, from Scully and colleagues, puts U.S. corn ethanol about 46% below gasoline [12]. Even using industry’s preferred method, the corn ethanol that is available only clears Ontario’s 2025 legal threshold of 45% by a single percentage point. Furthermore, the goal assumes a methodological precision that far exceeds any lifecycle accounting – yet uncertainty is “impossible to control” and may never be reducible [25]. In my view, the regulatory demand for precision creates a push for certainty in model assessment, which can only be achieved via ignoring the complex interactions of a real world.

The climate justification rests on an overly simplistic storyline: corn takes carbon out of the air, so burning the ethanol just returns it. There are some production aspects that need fossil oil, but that’s not so much. When this idea was turned into regulation, it required simplified lifecycle accounting. All approaches that reduce uncertainty by confining their scope to the supply chain and the field the corn grows on report relatively low carbon intensity with relatively narrow uncertainty ranges. Yet, this confidence comes from excluding any processes that are hard to quantify: uncertainty is reduced by defining away market interactions [29].

Published numbers therefore depend above all on where the accounting boundary is drawn. Drawing these boundaries is a political act where someone decides what doesn’t get measured. In 2008, Searchinger and colleagues elucidated what a narrow boundary around the farm and the refinery ignores [13]. When corn is diverted from food and feed into fuel, the market gap in the commodity market pushes up prices globally. And somewhere, maybe thousands of kilometres away, someone has economic incentives to plough a pasture, drain a wetland or clear more forest. The carbon in those soils and that biomass goes into the air (along with the damage to water cycles and the living world), even though nothing is attributed to ethanol’s carbon footprint.

Researchers quantified this cause-and-effect chain in Brasil. When Lapola and colleagues modelled the country’s national biofuel targets, cash croppers converted pastures into sugarcane and soy, and displaced cattle farmers moved deeper into the Amazon — about 122,000 km² of forest cleared by 2020 [19]. Observations later confirmed model results: soy expanding into existing pasture has pushed ranching into the forest frontier [21].

Once the accounting includes indirect land-use change of this kind, Searchinger’s team found that corn ethanol nearly doubles greenhouse-gas emissions compared with gasoline. Lark et al. [14] took a different route, starting from the land conversion actually observed in the U.S. after the Renewable Fuel Standard. They put corn ethanol’s carbon intensity at likely 24% or more above gasoline’s, with further losses in habitat, biodiversity, water quality and quantity. Since I moved to Grey County in 2012, beef pastures have almost disappeared alongside its tree lines, and now cornfields line the roads. My cautious conclusion: as a driver of new land conversion, corn ethanol likely emits more than the gasoline it is meant to replace.

The exact methods and numbers used by Lark and other studies remain disputed, and no consensus on indirect land-use methods or values exists yet, and a recent academic review [25] even puts into question the scientific possibility. My reading of the literature is that the low estimates are low mainly because models assume that land does not respond to new demand – which is above all politically convenient. Yet that assumed-as-zero response, cropland expansion with its unaccounted ecosystem and greenhouse-gas costs, is what each mandate escalation sets in motion.

Mind you, Canada’s Clean Fuel Regulations (CFR) do acknowledge the possibility of land conversion. Ethanol feedstock may not come from forest, wetland or long-standing grassland converted after July 1, 2020. In practice, this test is passed almost by default: processing plants always sit in established cropland regions that have been in corn and soy for decades, to ensure immediate feedstock supply. By design, new conversion to close the market gap from displaced feed is elsewhere. Systemically invisible to Canada’s direct-land test. Furthermore, the CFR also states that feedstock must not carry a “high risk” of indirect land-use change [15], but the criterion it prescribes follows the EU’s high-risk list which only singles out palm oil [16]. Accordingly, ECCC can state that their criterion does not flag ethanol carbon-intensity values [15]. So the Canadian mandate can pull land into production anywhere on earth without any of it appearing in Canadian accounts. And land conversion is long-term: cropland will not go back into rainforest as mandates are revoked.

2025–26: the bridge is being reinforced

Canada is actively expanding biofuel production and support. Three recent decisions show which way ethanol policy is moving.

• United States, July 2025. Congress extended the 45Z clean-fuel production credit to the end of 2029 and removed indirect land-use change from its emissions calculation. That lowers ethanol’s GHG scores from U.S. corn and raises the resulting subsidy accordingly [18].
• Canada, September 2025. The federal government announced a Biofuel Production Incentive of more than $370 million for 2026 and 2027. It pays domestic biodiesel and renewable diesel producers per litre, largely in response to China’s tariffs on Canadian canola [17]. Ethanol producers are lobbying to be added.
• Canada, December 2025. ECCC opened consultation on targeted amendments to the Clean Fuel Regulations. The options are a minimum domestic-content share and credit multipliers for Canadian-made fuel [2]. ECCC says it will publish draft amendments in the Canada Gazette before the end of 2026 [3].

These policies were explicitly justified by the trade shock and industrial competitiveness. None of these decisions reflect new climate evidence. When the climate accounting is inconvenient for economic policy, then accounting methods are tweaked to achieve economic goals – consolidating how an environmental law turned into a major market intervention. We are observing policy-promise lock-in in real time.

Why better evidence cannot end ethanol

The climate shortfall of ethanol becomes increasingly undeniable as biofuels put massive pressure on global ecosystems – in the Amazon, in Asia, Europe and North America. While a comprehensive assessment of land conversion remains lacking for Ontario, Statistics Canada’s Censuses of Agriculture show that Ontario farms lost more than one million acres of pasture between 2001 and 2021, about two-third of which was classified as ‘natural’. Over the same period, another 675,000 acres disappeared from the census category covering woodlands, wetlands and other non-cropland on farms. These changes reflect several drivers: agricultural intensification and land leaving farm operations, including development and reforestation – clarifying research is urgently needed.

When land-use change is included, Searchinger et al. and Lark et al. and others estimate that corn ethanol matches or exceeds gasoline’s emissions [13, 14, 26]. Carbon-opportunity-cost accounting reaches similar conclusions for crop-based biofuels generally [27, 28]. For vegetable-oil diesel the case is clearer still: Modelling commissioned by the European Commission consistently puts soybean biodiesel at about twice the emissions of fossil diesel, and palm oil at about three times [22, 23]. And most “waste feedstocks” already had previous uses that are now substituted with crop-based oils. Again, these substitutes are not accounted for in GHG budgets.

Yet, crop-based biofuels continue to be a low priority issue. The word “transition” lets interest groups that disagree on almost everything else continue to back (or at least de-prioritize) biofuel mandates. Whether a climate funder protects legacy investments into ethanol as a “fading legacy” with alleged minor GHG benefits, or an environmental group keeps a “laser-focus on fossil fuels” while avoiding conflict with agricultural groups; or governments promise win-win emission cuts that support rural jobs; or agricultural commodity organizations defend a market support that their members depend on (that’s their job). Whether a landowner enjoys the escalating rent that corn farmers pay, or an investor whose processing plant offers safety due to government-backed ROIs, or a portfolio/pension fund can diversify risks with farmland that behaves like a bond. I myself was thrown out of a local climate group when I pushed against biofuels: We have to stand together against the climate deniers. Your support for their arguments is splitting our unity! a local advocate explained to me. Whatever perspective each group comes from, they can (at least) live with the mandate.

Each of them also has a reason not to look too closely at the land behind the fuel. For a climate advocate, conceding the harm means admitting a far-reaching error in judgement. For a government, it means distancing oneself from a decade of announcements and funding expenditure, and take on powerful lobbyists. For these reasons, I don’t expect that better lifecycle studies will move the policy on their own. Ethanol mandates have already outlived each of their justifications because the treadmill and commodity prices continue to require some form of market intervention.

What a credible transition would require

Farmers who back an energy transition away from fossil fuels do not need to oppose or support biofuels. They can insist on coherent accounting and discipline about what we consider transitional. The first three measures below apply to any biomass pathway, including sustainable aviation fuel. The last two deal with what the bridge story tends to remain quiet about: one cannot simply remove a market that takes a third of a province’s corn. For the farmer and processors who simply did what government asked them to do, it jeopardizes significant investment.

Recommendation

In the draft Clean Fuel Regulations amendments ECCC expects to publish by the end of 2026, hold support for crop-based ethanol at current levels instead of expanding it, as this mainly drives up imports from the US. Attach a review date that assesses impacts, published withdrawal criteria and define annual land reporting (measures 1 and 3). Make any domestic-content multiplier conditional on farm-level outcomes (measure 4). Pursue full land accounting (measure 2) alongside these, combining a simplified framework based on global average land conversion with a more contextualized method. In the next agricultural framework, fund transition income support for affected corn growers before demand is withdrawn and help farmers to exit the treadmill (measure 5).

A phase-down without an income bridge will not survive politically.

Conclusion

Crop-based bio-ethanol’s most successful transition has been its environmental narrative. Such narrative is essential for justifying the market intervention that perpetuates the treadmill. Whenever reality knocked out one justification, a new goal has already been mainstreamed. With the mandates, more plants were built and the pressure on land continued to rise. Calling this policy transitional does not make its land impacts temporary, and counterevidence to supposed climate benefits does not repeal a regulation.

Canada is about to rewrite its fuel rules once again. Canada should stop treating ethanol as a hypothetical bridge: we need to accept it as a standing market-management regime that keeps us addicted to the treadmill dynamic. Any improvement starts with this recognition. If the government wants to conserve remaining forests and grasslands for future generations, it needs to start designing a successor now. Transparently and in the open, with farmers at the table. And with an end date.

References

1. Government of Ontario. “Cleaner transportation fuels,” O. Reg. 663/20, Cleaner Transportation Fuels: Renewable Content Requirements for Gasoline and Diesel Fuels (replacing O. Reg. 535/05, Ethanol in Gasoline).
2. Environment and Climate Change Canada. “Discussion paper to inform the draft targeted amendments: Clean Fuel Regulations.” December 3, 2025 (updated December 19, 2025). Table 3, forecasted liquid fuel demand, 2024 reference case.
3. Heppner, K. “ECCC planning to publish Clean Fuel Regulations amendments ‘this year’.” RealAgriculture, October 16, 2026.
4. Congressional Research Service. The Renewable Fuel Standard (RFS): An Overview. Report R43325, August 13, 2026. Table 1.
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