12 December 2006 Excise Interpretation 85138 - Approved Formulation of Denatured Alcohol

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

Thank you for your letter XXXXX to request clarification of certain provisions of the Denatured and Specially Denatured Alcohol Regulations ("Regulations"). In particular, you asked about the provisions in the Regulations for the amounts of denaturants used to make denatured alcohol grades ("DAGs") 2-C and 2-F.

Following our receipt of your letter, Steve Mosher spoke with you XXXXX in order to clarify the status of the revision to ASTM D4806, "Specification for Denatured Fuel Ethanol for Blending with Gasolines for Use as Automotive Spark-Ignition Fuel", which is the United States' general standard for fuel-denatured gasolines.

Statement of Facts

Our understandings of the facts as you provided are as follows:

(1) DAGs 2-C and 2-F, as set out in the said Regulations, are the most common DAGs in Canada for blending with ethyl alcohol (ethanol) to produce products that conform to CAN/CGSB-3.511 - Oxygenated Unleaded Gasoline Containing Ethanol.

(2) The specifications in the Regulations for DAG 2-C require that it contain 2 to 5 litres (1.96% to 4.76% by volume) per 100 litres of ethanol.

(3) The specifications in the Regulations for DAG 2-F require that it contain 1 to 5 litres (0.99% to 4.76% by volume) per 100 litres of ethanol.

(4) The Regulations assume the ethyl alcohol component of most DAGs and specially denatured alcohol grades, including DAGs 2-C and 2-F, to be 95 per cent alcohol by volume.

(5) The United States specification is based on ASTM D4806, which we understand has been revised to allow a maximum gasoline denaturant content of 5.0% in ethanol (equal to 5.26 litres per 100 litres of ethanol), up from the previously set maximum of 4.76%.

(6) The Alcohol and Tobacco Tax and Trade Bureau of the US Department of the Treasury advised in a letter XXXXX that it would accept a concentration of up to 5% gasoline denaturant with 95% ethanol in denatured alcohol grade CDA 20, because the increased volume of gasoline denaturant "[does] not materially change its composition and character."

(7) The ASTM D4806 Specification allows for an ethanol percentage minimum of 92.1% alcohol by volume, while Formula No. 20 for completely denatured alcohol CDA 20) under Part 21 of Title 27, Volume 1, Chapter 1 of the Code of Federal Regulations (US) calls for the ethyl alcohol to be not less than 195 proof (97.5% alcohol by volume, based on US calculations of proof alcohol).

(8) US fuel ethanol producers are said to be increasing the gasoline denaturant concentrations in CDA 20 from 4.76% to 5.0% by volume, based on the revised ASTM D4806 Specification. For now, they are providing their Canadian customers with gasoline-denatured ethanol that complies with the provisions of DAGs 2-C and 2-F in the Denatured and Specially Denatured Alcohol Regulations.

(9) Members of the XXXXX are concerned that future exports of gasoline-denatured ethanol from the US might not necessarily comply with the current provisions for DAGs 2-C and 2-F in the said Regulations.

Interpretation Requested

Your letter asked the following specific questions:

(1) Should the Regulations' denaturant concentration "limits" be considered to be absolute or are they subject to rounding procedures, such as those set out in ASTM E29? In other words, would a gasoline denaturant concentration of 5% (or 5.26 litres per 100 litres of ethanol) be accepted under DAGs 2-C and 2-F?

(2) If the response to Question 1 is that the limits are absolute and that imported denatured ethanols whose denaturant levels are any greater or less than the amounts specified for each DA and SDA grade do not meet the specifications for those grades, would the Minister be prepared to approve formulations equivalent to DAGs 2-C and 2-F?

Interpretation Given

It is our interpretation that the levels of denaturants specified for each DAG or SDAG are absolute. Therefore, formulations of gasoline and ethanol with gasoline denaturant levels that exceed or fall below the limits prescribed in the Regulations for DAGs 2-C and 2-F would not qualify as DAGs.

However, in a case where the denaturant level(s) is (are) higher than or lower than those specified for a particular DAG, as would be the case in relation to DAGs 2-C and 2-F if the accepted denaturants exceeded volumes of 5 L per 100 L of ethyl alcohol, the Minister of National Revenue would be willing to consider the differing formulations in the context of "approved formulations". Such formulations, as defined in section 2 of the Excise Act, 2001, may be approved based on an examination of samples submitted by either a licensed user contemplating the manufacture or importation of the formulations, or anyone else wanting to import them. In a case where the denaturant level is found to exceed what is called for by a particular DAG set out in Schedule 1 to the Regulations, it is very likely that the product would be considered an "approved formulation".

Explanation

The Denatured and Specially Denatured Alcohol Regulations, enacted by the Governor in Council under the provisions of paragraph 304(1)(o) and the definition of the term "denatured alcohol" in section 2 of the Excise Act, 2001, do not provide for any variance of the prescribed levels of denaturants specified for each DAG. Also, there are no provisions in the governing legislation to allow for such variances.

The term "approved formulation" in section 2 of the Excise Act, 2001 means:

"(a) any product made with alcohol by a licensed user in accordance with a formulation for which the Minister has the approval of the Minister; and

(b) any imported product that, in the opinion of the Minister, would be a product under paragraph (a) if it were made in Canada by a licensed user."

Any person wanting to import a product made with alcohol and that has been rendered non-potable by a particular substance or more than one substance may seek to get it accepted by the Minister as an "approved formulation" and be allowed to import it, regardless of whether or not they possess a user's licence under the provisions of the Excise Act, 2001. However, this process requires persons wishing to request the Minister's acceptance of their formulation(s) to submit to the CRA samples of the proposed "approved formulation" for laboratory analysis.

In an effort to lessen the regulatory burden on future importations and Canadian production of fuel-denatured ethanol, we are willing to consider the recommendation of possible amendments to the Regulations, in order to raise the maximum levels of denaturants for DAGs 2-C and 2-F, or seek other acceptable alternatives. In this regard, we hope to begin consultations in the near future with Canadian importers and producers of fuel-denatured alcohols.

Please feel free to provide the information in this letter to XXXXX. If you have any questions on this matter, please feel free to contact me, at (613) 957-0178, or Steve Mosher, at (613) 941-1497.

Sincerely,

Preston Gallant, CGA
Manager
Excise Duty Operations - Alcohol
Excise Duties and Taxes Division

2006/09/28 — RITS 82479 — [Clarification on the Excise Duty Liability on the Loss of Bulk Alcohol]