Canada Clears the Path for Renewable Fuels Advancement

The Canadian Conservative party's federal government appears to be moving ahead with its campaign pledge regarding renewable fuels. A late December announcement provided hope for biodiesel and ethanol stakeholders, but the expansion of each industry may hinge on the details.
By Dave Nilles | January 24, 2007
Canadian Agriculture and Agri-Food Minister Chuck Strahl and Environment Minister Rona Ambrose didn't shock anyone in late December when they co-announced a Canadian federal government plan to regulate renewable fuels in the nation's fuel supply beginning in 2010. They were simply following through on one of several Conservative Party campaign promises to bring renewable fuels to the nation's forefront.

However, shortly after that announcement, Canadian Prime Minister Stephen Harper made some changes in his administration, including reassigning Ambrose, to minister of Intergovernmental Affairs and minister of Western Economic Diversification. John Baird has now taken over the role of evnvironment minister.

Nevertheless, the Conservatives, which have formed Canada's government since February 2006, made a renewable fuels requirement part of its campaign platform. The initial goal was 5 percent renewable fuels in gasoline and diesel fuel by 2010. The Liberal Party proposed a similar requirement.

While December's announcement, which was upgraded significantly from the campaign promise, may have been lacking in anticipation, it didn't dampen the excitement felt by biodiesel industry stakeholders. The move was another step-albeit a large one-on the path toward building a Canadian biodiesel industry. Although it's a reason to celebrate, it does require substantial groundwork.

The Conservatives' plan began taking shape in October, when Ambrose announced a federal Clean Air Act, mostly aimed at fighting greenhouse gas emissions and smog. The act, which is pending, is expected to require a reduction of greenhouse gas emissions to around 50 percent of the 2003 levels by the year 2050. It also provided smog and greenhouse gas emissions targets for 2025. When it was announced, the Canadian Renewable Fuels Association (CRFA) said that a 5 percent renewable fuels standard was expected to result in a reduction of 4 to 5 megatons of greenhouse gas emissions annually.

The December plan may even improve those reductions since it is largely aimed at meeting those greenhouse gas emissions targets, as well as providing opportunities for farmers. The regulation will require an average annual renewable fuel content of at least 5 percent by volume of gasoline beginning in 2010. The requirement could be met by adding renewable content to either gasoline, or diesel and heating oil. The government also intends to require an average 2 percent renewable fuel content in diesel fuel and heating oil by no later than 2012.

The requirement of 2 percent renewable content in the diesel and heating oil pool is approximately equivalent to a renewable fuel content of 5 percent for the on-road diesel pool, according to a government release.

The separate diesel fuel requirement is significant. The United States' renewable fuels standard calls for the use of 7.5 billion gallons of renewable fuels per year by 2012. However, there is no distinction between ethanol and biodiesel. U.S. ethanol production capacity is already over 5 billion gallons per year, with an additional 4.5 billion gallons of capacity either under construction or expansion. The U.S. biodiesel industry, on the other hand, is expected to produce around 200 million gallons in 2006. "For how much longer ethanol has been around than [a Canadian biodiesel industry], ethanol would have filled an RFS," says Barb Isman president of the Canola Council of Canada. "We had to do this to get into the game."

The game may now be a matter of playing catch up. In order to meet the renewable fuels requirements, Canada needs to move quickly. In 2005, Canadians consumed more than 40 billion liters (10.6 billion gallons) of gasoline and 26 billion liters (6.9 billion gallons) of diesel fuel, according to Statistics Canada. In 2005, Canada's consumption of heating oil was just over 4.6 billion liters (1.2 billion gallons).

If ethanol and biodiesel solely supplied 100 percent of the market-and if those markets remain steady-it would create demand for approximately 2 billion liters of ethanol per year (528 MMgy) and 612 million liters of biodiesel per year (162 MMgy). Heating oil consumption was expected to trend lower as Environment Canada forecasted normal to above-normal temperatures for much of Eastern Canada for the winter of 2006-'07.

Canada currently has eight operational ethanol plants producing 629 MMly (166 MMgy). Two plants under construction are expected to add an additional 250 MMly (66 MMgy). The total of 879 MMly (232 MMgy) would put Canada less than halfway toward its 5 percent gasoline goal.

Canada is even further behind when it comes to biodiesel production. The country has four operational commercial-scale facilities producing approximately 52 MMly (13.7 MMgy). Despite the lack of production, Isman is confident Canadian producers will meet the demand. "We are more than capable of getting to 600 million liters per year," she says. In fact, the canola council's nationwide biodiesel target is 5 percent market share.

Isman says she expects canola-based biodiesel to assume 70 percent market share of the 2 percent diesel and home heating oil requirement. To do so, Canada's significant canola crush infrastructure may be expanding. Archer Daniels Midland Co. announced in late November that it will increase its North American oilseed crushing capacity, including its canola facility in Lloydminster, Alberta.
While numerous other biodiesel projects have been proposed, the federal announcement-and more importantly, its expected incentives-may be what is required to get the industry moving forward.

Incentives and New Technologies
Isman likens Ambrose and Strahl's announcement to "announcing the body of the car and leaving the engine missing." The engine in this case is incentives. The Conservatives' 2007 federal budget is expected in late February or early to mid-March. Until then, would-be producers will have to wait and see what incentives might become available.

Parity with U.S. incentives was a common theme at mid-December's Canadian Renewable Fuels Summit in Banff, Alberta. The Canadian Petroleum Products Institute (CPPI) says the ethanol and biodiesel industries could survive without them, but if Canada's incentives aren't competitive with the United States it will lead to Canada importing fuel to meet its renewable content requirements. "The ethanol industry is booming in the United States with heavy subsidies," says CPPI Vice President Dane Baily. "Some ask, 'Are they really required in today's environment?' The challenge is, as long as they exist in the United States, you have to match them if you want to have a strong Canadian industry."

Baily says he welcomes the nationwide fuels regulations. A requirement at the federal level should alleviate concerns over multiple and varying provincial requirements that may strain blenders and distributors, ultimately leading to higher fuel prices for consumers.
The federal regulations may also create an impact beyond biodiesel. Note that the proposed regulation uses the term "renewable diesel fuel" rather than biodiesel. This possibly opens the door for second-generation diesel technology. The 2012 deadline may provide the opportunity for non-biodiesel fuels to become implemented in the market.

It's a door that Baily believes is open. "Our approach with government is that its role is to decide on the overall policy direction," he says, adding that it's the market that should determine which technology is best. "It's not the government's role to pick the winner."
Baily mentions research being conducted on "bio-distillate" fuels that could be produced as part of the existing crude oil refining process. He says there are potential fuels using hydrocracking techniques on vegetable oils. "There are ideas that are being tested and could determine which is the right way to [meet the requirement]," he says.

It's not a major concern for Isman, however. She believes that the 2012 timeframe gives proven biodiesel technology the time needed to develop a thriving domestic industry.

Biodiesel is already being used with much success in ultra-low sulfur diesel (ULSD) and home heating oil in the northern United States. However, while biodiesel is largely assumed to be the fuel of choice for Canada's 2 percent requirement, quality remains a concern. Cold flow issues top the list because of Canada's northern climate.

The federal announcement says the diesel requirement will be implemented "upon verification of renewable diesel fuel use under the range of Canadian conditions." In response to quality concerns, numerous industry stakeholders, including the CPPI and CRFA, have created the Alberta Biodiesel Demonstration Program (see Industry News, page 19). The program includes laboratory and on-road long-haul fleet testing using 2007 engines running on Canadian General Standards Board 3.520 specification biodiesel blends. The project is expected to begin in early 2007 and finish in 2008.

David Aldous, president of Shell Canada Products, says the large-scale, multi-season pilot project will use 4 million liters (1.1 million gallons) of blended diesel in the Alberta long-haul market, which experiences some of the most extreme temperatures in Canada. He says the main objectives are to evaluate cold-weather operability, identify issues specific to the use of ULSD/biodiesel blends, evaluate impacts on engine components and evaluate the impact on blend quality of inline injection blending of ULSD with biodiesel.

Several other Canadian programs have already proven the viability of biodiesel blends in the Canadian environment. The BioBus project tested biodiesel blends in the Montreal public transit system in 2002-'03. The project's follow-up, Biomer, tested biodiesel blends in 2004 in a marine fleet on the St. Lawrence Seaway. Both provided positive results for biodiesel use.

The Next Step Forward
The Conservatives' announcement cautions that the "regulations are expected to be complex and take at least two years to develop. Design and implementation of a regulation will require consultation with provinces, territories, affected sectors and other stakeholders."

Several stakeholders are already working together, as shown by the Alberta Biodiesel Demonstration Project. The CPPI and CRFA issued a joint statement titled "Essential Features of a National Policy on Renewable Fuels." The statement, which details the need for a competitive environment, government participation in developing and commercializing new technologies, quality assurance, and the creation of a trade environment, lists just some of the many issues the Canadian government and renewable fuel industries will need to iron out before the regulations take effect. After all, 2010 is only 35 months away.

"As for the final pieces of the announcement, there is a lot of detail to come," Isman says.

Dave Nilles is online editor for Biodiesel Magazine. Reach him at [email protected] or (701) 373-0636.
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