Despite Concerns, Many See Bullish Future for Canada’s Biofuels Industry
Source: By Michael Schneider, OPIS • Posted: Sunday, April 17, 2016
The International Energy Agency (IEA) predicted in its latest five-year outlook that Canada’s annual ethanol production will fall to 25,000 b/d in 2020 from 32,000 b/d in 2015. It also forecast biodiesel output would drop to 2,000 b/d in 2020 from 5,000 b/d in 2015.
But not everyone agrees.
Andrea Kent, president of the Canadian Renewable Fuels Association (CRFA), said it is “unclear” why IEA would project a decline in ethanol of that size.
“Our basis for Canadian ethanol production continues to be strong and is not consistent with these projections,” she told OPIS.
Jim Grey, CEO of IGPC Ethanol Inc., one of the country’s largest producers, also disagreed with the prediction.
“As an industry representative, I can tell you that we have no plans to curtail Canadian biofuels production in the coming years,” said Grey, who is also chair of the CRFA. “I am unclear how IEA generated these numbers or what assumptions are behind them.”
Geoff Cooper, senior vice president of the Renewable Fuels Association in the U.S., also questioned the forecast.
“While we see opportunities for ethanol demand growth in the Canadian market, we question IEA’s suggestion that Canadian ethanol production will dramatically plunge in the years ahead,” he said. “Canada has been the top export market for U.S. ethanol for many years, and we expect that to continue well into the future.
“In any event, we intend to continue working with the Canadian ethanol industry to grow the market for ethanol on both sides of the border.”
The IEA did not return requests for comment by presstime, but in the report it noted that in general “lower oil prices may theoretically cause biofuels to grow less competitive against hydrocarbon fuels in mature markets.” It added that demand growth in some areas “appears to be running out of steam, but new mandates in Asia — largely a lagged legacy of years of record-high oil prices, growing oil-import bills and oil-subsidy costs — is picking up the slack.”
Kent indicated that Canada remains committed to the cause of biofuel usage.
“Despite the IEA’s prediction, Canada continues to be well-positioned to be a leader in renewable fuels,” she said. “Governments in Canada at all levels are looking for ways to combat climate change and reduce greenhouse gas (GHG) emissions. This presents an ideal opportunity to leverage the successful biofuels mandates to help governments reach those ambitious GHG reduction targets.”
There are a number of proposed steps designed to increase the use of biofuels, Kent said, noting that the renewable fuels industry is advocating to the federal government that the 2% federal biodiesel mandate be increased to 5% by 2020.
“The transportation sector accounts for 23% of Canada’s total GHG emissions,” she said. “Every year, Canada’s 2% biodiesel mandate reduces those annual emission levels by 910,000 metric tons. Increasing the mandate incrementally year by year by 1% or so would more than double those reductions.”
Grey said the “new federal government is setting ambitious targets to impact climate change, evidenced by the commitments that came out of COP21,” referring to the Conference of the Parties to the UN Framework Convention on Climate Change.
“Mandating higher levels of biodiesel in the distillate pool, federally, is something that can deliver immediate benefits toward our climate change initiatives and follows Ontario’s Greener Diesel mandate — which at the current 2% is equivalent to removing 140,000 cars from Ontario roads.”
Environment and Climate Change Canada said in recent reports that the department “has no plans to make changes to the federal Renewable Fuels Regulations at this time.” It did not provide details in answer to requests.
In response, Kent said that “CRFA and the biofuels industry will continue to work with government to help meet climate change commitments.”
“The CRFA advocates for opportunities within the renewable fuels sector and its regulations that benefit the economy, environment and public health,” she added.
“Vehicle efficiency standards, increasing biofuels blending, as well as looking at making investments in clean technology from traditional biofuel production platforms present real and exciting opportunities.”
Grey had a similar take, saying: “Our industry is a solution to climate change that is available today — and we will be working with federal and provincial governments toward higher inclusion rates for renewable fuels.”
The ecoENERGY biofuels program, which provides an operating incentive based on production/sales levels to producers of renewable alternatives to gasoline and diesel produced in Canada, is to expire as planned next year.
Kent noted that the program “is reaching its natural conclusion in 2017,” but said that the “investment helped spawn our country’s vibrant biofuels industry, which generates gross economic benefits in excess of $3.5 billion to the Canadian economy every year.”
“In the case of ethanol, over-compliance with the mandate drives imports from the United States,” she added. “Some jurisdictions over-blend at 7.5% due to the benefits that ethanol provides.”
The ecoENERGY program “was created to help build out an industry, which has been very successful,” Grey said. “We cannot look at the Canadian and U.S. markets as two distinct entities. North America is one market and, as such, ethanol trades freely across the border. This market is currently in balance. Any added production would distort the market unnecessarily.”
David Layzell director of the Canadian Energy Systems Analysis Research Initiative, said there is a need “to step back and ask about the reasons (past, present and future) for why we (Canada and all North America) have a biofuels policy, whether the policy has worked to address the desired objectives, whether those reasons have changed in the past few years and what the situation is likely to be in the future.”
The reasons for a biofuels policy, according to Layzell, “include (a)energy security, especially oil supply; (b)rural economic development; and (c)climate change.”
“One could argue that concerns about (a) have declined, and (c) have increased,” he said. “Whether (b) has changed or not probably depends on whom you talk to, when you ask the question and whether it is a U.S. election year or not.”
The success of a policy is a matter of several factors, Layzell indicated.
“Whether the policy has worked depends on what objective one was trying to meet and what biofuel/technology is being considered, and what other options are on the table and — of course — value for money,” he said.
“I think there is a very important role for biofuels in future energy systems,” he added, “but we can’t properly define this role and put sensible policies in place without defining what we want biofuels to do, the metrics for success in that role, how biofuels fit with the other parts of our existing energy systems and how they compare with other technology options.”
Kent indicated that the future continues to look bright.
“The industry is ready to assist governments achieve climate change commitments,” she said, “and increased biofuels mandates, production and the resulting value-added products can provide even more opportunity for Canadian business as well as exporters.”
“Our industry has and continues to thrive,” agreed Grey. “Both as CEO of a Canadian ethanol company and as chair of the CRFA, I know the level of commitment our industry participants and partners have to the ongoing success of renewable fuels in Canada.”