alberta biofuels industry present and future · executive ofﬁcer of vancouver-based biodiesel...

BIOFUELS — GOOD NEWS FOR ALBERTA’S ENVIRONMENTIn this issue of C3 Views, read about the Alberta Government’s recently announced $239-million, nine-point strategy to strengthen and expand the province’s bioenergy sector. Biofuels offer an opportunity to reduce greenhouse gas emissions, compared to conventional gasoline and diesel. More and more studies are showing that biofuels contain significantly more energy than went into their production. In Alberta, plentiful feedstocks of canola and wheat can produce biodiesel and ethanol, providing new markets and value - added processing opportunities for farmers. Imminent government regulations will likely mandate that transportation fuels contain some percentage of biofuels, guaranteeing a basic level of demand. The big question remains: how many consumers and fleet operators will switch to blends of ethanol and biodiesel? The future for biofuels looks bright — if demand is strong. Enjoy the issue.

A Climate Change Central Newsletter

IN THIS ISSUE

Fill’er up with Canola or Wheat Page 2

The Basics of Biofuels Page 5

Biofuels Poised to Gain Power in Alberta Page 6 Biofuels Have Energy to Burn Page 7

Alberta’s Emerging Biofuels Industry Page 8

Canada’s Clean Air Act Unveiled Page 9

The opinions in this publication are those of the authors and do not necessarily represent the views of Climate Change Central, unless indicated.

© Climate Change Central

SIMON KNIGHT, PRESIDENT & CEO,

CLIMATE CHANGE CENTRAL

C3 VIEWS | NOVEMBER 2006 | ISSUE 18

ALBERTA BIOFUELS INDUSTRYPRESENT AND FUTURE

C3 VIEWS | NOVEMBER 2006 2

ESTIMATED ETHANOL PRODUCTION IN CANADA

ETHANOL MAP

Source: Canadian Renewable Fuels Strategy

FILL ‘ER UP WITH CANOLA OR WHEATThe same crops that provide food for our tables can also power our vehicles. These so-called biofuels are produced from renewable resources, emit fewer greenhouse gases (GHGs) than straight petroleum fuels and work quite well – when blended in modest amounts with petroleum fuels – in conventional gasoline and diesel engines.

So why aren’t we all filling our tanks with bio-ethanol, commonly known as ethanol and biodiesel? For one thing, gasoline and regular diesel are still somewhat cheaper here than biofuels. They also have well-established, efficient production and distribution systems. Biofuels, by comparison, are relatively hard to find in Canada, other than ethanol blends of about 10 per cent. A few technology and performance issues also need to be overcome.

Yet like other forms of alternative energy, such as solar and wind power, the considerable potential of biofuels is slowly starting to be tapped in North America. The reasons include a growing public interest in reducing GHGs, U.S. attempts to reduce its dependence on imported oil and their dwindling supplies of conventional oil. Biofuels also offer additional markets for farmers and opportunities to add value to raw feedstocks.

“It’s definitely a market that has a long growth curve ahead of it,” says Doug Hooper, chief executive officer of Vancouver-based biodiesel distributor Canadian Bioenergy. “We anticipate there will be a 1.5-billion-litre biodiesel industry in Canada by 2015.”

Although it still represents less than four per cent of the world’s transportation fuel market, global biofuel production has doubled over the past five years, led by Brazil, Europe and, increasingly, the United States. By comparison, Canada’s biofuel industry is in its infancy, other than the availability of E-10 (10 per cent ethanol) gasoline at more than 1,000 service stations across the country.

That is starting to change, however, led by governments in Ontario, Manitoba and Saskatchewan mandating the use of between five and 10 per cent ethanol in gasoline over the next few years. Perhaps not surprisingly, new or expanded ethanol production facili-ties have come on line recently in all three provinces. The federal government has also

ESTIMATED BIODIESEL PRODUCTION IN CANADA

2000

200520102015

< 1 million litres

100 million litres

1.5 billion litres

2004

20072010

1.4 billion litres

3.1 billion litres

250 million litres

500 million litres


BIOFUEL MAP

Source: Canadian Renewable Fuels Strategy

pledged to introduce a renewable fuel standard, under which five per cent of the country’s overall transportation fuel consumption would have to come from renewable feedstocks (such as canola, wheat and corn) by 2010.

In oil-rich Alberta, the biofuels market is currently in its infancy. For example, the province’s only ethanol plant, Permolex Ltd. of Red Deer, currently produces 28 million litres of ethanol per year, compared with an annual provincial gasoline market of 5.2 billion litres. As well, all of Permolex’s ethanol production – a byproduct of a grain fractionation

process that also produces flour and gluten – is now exported to the western U.S. Incidentally, the ethanol blend sold at Husky gas stations in Alberta is produced at the company’s ethanol plants in Manitoba and Lloydminster, Saskatchewan; the latter is a 130-million-litre-per-year facility that opened in September.

Commercial biodiesel production in Alberta is even smaller. In 2003, Calgary-based Veggie Velocity began producing biodiesel from waste cooking oil, using a small-batch processor to supply projects at the University of Calgary, City of Airdrie and Rockyview School Division. Meanwhile, the City of Calgary has used about one million litres of biodiesel in city vehicles since launching its biodiesel project several years ago.

“Some niche markets are really keen,” says John Rilett, transportation program manager with Climate Change Central. “These include municipalities and other public institutions that are concerned about their CO2 emissions and the social responsibility of their fleets.”

But most Alberta organizations and residents seem relatively complacent about biofuels. “The oil and gas sector plays a dominant role in this province,” says Len Bykowski, president and CEO of BioProducts Alberta, a broker for bioenergy projects. “It’s a province that’s quite content with the way things are right now. We need to have a fairly aggressive campaign to educate ourselves on the future importance of biofuels and bioenergy as a whole.”

FUEL ETHANOL RETAILERS IN CANADA

• MacEwen Petroleum

• Husky/Mohawk

• Sunoco, ON

• UPI Inc.

http://www.e3fleet.com/


RESOURCES

Canadian Renewable Fuels Strategyhttp://www.studio255.com/crfa/pdf/CR_Energy_Strategy_EN.pdf

Ethanol: The Road to a Greener Futurehttp://oee.nrcan.gc.ca/publications/infosource/pub/vehiclefuels/ethanol/M92_257_2003.cfm

How Canada ranks: A comparative study of national biofuels policies world widehttp://www.greenfuels.org/news/pdf/March-28-2006.pdf

Biofuels for Transportation: Global Potential and Implications for Sustainable Agriculture and Energy in the 21st Centuryhttp://www.worldwatch.org/taxonomy/term/445

Still, Alberta’s interest in biofuels is slowly starting to grow. Within the past year, for example, two outside companies have announced tentative plans to build substantial biodiesel production facilities in Alberta. Canadian Bioenergy is undertaking feasibility and pre-engineering studies to build and operate a 114-million-litre-a-year, canola-based biodiesel plant near Fort Saskatchewan. Just west of Calgary, Australian-based ABG North America has licensed its biodiesel production technology to the Calgary Biodiesel Centre (the same owners as Veggie Velocity) for a proposed 22-million-litre facility, employing a feedstock of used cooking oil, new vegetable oil and tallow.

At the same time, Permolex is completing an $8-million expansion of its Red Deer plant that will increase its ethanol production from 28 million to 40 million litres per year. It is now planning to further expand the facility’s annual production by 100 million litres and to build a second plant in Alberta.

ALBERTA’S INTEREST IN BIOFUELS

IS SLOWLY STARTING TO GROW

This interest from biodiesel and ethanol producers is partly based on close access to Alberta refiners and to plentiful supplies of feedstocks, particularly canola for biodiesel and also wheat and barley for ethanol. But perhaps the biggest incentive is the federal government’s recent pledge of a five-per-cent renewable fuel standard by 2010. Meeting this mandate across Canada (Alberta would likely fall in line with this policy) would require the annual production of three billion litres of biofuels from 200 million bushels of feedstock crops.

That’s potentially good news for farmers, opening up additional, and perhaps more lucrative markets for their grain and oilseed crops. Farm groups could also participate in the value-added processing of these crops into fuels, helping diversify Alberta’s agriculture sector and create more jobs.

The creation of such markets should help further the research and development of oilseed and grain crops specifically designed for biofuels production. “How you grow those crops would not be a lot different than from what we’re growing now,” says John Kolk, chairman of the Alberta Environmentally Sustainable Agriculture Council.

In the long term, the growth of the biofuels sector will largely rely upon the use of non-food feedstocks such as agricultural and forest wastes and fast-growing, cellulose-rich crops like switchgrass. For example, instead of just using the seeds or grains from canola or wheat, you could use the whole plant. Cellulosic biomass is an abundant, renewable feedstock that promises to reduce the cost of producing biofuels and make them more competitive with hydrocarbon fuels.

Making that happen will depend on the further development of technologies to efficiently convert cellulosic biomass to fuels. These technologies include using enzymes to produce ethanol and gasification processes to produce biodiesel. While some experts say such technologies are a number of years away from commercial application, Ottawa-based Iogen Corporation is already producing cellulose ethanol from agricultural wastes at its demonstration facility and plans to build a commercial plant in 2007.

THE BASICS OF BIOFUELSC3 VIEWS | NOVEMBER 2006 5

Biofuels are fuels derived from renewable biological sources such as crops, other plant materials and animal fats. For transportation, the two primary biofuels are ethanol and biodiesel.

Ethanol is a liquid alcohol produced from any biological feedstock that contains, or can be converted into, sugars which are then fermented. The world’s two largest ethanol producers primarily distill ethanol from sugar cane (Brazil) and corn (United States). While corn is the preferred raw material in Ontario and Quebec, soft wheat is favoured in western Canada. Ethanol can also be produced from cellulose materials such as agricultural (straw) and wood wastes and fast-growing trees and grasses, though the technologies to convert these materials efficiently are still being developed.

In North America, biodiesel is typically made from fresh canola and soybean oils, animal fats and used cooking oils. To make them less viscous and usable as an engine fuel, these oils undergo a process called transesterification, in which the oil is blended with an alcohol and a catalyst and undergoes a chemical reaction.

Ethanol is blended with gasoline to produce a fuel that, at concentrations of about 10 per cent ethanol (E-10), can operate in modern cars without engine modification or reduced performance. A growing number of specialized, flexible-fuel vehicles, using up to 85 per cent ethanol (E-85), are being manu-factured in the United States. But their widespread acceptance has thus far been restricted by lack of E-85 fuel availability, lower energy content than gasoline and engine starting problems in cold weather.

Biodiesel is commonly used as a B-5 blend – five per cent biodiesel and 95 per cent petroleum diesel – and many fleets use a B-20 blend without any modifica-tions to their diesel engines. Up to 100 per cent biodiesel can be used in a diesel engine, though some engine and fuel system changes are generally required. Biodiesel blends have similar energy content to petroleum diesel, though like petroleum diesel they can gel in cold weather. With federal regulations decreasing the amount of sulphur allowed in diesel fuel, biodiesel could also find increasing favour as an effective diesel engine lubricant, which increases engine efficiency.

RESOURCES

Primer on Bioproductshttp://www.biocap.ca/images/pdfs/BioproductsPrimerE.pdf

Primer on the technologies for renewable energyhttp://www.pollutionprobe.org/Reports/renewableenergyprimer.pdf

Biodiesel Basicshttp://www.studio255.com/crfa/pdf/res/20050308_Biodiesel_Basics_BAC.pdf

Biodiesel—Just the basicshttp://www1.eere.energy.gov/vehiclesandfuels/pdfs/basics/jtb_biodiesel.pdf

Source: US Department of Energy, Energy Efficiency and Renewable Energy

BASIC TECHNOLOGY


BIOFUELS POISED TO GAIN POWER IN ALBERTAAlberta’s biofuels industry is just a drop in the barrel for a province still awash in oil reserves. But with the right policies and economic framework in place, the fledgling biodiesel and ethanol sector has a chance to contribute to the transportation fuel market.

John Rilett, Climate Change Central’s transportation program manager, is most bullish about biodiesel’s prospects, even though Alberta currently has only a handful of biodiesel users and almost no refining capacity. While ethanol blends of gasoline, from Manitoba and Saskatchewan refineries, are widely available at Husky and Mohawk stations in Alberta, Rilett says there has been less provincial promotion of ethanol than biodiesel.

“One of the nice things about biodiesel is it’s easy to switch over without costly engine retrofits or reduced performance. At a five-per-cent blend (B-5), it would be easy to integrate into the fuel system, easy for users to use and provide a significant environmental benefit without a high cost, “ Rilett says.

“Overall, biodiesel has the potential to take off in a fairly big way, up to a maximum of around five per cent of the road fuel in the province. Alberta could quite easily support a couple of large manufacturing or refining facilities. I can see 100 million litres of biodiesel per year being used in the province over the next three to five years. If supportive policiesare put in place.”

Several biofuels manufacturers and farm groups are keen to make a biofuels industry happen in Alberta. But neither is willing to make a long-term commitment without federal and provincial policies that set clear, beneficial ground rules.

Policies at both levels of government are starting to emerge. The federal government is working on details of its renewable fuel standard, under which five per cent of Canada’s transportation fuel must come from renewable feedstocks (such as canola, wheat and corn) by 2010.

Meanwhile, the Alberta government recently announced a $239-million nine-point bioenergy strategy to strengthen and expand the province’s bioenergy sector. The program will support technology and infrastructure development and provide tax credits, which until now have only exempted ethanol producers from a nine-cents-per-litre tax.

Rather than follow the lead of other provinces and introduce its own biofuels mandate, Alberta plans to align itself with the federal renewable fuel standard, once it is announced. “Alberta would rather meet the federal standard than set up a separate standard. That way, there’s more consistency in policies,” says Alan Ford, a senior policy advisor with Alberta Agriculture Food and Rural Development.

Both potential biofuels producers and farm groups say a mandated fuel requirement is a good start. But they also want assurances of a level playing field with potential U.S. competitors who – between farmers, refiners and blenders – receive combined incentives worth more than 30 cents per litre.

“From our perspective, there are two major criteria that must be met,” says Doug Hooper, chief executive officer of Vancouver-based biodiesel producer Canadian Bioenergy. “One is assured market access for biodiesel, which hasn’t been spelled out yet for the renewable fuel standard. The other is economic parity. To produce in Canada, we have to be competitive with potential importers.”

“The potential is very high for Alberta to grow oilseeds for biodiesel, small grains for ethanol and switchgrass for biomass,” says John Kolk, chairman of the Alberta Environmentally Sustainable Agriculture Council. “If the market demand is there and is more attractive than other markets, we’ll grow crops for that market.”

But in the face of subsidized foreign competition and perhaps resistance from the petroleum industry, Kolk says, farmers need some certainty. Specifically, they would like to see such things as minimum-content rules, tax breaks, flow-through shares and assurances that agriculture groups will be directly involved in biofuels processing. “There needs to be

RESOURCES

Biofuels Programs in Canadian Provinces Alberta’s Bioenergy Strategy http://www.gov.ab.ca/acn/ 200610/205970ED0254F-B076- C2E9-E2CC3C88DED5CD10.html

Greenprint for Ethanol Production in Saskatchewan http://www.ir.gov.sk.ca/Default. aspx?DN=3286,2937,2936, Documents

Homegrown energy, Developing Manitoba’s Ethanol Industry http://www.gov.mb.ca/est/ energy/ethanol/ethmandate.html

Ontario Ethanol Growth Fund: Program Overview http://www.omafra.gov.on.ca/ english/policy/oegf/overview.htm


For many years, the big environmental knock against biofuels has been that more energy is allegedly consumed to produce the ethanol or biodiesel than the energy these fuels contained. But the scientific evidence has shifted to the point where most experts now agree biofuels have a positive energy balance.

“Most of the evidence I’ve seen shows that biofuels have an energy benefit,” says John Rilett, transportation program manager with Climate Change Central. “Certainly, any new biofuel refinery will have a net energy benefit.”

Rilett says ethanol has an energy benefit of roughly 30 per cent (100 units of energy input to produce 130 units of energy) and biodiesel about 70 per cent. The specific numbers for each production facility vary, depending on such things as the amount of fossil fuel used to grow, fertilize and transport the crop and the energy used to refine and transport the biofuel. By contrast, a 2002 U.S. Department of Agriculture study showed, regular fossil fuels have a negative energy balance of 19.5 per cent for gasoline and 15.7 per cent for diesel.

There’s no dispute that biofuels produce fewer greenhouse gas (GHG) emissions than conventional gasoline or diesel.

Compared with conventional diesel, 100 per cent biodiesel can result in up to 93 per cent less carbon dioxide emissions if made from waste fats and up to 65 per cent less if made from canola oil. A B-20 blend (20 per cent biodiesel) would produce 10 to 20 per cent fewer emissions, depending on the feed-stock used, and B-5 four to five per cent less.

For ethanol, an E-85 blend (85 per cent ethanol) produced from wheat or corn can reduce CO2 emissions by as much as 75 per cent. E-10 blends (10 per cent ethanol), already available at more than 1,000 service stations across Canada, can reduce those emissions by about four per cent. Both bio-diesel and ethanol also significantly reduce the amount of pollutants and carcinogens contained in vehicle exhausts.

RESOURCES

The energy balance of corn ethanol: An updatehttp://www.usda.gov/oce/reports/energy/aer-814.pdf

Breaking the Biological Barriers to Cellulosic Ethanol: A Joint Research Agendahttp://www.doegenomestolife.org/biofuels/2005workshop/b2blowres63006.pdf

Biodiesel productionhttp://www.biodiesel.org/pdf_files/fuelfactsheets/ProductionPDF#search=%22Transesterification%20biodiesel%20board%22

BIOFUELS HAVE ENERGY TO BURN

Source: US Department of Energy, Energy Efficiency and Renewable Energy

a strategic decision on the part of the federal and provincial governments that this is going to be part of the energy mix over the long term,” he says.

Such incentives could also help biofuels compete economically with regular gasoline and diesel. Though the imports of subsidized U.S. biodiesel has recently allowed the price gap between biodiesel and regular diesel to narrow here, biodiesel blends usually cost two to five cents more per litre.

“It’s all going to come down to the economics of it,” says Rilett. “If biodiesel is sold on par with regular diesel, its growth as a fuel in this province could happen and happen more quickly. But if there’s much of a premium, it will take a lot longer or it might never happen.”“For both biodiesel and ethanol, the link that is missing is market demand,” says Ford. “Currently, there’s not a real market demanding the product or a price supporting it.”

Government renewable fuel mandates and incentives will certainly help kick start that market demand. But even if Alberta consumers and fleet managers don’t adopt biofuels, there’s always the opportunity for export to growing markets in the United States and perhaps Europe.

“I think there will be production in Alberta, regardless of what the government policies are,” says Rilett. “Alberta has a large supply of feedstock and fantastic fuel refining and delivery expertise.”

BIOETHANOL PRODUCTION PROCESS DIAGRAM

SOME EXAMPLES OF BIOPRODUCTS

Source: Primer On Biproducts

ALBERTA’S EMERGING BIOFUELS INDUSTRYby Tanya Maynes, Climate Change Central

With Alberta’s recently announced Bioenergy Plan, the agriculture and forestry sectors should receive the necessary support to participate in a budding biofuels industry. This will lead to reductions in greenhouse gases, provide alternative energy sources and diversify economies, while potentially creating additional income in the form of offsets. An offset is a reduction/removal of greenhouse gas emissions from activities that are not required to make greenhouse gas reductions. An offset credit can be earned for projects that result in an incremental emission reduction/removal beyond what would have occurred under normal business activities. An offset is a valuable commodity as a means of complying with regulations governing emission levels.

In Alberta, the primary feedstocks of the emerging biofuels industry include oilseed crops such as canola, animal waste and rendering materials, plant fibres and municipal waste. With the variety of feedstocks available in Alberta, the biofuels industry is poised for growth.

While there currently isn’t an offset system in place in Canada, biofuels – which produce fewer greenhouse gas emissions than conventional fuels – could play an important role in any future offset market, depending on how and where the biofuels crops are grown. The value of such credits will be determined by the market.

It is hoped that one of the outcomes of the federal government’s green plan will provide more certainty about an offset credit system. Climate Change Central and the Alberta and federal governments continue to be engaged in the development of rules surrounding an offset system.


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On October 19, 2006, the Government of Canada announced the Clean Air Act.

The Clean Air Act and its accompanying Notice of Intent to Develop and Implement Regulations and Other Measures to Reduce Air Emissions call for reduction of air pollu-tion and greenhouse gas (GHG) emissions.

The new legislation includes imposing GHG emissions intensity-based reduction obligations for industrial sectors (fossil-fuel fired electricity generation, upstream oil and gas, downstream petroleum, base metal smelters, iron and steel, cement, forest products and chemicals production) by end of 2010 with a view to reducing absolute GHG emissions between 45-65 per cent from 2003 levels by 2050. The Act also proposes setting regulations

CANADA’S CLEAN AIR ACT UNVEILEDto achieve reductions of Air Pollutants (particulate matter, Ozone, NO, NO2, SO2, gaseous ammonia, mercury and certain volatile organic compounds).

The transportation sector is also targeted under the proposed law. The law includes a provision which will allow the government to regulate the renewable fuels content to five per cent by 2010. Also, rail transporta-tion and vehicle fuel consumption standards will be subject to regulation by 2010 and 2011 respectively.

Amendments to the Energy Efficiency Act are also on the way. Twenty previously unregulated products will be introduced and ten formerly regulated products will face more stringent efficiency standards.

Full text of the Clean Air Act can be viewed on the Internet at:http://www.ec.gc.ca/cleanair-airpur/Clean_Air_Act-WS1CA709C8-1_En.htm

A detailed summary of the Clean Air Act is included in in sight, Climate Change Central’s subscription-based newsletter. For subscription information visit the Internet at: http://insight.climatechangecentral.com/

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