Canada Biofuel Annual Report 2009

A Hot Tip about Energy in Canada

Last updated: 4 Jan 2010

Canada’s has a patchwork of provincial mandatory renewable fuel mandates but the federal mandate of an annual renewable content of five percent in the gasoline pool by 2010, and a two percent requirement for renewable fuel in diesel content by 2012 remains somewhat elusive.

Required Report - public distribution Date: 6/30/2009 GAIN Report Number: CA9037 Canada BIOFUELS ANNUAL Biofuels Annual - Canada Approved By: Robin Tilsworth Prepared By: Darlene Dessureault Report Highlights: Canada?s has a patchwork of provincial mandatory renewable fuel mandates but the federal mandate of an annual renewable content of five percent in the gasoline pool by 2010, and a two percent requirement for renewable fuel in diesel content by 2012 remains somewhat elusive. Current estimates suggest the ethanol mandate will be in effect in September 2010 and biodiesel in 2011. In 2009, total domestic ethanol production capacity is estimated to reach 1.42 billion litres in 2009 (approximately 3.6 % of gasoline pool) compared to 2008?s 1.39 billion litres. In 2009, it is estimated that 69% of the production capacity for domestic ethanol will be derived from corn, 30% from wheat and 1% from ?other? feedstock such as wood waste and wheat straw. Post forecasts that this will likely change to 75% corn, 23% wheat and 2% ?other? feedstock by the end of 2010. Overall Canada?s limited bio-fuel production capacity, both in the short and medium term suggests that Canada?s entry into the global ethanol market is still quite distant. P Commodities: ost: Ottawa select Executive Summary: 1. Executive Summary Canada?s has a patchwork of provincial mandatory renewable fuel mandates but the timeline for the details and exact implementation date of the federal mandate of an annual renewable content of five percent in the gasoline pool by 2010, and a two percent requirement for renewable fuel in diesel content by 2012 remains somewhat elusive. Current estimates are that the proposed regulations will be published in the fall of 2009 for comment. The regulations may then be modified based on the comments received and published a second time in June 2010. If this scenario holds, the ethanol section of the mandate would go into effect in September 2010 with the two percent biodiesel mandate expected to follow in sometime in 2011. Meanwhile, three provinces representing roughly 46 percent of total net gasoline sales in Canada have ethanol mandates. These mandates include 7.5 percent mandate in Saskatchewan and 5 percent mandates in Manitoba and Ontario. The provinces of British Columbia and Alberta are scheduled to bring in 5 percent renewable fuel mandates in their gasoline pools in 2010 and together account for 24 percent of net gasoline sales in Canada. Quebec is contemplating a 5 percent renewable fuel content in its gasoline pool for 2012 and accounts for 23 percent of net gasoline sales in Canada. In 2009, total domestic ethanol production capacity is estimated to reach 1.42 billion litres in 2009 (approximately 3.6 % of gasoline pool). This represents only a small increase (1.8%) over year 2008 domestic production capacity levels of 1.39 billion litres. Should the projects under construction be realized, Canadian production is expected to reach 1.931 billion litres by the end of 2010, a production capacity that meets the government of Canada?s target of 1.9 billion litres. In contrast, Canada?s biodiesel industry has seen a jump in production capacity in 2009 but remains far from the 600 million litres of biodiesel required to meet the federal mandate. By the end of 2009, domestic production capacity of biodiesel is expected to reach 216 million litres, a 71% increase over the 2008 production capacity of 126 million litres. In 2009, it is estimated that 69% of the production capacity for domestic ethanol will be derived from corn, 30% from wheat and 1% from ?other? feedstock such as wood waste and wheat straw. Post forecasts that this will likely change to 75% corn, 23% wheat and 2% ?other? feedstock by the end of 2010 should the planned plants be in operation by the end of 2010. For biodiesel, in 2009, 49% of the production capacity is estimated to be tallow-based (an increase from 36% in 2008), 37% yellow grease-based (a decrease from 59% in 2008) and 14% canola-based, an increase from 2008 levels where canola-based biodiesel accounted for 6% of the production capacity. By 2010 Post forecasts that tallow, yellow grease and canola derived biodiesel production capacity will account for 46%, 37% and 17%, respectively. Canada?s limited bio-fuel production capacity, both in the short and medium term suggests that Canada?s entry into the global ethanol market is still quite distant. While the possibility of increased ethanol trade, especially between the northwest United States and Western Canada (wheat-ethanol to the United States and corn-based ethanol to Canada), is unlikely to develop in the short to medium term, there is an increasing amount of trade taking place in the co- products of ethanol production. Author Defined: 2. Domestic Environment A. Proposed National Biofuels Mandate In late 2006 Canada?s government a renewable fuels strategy, including a national renewable fuels mandate. Since that time, work to bring about the legislative amendments necessary have been brought forth and federal and provincial incentive programs encouraging the development of a Canadian renewable fuels industry have been put in place. A Notice of Intent was published in the Canada Gazette Part 1 on December 30th, 2006 detailing the government of Canada?s intentions in terms of federal regulations requiring renewable fuels. The mandate calls for an annual renewable content of five percent in the gasoline pool by 2010, and a two percent requirement for renewable fuel in diesel content by 2012, upon the successful demonstration of renewable diesel fuel under the range of Canadian climatic conditions. Since fuel regulations are a shared federal/provincial jurisdiction, provincial endorsement of such a mandate is necessary. Most provinces have, or plan to have, a provincial renewable fuel mandate in place and most support the national mandate proposal. B. Legislation Underpinning a Canadian Biofuels Mandate In order for the government to be able to bring in a renewable fuels content mandate, amendments to the Canadian Environmental Protection Act, 1999 were necessary. Bill C-33, which received royal ascent in late June 2008, amended the Fuels Division (Division 4) of the Canadian Environmental Protection Act of 1999 (CEPA, 1999). These amendments added to the regulation-making power of the federal Cabinet by allowing it to make regulations concerning blended fuels. In addition, the amendments allow for the federal cabinet, on recommendation by the Environment Minister, to make regulations exempting producers or importers of fuel who produced or import a quantity less than 400 meters cubed (m3) per year. C. Impatience with the Lack of Regulatory Certainty At the time of this report, industry sources state that regulations for the new federal renewable fuel standard are about six months behind schedule. Industry sources indicate that the proposed regulations would be published in the fall of 2009 for comment. The regulations may then be modified based on the comments received and published a second time in June 2010. The ethanol mandate is expected to go into effect in September of 2010. While political support for the bio-fuels mandate remains strong since it is viewed as a vehicle to help revitalize rural communities, some industry stakeholders have expressed impatience with the delay in the publication of a clear regulatory design with regards the renewable fuel standard. Some industry stakeholders have expressed concerns on whether or not a smooth transition to 5 percent ethanol in the gasoline pool is possible. The Canadian Petroleum Products Institute (CPPI) expressed concerns that since much of the compliance path determination by individual companies depends on the details of regulatory design, the delay in the publication of the federal regulations has hampered the petroleum?s industry to make the necessary adjustment. CPPI even suggested that the renewable fuel standard for ethanol/gasoline and biodiesel be delayed until 2012, something governmental sources say will not happen. Representatives from the Canadian Renewable Fuels Association (CFRA) take the opposite view and urge the Canadian government to maintain and expand its support for the biofuels industry and called for an accelerated process to implement and enforce the national renewable fuels standard. The CFRA also asked that the programs be less complicated so that potential investor uncertainty is avoided. A full transcript of these comments to a parliamentary committee is available at the following web-address: Bio-fuels and competitiveness of Canadian agriculture. D. Federal Programs to Encourage the Development of a Canadian Renewable Fuels Industry The excise tax exemption for renewable fuels was eliminated April 1, 2008. In addition to this change, the Canadian government put in place several programs designed to promote the development of a domestic renewable fuels industry. Several of the programs are designed to encourage agricultural producer involvement and the usage of agricultural biomass. Table 2.1 Federal Programs to Promote a Domestic Renewable Fuels Industry Budget Allocated / Administering Ministry or Type of Program Name Agency Program Program Design / Duration EcoEnergy for ? C$1.5 billion ; ? Production ? Provides incentive rates of up Biofuels Overview Administered by incentive to $0.10/liter (L) for renewable Natural program alternatives to gasoline and Resources (subsidy); $0.20/L for renewable Canada production alternatives to diesel for the capacity building first three years, declining in the 6 years thereafter; Program runs April, 2008 - March 31, 2017 Biofuels ? C$20 million; ? Direct payment, ? Provides financial assistance Opportunities for Administered by encourage to develop bio-fuel feasibility Producers Initiative Agriculture and producer studies (suitability of bio-fuel Agri-food ownership / production in local community) Canada; involvement and business plans; funding was funding available for projects with delivered greater than one-third producer through ownership; Closed on March 31, regional 2008 industry councils ecoAGRICULTURE ? C$200 ? Loan (repayable ? Encourages producer Biofuels Capital million; contributions) equity/ownership in bio-fuel Initiative Administered by facilities. The program helps Agriculture and fund projects that use Agri-Food agricultural feedstock to Canada produce bio-fuels and requires agricultural producer equity investments of 5% to meet the eligibility requirements. The funding increases as producer investment increases, however a contribution cap of C$25 million applies; In effect April, 2007 - March 31, 2011 Agricultural Bio- C$145 million; Grants ? Seeks to mobilize research products Innovation Administered by networks that conduct scientific Program (ABIP) Agriculture and research projects with a specific Agri-food focus on developing effective Canada and efficient technologies for an agricultural biomass conversion; evolve beyond bio-fuels production to a sustainable, bio- based economy; Program runs multi-year Agri-Opportunities ? C$134 ? Loans ? To accelerate the Program million; (repayable commercialization of new Administered by contributions) agricultural products, processes Agriculture and or services that are currently Agri-Food not produced or commercially Canada available in Canada and that are ready to be delivered to the marketplace with focus on projects geared to new agri- food, agriculture or bio- products; Program runs April 2006 - March 31, 2011 NextGen Biofuels ? C$500 ? Loans ? To increase production Fund million; (repayable capacity of 2nd generation bio- Administered by contributions) fuels; to spur investment with Sustainable the private sector in Development establishing large-scale facilities Technology for the production of next- Canada generation renewable fuels, to address the gap between demonstration and commercialization; Program runs April 2006 - March 31, 2011 E. Provincial Mandates and Programs to Encourage Renewable Fuels Industry Development Provinces have led the way in terms of developing mandates on renewable fuel contents. However, inconsistencies in provincial requirements may frustrate the flow of bio-fuel trade within Canada. There is concern that with each provincial government implementing its own complex and un-harmonized set of production and/or consumption incentives with differences in eligibility and duration has created barriers to trade and may encourage production in areas where this activity is not well suited. In addition, in the absence of a federal mandate, is confusing for the petroleum industry which is struggling to know how to organize itself. Canada?s refinery industries are mostly in western Canada (Alberta) and on the east coast (Newfoundland and Labrador) while the urban centers are in central Canada (Quebec and Ontario). Within the Notice of Intent, the federal government makes note of these barriers and sees the federal mandate as a means to work with provinces at harmonizing provincial mandates to eliminate inter-provincial trade barriers. However, given the lead time the provinces have in developing their provincial regulations, the ability of the federal government to carry out this role is unclear. Several provinces have implemented provincial mandates on the amount of ethanol required in the gasoline pool. Certain provinces have also brought in legislation and regulations that will result in a renewable fuel standard for diesel fuel that will likely come into force ahead of the federal biodiesel mandate. Table 2.2 summarizes the incentive measures provinces that are currently in effect: Table 2.2 Provincial Mandates, Tax Exemptions, Incentives, and Conditions ALBERTA Mandate Incentives Conditions/Duration Intends to Renewable energy Conditions: In order to be eligible mandate a producer credit: for the renewable energy producer renewable fuel credit, the product must be standard of 5% The producer credit produced at a facility located in ethanol content in amount is $0.09/L for Alberta. gasoline and 2% production from plants per cent with a capacity of 150 Duration: The credit program runs renewable content million liters or more a from April 1, 2007 ? March 31, in diesel by 2010. year. 2011. For plants with capacity of less than 150 million liters per year, the credit amount is $0.14/L BRISTISH COLUMBIA Mandate Incentives Conditions/Duration Intends to Excise Fuel Tax Conditions: As of July 1, 2004, the mandate a 5% Exemption: ethanol portion, including renewable fuel denaturant, of an ethanol/gasoline content in the The ethanol and biodiesel or gasoline/diesel blend is exempt gasoline and portion of the motor fuel from tax if the ethanol portion is diesel supply (use in internal combustion not less than 5% or more than pools in 2010. engine) is exempt from the 25% of the volume of the blend. provincial fuel tax and is Effective February 20, 2008, also exempt from the ethanol used as colored fuel, province?s new carbon marine diesel, locomotive fuel, jet tax. Biodiesel fuel used for fuel or aviation fuel is exempt from non motor purposes tax. This includes the portion used (residential or commercial) in any biodiesel fuel blend and any is exempt from the ethanol blend in which the ethanol provincial sales tax. portion is from 5% to 25%. Previously, ethanol was only B.C. offers a full rebate exempt from tax when used in (14.5 cents per liter) on motor vehicles on a highway. E85 to E100 blends. Duration: No duration specified. Carbon Tax Exemption Duration: No duration specified Ethanol and biodiesel are exempt under the Carbon Tax Act. MANITOBA Mandate Incentives Conditions/Duration 5% pool average Direct Payment Production Condition: To be eligible for the ethanol content in Incentive credit, the ethanol has to be gasoline from produced and sold in Manitoba. January 1, 2008 ? 20 cents/liter producer March 31, 2008; incentive beginning The incentive is capped on an January 1, 2008 until Dec annual basis by the amount of 8.5% pool 31, 2009. ethanol required for the mandate. average ethanol content in 15 cents/liter producer Duration: January 1, 2008 ? gasoline beginning credit from January 1, December 31, 2015. April 1, 2008 2010 -December 31, 2012 Plans to bring in a 10 cents/liter from January biodiesel mandate 1, 2013 - December 31, in 2010. 2015. Excise fuel tax exception Conditions: for E10 To be eligible for the provincial excise tax exemption, the ethanol 2.5 cents per liter tax blend must be E10 produced and exemption on E10 blends. sold within the jurisdiction. Provincial fuel tax rate is 11.5 cents per liter. Duration: No specific duration ONTARIO Mandate Incentives Conditions/Duration All gas sold must None None contain 5% ethanol, beginning in January 2007; Amount increase to 10% by 2010 (still tentative) QUEBEC Mandate Incentives Conditions/Duration None, but Tax Credit Refund Conditions: provincial To be eligible for the exemption, government is On April 21, 2005, the the ethanol must be produced and considering a 5% government announced a sold in Quebec bio-fuel content refundable tax credit, to be mandate in its granted for a maximum of Additional conditions to be entitled gasoline pool by 10 years, to corporations to the credit is that the tax credit 2012. that produce ethanol from is limited to a maximum ethanol renewable material and sell production credit of 126 million the ethanol for use in liters and no tax credit is given for Québec. the month in which the average monthly price of crude oil is equal to or greater than US$65 a barrel or the total cumulative production of ethanol exceeds 1.2 billion liters Duration: April 1, 2006 - March 18, 2018 SASKATCHEWAN Mandate Incentives Conditions/Duration All gas sold must Ethanol Fuel Grant Program Conditions: The ethanol must be contain 7.5% produced and consumed in ethanol, began Grants for eligible fuel Saskatchewan. mid-2006. distributors. Duration: No duration specified. (i) Alberta Biofuel Policies Biofuels Strategy/Policy Documents: The build up of biofuels production capacity in Alberta has largely been the result of its nine- point bioenergy plan, first announced in October 2006. In December 2008, the government built on this plan and announced its Provincial Energy Strategy. Renewable Fuel Standards: As part of the strategy, the government of Alberta announced its intention to implement a renewable fuel standard of 5% ethanol content in gasoline and 2% renewable content in diesel by 2010. In addition, to meet the standard, the greenhouse gas emissions over the production and manufacturing life cycle of the renewable fuel must be at least 25% lower than emissions from producing and manufacturing the same quantity of traditional fossil fuels. Production Incentives: As mentioned in Table 2.2, the province of Alberta offers a renewable energy producer credit. For more information on the program see the following link: Renewable Energy Producer Credit Program Table 2.3 Alberta: Provincial Programs to Encourage the Development of a Biofuels Industry Program name: Bioenergy Infrastructure Commercialization/Market Development Grant Program Development Program Budget Allocation: C$ 6 million C$ 24 million Administering Ministry Alberta Energy Alberta Energy or Agency Type of Program: Financing grant Financing grant Program Design or To assist municipalities with Designed to increase Purpose: the development and production capacity through distribution infrastructure of the market development and biofuels and energy. commercialization of biofuels. Duration Began April 1, 2008 and Began April 1, 2008 and originally was to end March originally was to end March 31, 2009 but extended to 31, 2009 but extended to March 31, 2011 March 31, 2011 Additional notes: Some program modifications Some program modifications due to its extension. For due to its extension. more on how this affects the programs see FAQs. Context: According to the most recent data, Alberta boasts approximately 13% of Canada?s total population, 11% of net gasoline sales and 3% of ethanol production capacity. (ii) British Columbia Biofuel Policies Biofuels Strategy/Policy Documents: In 2007/2008, the province of British Columbia (BC) committed to bioenergy and renewables and set an objective to lower greenhouse gases emissions by 33 percent by 2020. The province, under its Ministry of Energy, Mines and Petroleum Resources, unveiled 2 strategy documents/plans related to using bioenergy resources to reduce greenhouse gases. The first is the BC Energy Plan, unveiled late February 2007. This document sets out the necessary steps for reducing BC?s greenhouse gas emissions and commits to investments in alternative technologies, including biofuels for transportation. The second is the BC Bioenergy Strategy which was made public at the end of January 2008. Renewable Fuel Standard: The BC Energy Plan includes the implementation of a 5% average renewable fuel standard for diesel (higher than the anticipated federal mandate of 2%), and supports the federal action of increasing the ethanol content of gasoline to 5% by 2010. Underpinning the commitment for a renewable fuels mandate for transportation fuels is the Greenhouse Gas Reduction (Renewable and Low Carbon Fuel Requirements) Act which received royal assent on May 1, 2008. The regulations for this act were published in December 2008. Consumption Incentives: Motor Fuel Tax Act and Carbon Tax Incentive The consumption incentives for ethanol and biodiesel are in the form of tax exemptions. BC has both a tiered motor fuel tax and a carbon tax. The Motor Fuel Tax Act sets out the exemptions for ethanol and biodiesel. Effective July 1, 2004, the ethanol portion, including denaturant, of an ethanol/gasoline or gasoline/diesel blend is exempt from tax if the ethanol portion is not less than 5% or more than 25% of the volume of the blend. Effective February 20, 2008, ethanol used as coloured fuel, marine diesel, locomotive fuel, jet fuel or aviation fuel is exempt from tax. This includes the portion used in any biodiesel fuel blend and any ethanol blend in which the ethanol portion is from 5% to 25%. Previously, ethanol was only exempt from tax when used in motor vehicles on a highway. Ethanol blends greater than 85% are 100% exempt. Effective February 21, 2007, biodiesel is exempt from tax when used on-highway. This exemption includes the biodiesel portion of any blend of biodiesel and diesel fuel, as well as pure biodiesel (B100). Effective February 20, 2008, biodiesel used as coloured fuel, marine diesel, locomotive fuel, jet fuel or aviation fuel are exempt from tax. This includes the portion used in any biodiesel fuel blend and any ethanol blend in which the ethanol portion is from 5% to 25%. Previously, biodiesel was only exempt from tax when used in motor vehicles on a highway. The Carbon Tax Act is the legislation that sets out the low carbon fuel requirement for a 10% reduction in carbon content of fuel by 2010. BCs new carbon tax came into effect on July 1, 2008. Under the Carbon Tax Act, the renewable fuel potions of blended motor fuel are exempt from taxation. It is expected that the low carbon requirement will increase the demand for biofuels. Table 2.4 British Columbia: Programs to Promote a Provincial Renewable Fuels Industry Budget Program Allocated / Name Administering Type of Program/ Program Design / Duration Ministry or Agency BC ? Grant; funding assistance Bioenergy C$ 25 million ? Capacity building; to encourage the development and marketing of wood-to- Network bioenergy and other bioenergy technologies ? Began April 1 2008 and has no specific end date Ministry of Energy, Mines Additional note: The projects funded so far include 1.82 and Petroleum million $Can in funding assistance to Lignol Energy Resources; BC Corporation, 3 million $Can to Nexterra, and 400 thousand Bioenergy $Can to Cedar Road, $100,000 investment in University of Network British Columbia?s Clean Energy Research Centre (CERC) Liquid ? Grants, funding assistance B C$ 10 million iofuels ? To help build up liquid biofuels production capacity Program Ministry of ? Call for applications went out late November, 2008, and Technology, application date closed January 2009 Trade and Additional note: Projects that were awarded funding were Economic announced in April 2009. Two of the eight projects are Development projects which use woody biomass to produce cellulosic ethanol. The remaining six projects are for biodiesel production. For more information on these projects, see: Approved Liquid Biofuels Projects. Innovative C$ 25 million ? Grants, funding assistance Clean per year ? To address specific energy and environmental problems that Energy have been identified by the province by supporting the pre- Fund commercial energy technology that is new or commercial technologies not currently used in the province (note: the funding is not specific to biofuels, but alternative fuel technologies are eligible) Min ? Originally established in December 2007, originally to run istry of Techno two years, has been extended another 3 years, ends in 2011 logy, Trade and Additional note: The first round of funding was been Economic awarded/announced in July 2008. For more information on Development these projects, see: ICE Fund Project Round One Context: According to the most recent data, British Columbia boasts approximately 11% of Canada?s total population, 13% of net gasoline sales and virtually no commercial ethanol production capacity. (iii) Manitoba Biofuel Policies Biofuels Strategy/Policy Documents: Manitoba is developing its ethanol and biodiesel industries under the Energy Development Initiative section of the Ministry of Science Technology Energy and Mines. Information on Manitoba?s biofuels initiatives is available on the province?s Energy Development Initiative website. Renewable Fuels Mandate: The implementation of The Bio-fuels and Gasoline Tax Amendment Act was enacted in the fall of 2007. The mandate requiring that 8.5% of the gasoline pool contain ethanol came into effect on January 1, 2008, beginning with a 5% ethanol content requirement for the first quarter of the year and moving to 8.5% for the remainder of 2008 and subsequent years. Manitoba is also preparing for the implementation of a biodiesel mandate in 2010. In December, 2007 the Province of Manitoba passed the new The Biofuels Act. The new legislation sets out Manitoba?s biodiesel program which includes strict licensing and fuel quality requirements and the option for a future biodiesel mandate. Details of the licensing requirements as well as the application for biodiesel producers can be found on the website of the Manitoba Biodiesel Energy Office website. Production Incentives: The gasoline tax exemptions for ethanol have been replaced by a direct producer grant that decreases over a period of eight years. The staggered, decreasing production incentives are as follows: 20 cents/liter producer incentive beginning January 1, 2008 until December 31, 2009; 15 cents/liter production incentive beginning January 1, 2010 until December 31, 2012; 10 cents/liter producer incentive beginning January 1, 2013 until December 31, 2015. To be eligible for the incentive, ethanol must be produced in Manitoba and sold in Manitoba to fuel suppliers. More information on the program is available at: Ethanol Fund Grant Regulation . Context: According to the most recent data, Manitoba boasts approximately 3% of Canada?s total population, 4% of net gasoline sales and 9% of ethanol production capacity. (iii) Saskatchewan Bio-fuel Policies Biofuels Strategy/Policy Documents: Saskatchewan is also going forward with its ?Go Green? strategy. The strategy promotes environmentally friendly transportation. Initiatives include working with industry to develop E85 (fuel blends with 85% ethanol and 15% gasoline) corridors in the province, developing a 1.4 billion liter biofuels industry in Saskatchewan, and implementing a Government and Crown vehicle purchase policy that requires all vehicles to be hybrid electric, alternative or flex-fuel, or within the top 20 per cent efficiency in their class. Renewable Fuels Mandate: Saskatchewan currently has a 7.5% ethanol content requirement in its gasoline. Production Incentives: Saskatchewan does not provide fuel tax exemptions for alternative fuels but does provide grants to fuel distributors through the Ethanol Fuel Grants Program. To be eligible for the grants, the ethanol used by the distributor has to have been produced at a facility located in Saskatchewan from biomass grown in Saskatchewan. The Saskatchewan Ministry of Agriculture administers the Saskatchewan Ethanol Program. Table 2.5 Saskatchewan: Programs to Promote a Provincial Renewable Fuels Industry Budget Program Allocated / Name Administering Type of Program/ Program Design / Duration Ministry or Agency SaskBio C$ 80 million ? Loans, repayable contributions of up to 10 million dollars ? Created to provide an opportunity for Saskatchewan residents to participate in value-added biofuel production in Saskatchewan through investment ownership in biofuels facilities Ministry of ?Began December 2008, end date December 2012 Agriculture Additional note: program conditions includes 5% Saskatchewan ownership and annual production capacity of a new facility of 2 million liters per year Context: According to the most recent data, Sadkatchewan boasts approximately 3% of Canada?s total population, 3% of net gasoline sales and 24% of ethanol production capacity. (iv) Ontario Biofuel Policies Biofuels Strategy/Policy Documents: Ontario is the largest ethanol-producing province in Canada and has been a leader in building ethanol production capacity in Canada. Its ethanol strategy has two components; (1) a renewable fuel standard mandate, and (2) the Ontario Ethanol Growth Fund (OEGF) that was created in 2005. Renewable Fuels Standard: As of January 1, 2007, the gasoline tax exemption of 14.7¢ a liter on the ethanol portion of the ethanol-blended gasoline was no longer in effect. At the same time, a mandate that requires an average of 5% ethanol be blended in the gasoline sold in Ontario came into effect. Provincial Programs to Support the Development of a Regional Biofuels Industry: The Ontario Ethanol Growth Fund (OEGF) provides: C$32.5 million for capital assistance to help meet financial challenges; cannot exceed 10¢ per liter C$60.5 million per year from 2007-2017 for operating assistance to address changing market prices; no operating grant will exceed 11¢ per liter of ethanol C$16 million in support of independent retailers selling ethanol blends; Independent Gasoline Blender?s Transition Fund, C$7.5 million in private and public funds for research and development opportunities Context: According to the most recent data, Ontario boasts approximately 39% of Canada?s total population, 40% of net gasoline sales and 55% of ethanol production capacity. (v) Quebec Biofuel Policies Biofuels Strategy/Policy Documents: Quebec currently has no mandate in place for renewable fuel content in gasoline. The provincial government is considering a 5% bio-fuel content mandate in its gasoline pool by 2012. More information on Québec?s ethanol initiative is available on the following website: http://www.mrnf.gouv.qc.ca/english/energy/sources/sources-biomass.jsp Production Incentives: Quebec currently has in place a temporary refundable tax credit (maximum $0.185 per liter), to be granted for a maximum of 10 years, to corporations that produce ethanol from renewable material and sell the ethanol for use in Québec. It began April, 2006 and expires in 2018. An eligible corporation?s ethanol production must be sold in Quebec to a person holding a collection officer?s permit issued under The Fuel Tax Act. Additional conditions to be entitled to the credit is that the tax credit is limited to a maximum ethanol production credit of 126 million liters and no tax credit is given for the month in which the average monthly price of crude oil is equal to or greater than US$65 or the total cumulative production of ethanol exceeds 1.2 billion liters. The reasoning for this limitation is that it was assumed that ethanol would be competitive with gasoline is the price of crude oil exceed 65$US a barrel. More information is available on the web site of Revenue Quebec. While some corn production takes place in Quebec, Quebec?s focus is on the development of cellulosic ethanol. It is Quebec?s intention to use wood from its forestry industry to grow its ethanol market. This technology seems to be moving closer to commercialization given the recent joint venture announcement between Enerkem, a Quebec-based gasification and catalysis technology company, and Greenfield Ethanol, Canada?s leading ethanol producer. Context: According to the most recent data, Quebec boasts approximately 23% of Canada?s total population, 21% of net gasoline sales and 9% of ethanol production capacity. (vi) Biofuel Policies in Atlantic Canada Biofuels Strategy/Policy Documents: The biofuels sector has struggled to establish a presence in the Atlantic Provinces due to a lack of provincial government support and a lack of biofuel initiatives. Several Atlantic provincial governments have begun looking over their energy strategies and are struggling to evaluate the feasibility of a renewable energy industry for their respective provinces. No unified biofuel strategy has yet been unveiled. One of the key organizations pushing for the development of a biofuels industry is the Atlantic Bioenergy Taskforce. Atlantic Canada renewable fuels will likely focus on technologies that use wood residue as feedstock 3. Energy Markets A. Energy Production and Consumption Patterns Unlike the United States, energy security is not a factor behind the recent and projected growth in Canada?s ethanol industry. Canada has the world?s second largest proven oil reserves (estimated at 179.2 billion barrels) and is one of the top 10 oil-exporting countries in the world. According to the National Energy Board of Canada (NEB), in 2008, Canadian production of crude oil and equivalent averaged 2.7 million barrels (US liquid) per day, and represents a 2.5% increase over 2007. The NEB states that the rate of growth slowed in 2008 relative to 2007 due to downtime for maintenance and tying new facilities. Table 3.1 Growth in Canadian Oil Production, Consumption and Net Exports*, 2002-2008; in '000 barrels per day 2002 2003 2004 2005 2006 2007 2008 T%otal Oil Production 1 2,950 3,110 3,135 3,092 3,287 3,422 3,353 change 5% 1% -1% 6% 4% -2% Total growth (2002-2008) 14% C%rude Oil Production 2 2,171 2,306 2,398 2,369 2,525 2,616 2,593 change 6% 4% -1% 7% 4% -1% Total growth (2002-2008) 19% C%anadian Consumption 3 2,078 2,207 2,300 2,345 2,297 2,364 2,318 change 6% 4% 2% -2% 3% -2% Total growth (2002-2008) 12% N%et Exports of Petroleum 871 903 836 795 990 1,058 1,035 change 4% -7% -5% 25% 7% -2% Total growth (2002-2008) 19% *expressed in liquid(l) barrels Source: Energy Information Agency, US Dept. of Energy 1 total oil production includes lease condensate, natural gas liquid, and other liquids, and refinery processing gain (loss). Negative values indicates refinery processing loss 2 includes lease condensate 3 consumption of petroleum products and direct combustion of crude oil B. Energy Demand by the Transportation Sector While Canada is a significant producer of oil, it also ranks among the world top 10 consumers of petroleum. As illustrated in Table 3.2, transportation, on average between years 2004 and 2008, accounted for nearly one quarter, 24-25% of total energy demand. Of that share, motor gasoline and diesel fuel oil account for 87% of the energy used (see Table 3.4). Based on data from the US Department of Energy, Canada decreased its consumption of petroleum in 2007 (see table 3.1), and this decrease in consumption is reflected in the reported drop in use in industrial consumption of energy (reflection of the economic slowdown). In contrast, the level of consumption in the transportation industry in 2008 increased marginally from year 2007 levels. The NEB reports that this slight increase in consumption is due to growth in population and commercial sector but also the growth rate in energy consumption has slowed considerably from years 2006-2007 levels when Canadian increased their transportation energy consumption by 4%. Table 3.2 Domestic Energy Consumption; in petajoules 2004 hange 2005 2006 2007(a) 2008(a) C 07/08 Resident b)ia (l 1,421 1,403 1,347 1,448 1,466 1.2% Commercial 1,468 1,493 1,425 1,471 1,499 1.9% Industria (b)(c)l 5,015 4,857 4,967 5,166 5,090 -1.5% Transportation 2,483 2,519 2,514 2,616 2,624 0.3% Total 10,387 10,272 10,253 10,701 10,679 -0.2% (a) includes consumption of imported energy Source: National Energy Board A closer look at the use of energy within the transportation industry shows that on average for the last seven years, the share of energy used for freight averaged 40% per year and the share of energy used for passenger transportation averaged 56%. Table 3.3 Energy Use by Transportation Sector; in petajoules 2000 2001 2002 2003 2004 2005 2006 Total Energy Use 2,282 2,277 2,306 2,362 2,465 2,501 2,492 Freight 947 898 892 938 1,002 1,028 1019 Passenger 1,255 1,291 1,323 1,331 1,368 1,376 1,374 Off road 80 89 92 93 95 97 100 Shares (%) 2000 2001 2002 2003 2004 2005 2006 Freight 41% 39% 39% 40% 41% 41% 41% Passenger 55% 57% 57% 56% 55% 55% 55% Off road 4% 4% 4% 4% 4% 4% 4% * year 2006 is the year for which the most recent data is available Source: Office of Energy A breakdown of transportation energy use by fuel type reveals that gasoline and diesel fuel account for an average of 56% and 30%, respectively, of the fuel type used, and dominate as the transportation sector?s main energy sources (see table 3.4). Table 3.4 Transportation Sector Energy Use by Source; in petajoules 2002 2003 2004 2005 2006 Total Energy Use 2,306 2,362 2,465 2,501 2,492 Electricity 3 3 4 4 4 Natural Gas 2 2 2 2 2 Motor Gasoline 1,333 1,355 1,384 1,378 1,380 Diesel Fuel Oil 662 698 745 782 783 Light Fuel Oil and Kerosene 0 0 0 0 0 Heavy Fuel Oil 65 67 69 68 57 Aviation Gasoline 4 3 3 3 3 Aviation Turbo Fuel 225 223 246 256 253 Propane 12 12 13 10 12 Coal 0 0 0 0 0 Shares(%) 2002 2003 2004 2005 2006 Electricity 0.1% 0.1% 0.2% 0.2% 0.2% Natural Gas 0.1% 0.1% 0.1% 0.1% 0.1% Motor Gasoline 57.8% 57.4% 56.1% 55.1% 55.4% Diesel Fuel Oil 28.7% 29.6% 30.2% 31.3% 31.4% Light Fuel Oil and Kerosene 0.0% 0.0% 0.0% 0.0% 0.0% Heavy Fuel Oil 2.8% 2.8% 2.8% 2.7% 2.3% Aviation Gasoline 0.2% 0.1% 0.1% 0.1% 0.1% Aviation Turbo Fuel 9.8% 9.4% 10.0% 10.2% 10.2% Propane 0.5% 0.5% 0.5% 0.4% 0.5% * year 2006 is the latest year for which data was available Source: Office of Energy C. Imports and Exports The Canadian NEB estimates total crude oil exports at 1.79 million barrels (US liquid) per day, in 2008, which represents a less than 1% decrease from 2007 levels. According to the Energy Information Administration (EIA), Canada remained the largest exported to the United States for crude oil in 2008, ahead of both Saudi Arabia and Mexico. Despite Canada?s position as a net exporter of crude oil, much of the requirements of eastern refineries are met with foreign produced crude oil. In 2008, the NEB reported that crude oil imports decreased from 2007 levels by 2.3% to 840,000 barrels (U.S. liquid) per day, which represents 47% of total refinery feedstock requirements in Canada. Canadian oil production is unevenly distributed across Canada and results in Canada?s eastern provinces, where most of the population is located, being net importers. Due to better transportation networks, imports, of which 59% originate from OPEC countries, 34% from the North Sea and 7% from NAFTA countries, help meet the requirements for the Atlantic region, Quebec, and Ontario. According to the NEB, Quebec was the largest regional importer of crude oil with 90% of their refining needs being supplied from international sources. The NEB also reports that refineries in Ontario are increasing their feedstock sourcing from Western Canada. 4. The Canadian Ethanol Industry A. Ethanol Production and Distribution Capacities Based on the trend of net sales of gasoline used for road motor vehicles over the past five years (see Table 4.1 below), a federal mandate of 5% renewable fuel content would require a minimum of 1.9 billion liters. Table 4.1 Sales of Fuel Used for Road Motor Vehicles, Canada; in 1000 liters 2003 2004 2005 2006 2007 Average 06/07 Net sales of 38,421,608 38,911,752 38,484,324 38,653,955 39,640,225 38,822,373 2.55% gasoline Net sales of diesel 14,720,634 15,671,144 16,216,420 16,611,819 17,196,304 16,083,264 3.52% oil Source: Statistics Canada; 2007 year for which most recent data is available Should the projects under construction be realized, Canadian production is expected to reach 1.931 (see Table 4.2) billion liters by the end of 2010, a production capacity that meets the government of Canada?s target of 1.9 billion liters. Current production capacity by the end of 2009 is expected to increase only slightly from 2008 levels due to the economic slowdown which has resulted in several construction plans for ethanol plants being delayed until oil prices recover and the economy improves. Production capacity is expected to reach 1.415 billion liters in 2009, a 1.8 percent increase compared to 2008 (1.39 billion liters). The anticipated increase is due to anticipated production from the North West Bio plant which is expected to come on line towards the end of 2009. Table 4.2 Fuel Ethanol Production Plant - Existing, Expanding, Under Construction Expected Capacity Primary (million Status Location Company Name Feedstock liters) Existing Varennes Quebec GreenField Ethanol corn 120 Existing Westbury, Quebec Enerkem wood waste 5 Existing Chatham, Ontario GreenField Ethanol corn 150 Existing Ottawa, Ontario Iogen wheat straw 2 Existing Sarnia, Ontario Suncor Energy corn 200 Existing Tiverton, Ontario GreenField Ethanol corn 26 Existing Johnstown, Ontario GreenField Ethanol corn 200 Existing Collingwood, Ontario Collingwood Ethanol corn 50 Existing Aylmer, Ontario IGPC corn 150 Existing Minnedosa, Manitoba Husky Energy wheat, corn 130 Existing Lloydminster, Saskatchewan Husky Energy wheat 130 Existing Weyburn, Saskatchewan NorAmera Bioenergy wheat 25 Existing Lanigan Saskatchewan Poundmaker wheat 12 Existing Belle Plaine, Saskatchewan Terra Grain Fuels wheat 150 Existing Red Deer, Alberta Permolex wheat 40 Under St-Clair, Ontario (expansion Suncor corn construction of current plant) 200 Under Havelock, Ontario Kawartha Ethanol corn construction 80 Under Hensall, Ontario GreenField Ethanol corn 200 construction Under Unity, Saskatchewan North West Bio wheat construction Energy 25 GreenField Under Edmonton, Alberta Ethanol/Enerkem municipal construction Inc. landfill waste 36 TOTAL: 1,931 Source: Canadian Renewable Fuels Association In 2009, it is estimated that 69% of the production capacity for domestic ethanol will come from corn, 30% from wheat and 1% from ?other? feedstocks such as wood waste and wheat straw. Post forecasts that this will likely change to 75% corn, 23% wheat and 2% ?other? feedstock by the end of 2010 should the planned plants be in operation by the end of 2010. In 2009, Ontario alone is estimated to account for 56% of current domestic ethanol production capacity. Quebec is estimated to account for 9% of current domestic ethanol production capacity and the western provinces of Manitoba, Saskatchewan, and Alberta combined are estimated to account for 35% of domestic ethanol production capacity. B. Canadian Ethanol Production Business Models While the federal and provincial programs have been designed to encourage ethanol plants with greater agricultural producer/rural community equity or investment, Canadian ethanol is being produced by companies that range from (a) energy companies and energy marketers, to (b) companies which focus on grain-based ethanol production that often have some degree of producer equity/investment, to (c) co-operatives, to (d) companies focused on a range of activities such as grains, or other sources of renewable fuels. Only one multinational corporation, ADM, has involved itself in the production of Canadian ethanol. ADM has invested in Husky?s large wheat-based ethanol production facility in Lloydminster, Saskatchewan. To date, multinationals have not expressed interest in Canadian produced ethanol, seeing Canada primarily as a market for US?produced ethanol. This may change now that the Canadian government has unveiled its new programs and production incentives. Table 4.3 Canadian Ethanol Producer Business Models Energy Producers and Marketers: Location / Primary Feedstock / Plant Capacity / Start-up Suncor Energy Plant 1: Sarnia, Ontario / Corn / 200 million litres / 2006 Plant 2: St-Clair, Ontario / Corn / 200 million litres / 2010 Husky Energy Plant 1: Minnedosa, Manitoba / Wheat, some corn / 130 million litres / 2007 Plant 2: Lloydminister, Saskatchewan / Wheat / 130 million litres / 2006 Grain Based Ethanol Plants with Producer Equity: Location / Primary Feedstock / Plant Capacity / Start-up GreenField Ethanol Plant 1: Varennes, Quebec / Corn / 120 million litres / 2007 Plant 2: Chatham, Ontario / Corn / 150 million litres / 1996 Plant 3: Tiverton, Ontario / 26 million litres / 1989 Plant 4: Johnstown, Ontario / Corn / 200 million litres / 2008 Plant 5: Hensall, Ontario / Corn / 200 million litres / 2010 Poundmaker Lannigan, Saskatchewan / Wheat / 12 million litres / 1991 Terra Grain Fuels Belle Plaine, Saskatchewan / Wheat / 150 million litres / 2008 IGPC Aylmer, Ontario / Corn / 150 / 2008 Kawartha Ethanol Havelock, Ontario / Corn / 80 million litres / 2010 North West Bio Unity, Saskatchewan / Wheat / 25 million litres / 2009 Energy Renewable Fuels Companies: Location / Primary Feedstock / Plant Capacity / Start-up NorAmera Weybur, Saskatchewan / Wheat / 25 million litres / 2005 Bioenergy Ottawa, Ontario / Wheat straw / 2 million litres / 2004 Iogen Westbury, Quebec / Wood waste / 5 million litres / 2005 Enerkem Edmonton, Alberta / Municipal landfill waste / 36 million litres / GreenField 2010 Ethanol/Enerkham Joint Venture 5. The Canadian Biodiesel Industry A. Biodiesel Production and Distribution Capacities The Canadian government?s Notice of Intent anticipates that to reach its objective of a federal mandate of 2% renewable fuel content in diesel fuel, 600 million liters of diesel fuels will be required. Despite the Government of Canada?s announcement that it intends to mandate renewable fuel content in diesel fuel, the growth in biodiesel production capacity has not increased significantly until very recently. A stronger driver of the increase in biodiesel production capacity seems to be provincial mandates which are likely to into force ahead of the federate mandate. Table 5.1 Bio-diesel Production Plants (Current, Expanding, Under Construction) Capacity Start-up Loca y tion Compan Name Feedstock (million lite rs) 2005 Montreal, Rothsay tallow 30 Qu ebec 2008 St-Alexis-des- Bio-Diesel Quebec yellow grease 10 Monts, Quebec Inc 1996 Foam Lake, Milligan Bio-tech canola oil 1 Sa skatchewan 2006 Hamilton, BIOX Corporation tallow, yellow 66 Ontario grease, palm oil 2009 Winnipeg, Greenway Canola 20 Man itoba Biodiesel 2005 Calgary, Western Biodiesel Multiple 19 Alb erta Inc feedstock 2009 Mississauga, Methes Energies Multiple 5 On tario Canada feedstock 2010 -under Beausejour, Eastman Bio-Fuels Canola 11 construction Manitoba 2009 -under Arborg, Bifrost Bio- Canola 4 construction Manitob a Blends 2009 -under Lethbridge, Kyoto Fuels Tallow 66 construction Alb erta 2011 Sturgeon, Canadian Canola 225 Feasibility Alberta Bioenergy Analysis Stage TOTAL: 457 Source: Canadian Renewable Fuels Association Canada?s biodiesel production capacity by the end of 2009 is expected to reach 216 million liters, a 71% increase over the 2008 production capacity of 126 million liters. This is if the production form Bifrost Bio-Blends and Kyoto Fuels come online before the end of 2009 as anticipated. Even with the current plants, plants under construction and the potential 225 million liter Canada Bioenergy/ADM plant that is currently under consideration, the federal biodiesel mandate is unlikely to be met solely with domestic production. Future growth, of the Canadian biodiesel industry may be limited the industry?s ability to secure cheap feedstock. Most of the current and forecasted increase in biodiesel comes from rendered animal by- products and industry sources put a ceiling on potential production from rendered animal fats at 250 million liters. High prices for oilseeds may hinder Canada?s ability to supply the majority of the feedstock necessary for the balance of the volume required. The federal government?s new biofuel strategy programs are geared more towards ethanol and are therefore limited in their ability to address the limiting factors for biodiesel market growth. This has implications when trying to determine what the profitability for embarking on a biodiesel venture. For example, crushing plants can be used to produce oil for both bio-diesel production and human consumption, but the federal government does not want to inadvertently subsidize crushing capacity for oils destined for human consumption. Many investors, seeing the potential for bio-diesel, hope to cash in on the federal government?s ecoABC Initiative, a program to assist in the construction of biofuel facilities that have a minimum of five percent producer investment. The Saskatchewan Bio-diesel Development Council raised a red flag when it warned biodiesel proponents that crushing components of bio- diesel ventures would not be eligible for the repayable contributions. The Saskatchewan Biodiesel Development Council is frustrated by this, arguing that this violates the equity in support that is supposed to exist between ethanol and biodiesel. 6. Import Regimes for Biofuels Due to the North American Free Trade Agreement there is no tariff on renewable fuels produced in the United States and imported into Canada; however, Canada does have a tariff on ethanol imported from other countries such as Brazil ($0.05 per liter). While the current differences in provincial tax exemptions for renewable fuels do not greatly affect production decisions, the unlikely combination of lower oil prices (e.g. return to pre-2005 levels), and higher grain prices could make certain provincial tax-exemption restrictions obstacles to expanding the industry. 7. The Economics of Biofuel Production in Canada The long-term viability of producing biofuels in Canada will depend on a multitude of factors including plant size, production types, co-products, feedstock costs, energy prices, and production/consumption incentives. The required increase in biofuel production set out by the federal mandate will necessitate a build up of infrastructure to support the industry. A. Factors Affecting the Long-term Viability of a Canadian Biofuel Industry A multitude of studies in Canada and elsewhere have been conducted on the cost of production for different plant sizes for ethanol production. Economic studies conducted in the United States have shown that there are large economies of scale in biofuel manufacturing. It was estimated that tripling of a plant size reduced capital costs by 40% and operating costs by 15- 20%. All new Canadian ethanol plants under construction, with the exception of Collingwood Ethanol and North West Bio Energy, are all large-scale facilities designed to capture these economies of scale. The eligibility limits outlined by the federal government production program is 200 million liters per year, production limits that Canadian plants currently are below. The economic viability of biofuels depends on the value of co-products helps reduce per gallon costs of production for ethanol. Different milling processes produce different co-products. Wet milling processes can also produce corn oil, corn gluten meal, corn gluten feed, and carbon dioxide. Canada?s smaller and earliest ethanol plants are wet milling plants. These plants, however, only produce wet distillers grains as co-products, since they do not meet the economies of scale needed to warrant the production and marketing of the other potential co- products. These plants produce wet distillers grains (DDGs) that are consumed by local cattle. Potential for large-scale wet milling plants is limited as the large cattle and dairy production does not take place in areas close enough to the ethanol plants due to transportation costs. It is for this reason that Canada?s large scale plants are dry-milling plants for which the by- products are distillers dried grain, condensed syrup, and carbon dioxide. By drying the DDGs, it is possible to market this feed substitute to livestock markets that are further away. Possible market intervention by the Canadian Wheat Board may limit a plant?s ability to extract full value for its co-product. Additional limiting factors for extracting full value from the co- products and ethanol include a lack of efficient distribution channels and infrastructure. Infrastructure and shipping logistics of feedstocks, fuel-ethanol and its co-products are also factors that will affect Canadian competitiveness. With most refineries and most of the populations in the east, and much of the increase in biofuel production capacities occurring in the west, infrastructure and distribution issues become increasingly important. Industry sources see a short-to-medium term increase in rail usage. Proximity to railways has been important when choosing locations for ethanol plants. Ethanol feedstock, ethanol and ethanol co-products will however have to compete with other, perhaps higher priced goods. Rail connections with neighboring U.S. states may also increase. Any overseas deliveries of DDGs are being done via vessels and therefore necessitate getting the co-products to the coastlines economically. The profit margins of ethanol production and its ability to compete with petroleum will continue to be affected by the energy?based inputs used in ethanol production and feedstock production. In 2009, while natural gas prices have fallen dramatically due to the global economic recession, feedstock prices remain high compared to historical averages. A resource for tracking the profitability margins of ethanol and biodiesel can be found at the following website: Center for Agriculture and Rural Development. The same trend holds true for biodiesel that is made with vegetable oils such as soybean oil and canola oils. B. Impacts of Ethanol Production on Feedstock Markets Corn and wheat are the main feedstock for ethanol production in Canada and the introduction of the mandatory renewable fuel content by the Canadian government will undoubtedly have an impact on production patterns. At this time, there are no official statistics for the amount of corn and wheat directed into ethanol production. Table 7.1 provides estimates and forecasts on the quantity of corn and wheat that has and will be directed into ethanol production. These estimates are calculated from the point in time when plants have reached, or are expected to reach, full capacity (not based on plant production capacity on the start-up dates). Table 7.1 Quantity of Feedstock Used in Ethanol Production*; in MT 2006 2007 2008 2009(e) 2010(f) Corn 701,040 1,183,640 1,390,523 2,384,806 3,604,006 Wheat 215,543 525,780 761,746 1,145,032 1,188,212 *estimates, does not include ethanol produced from municipal landfill waste, nor woody waste conversion factors: 1 bushel corn or wheat = 10 liters ethanol 1 bushel corn = .0254 MT 1 bushel of wheat = .021772 MT Calculated from when plants reach full production capacity (i) Ethanol Produced from Corn Ontario is the largest corn-producing province in Canada and, not surprisingly, where 56% of the Canadian ethanol production takes place. Corn at this time, is the main feedstock for Canadian ethanol production. Corn production also takes place in Quebec. Table 7.2 Quantity of Corn Used for Feed, Ethanol Production; in 1,000 MT Yea Domestic Corn Corn Corn r Product po Corn for Corn for rts2 ion Impor 1 Imts Feed3 Ethanol4 from US 2005 9,361 2,155 2,150 7,830 560 2006 8,990 1,899 1,893 8,275 701 2007 11,649 3,117 3,105 8,900 1,184 2008 10,592 2,000 1,992 9,600 1,391 2009(f) 10,550 2,350 2,340 9,100 2,384 1,2 import data based on a calendar year, all corn excluding popping corn; source: Statistics Canada 3,4 no official statistics exist, estimates based on production in a calendar year Corn is estimated to account for 65% of the feedstock used in ethanol production in Canada in 2008. In 2009, and 2010, corn is expected to account for 68%, and 75% of ethanol feedstock, respectively, as more corn-based ethanol plants come online. In 2008, it is estimated that 1,391 thousand metric tons (TMT) of corn was directed into ethanol production. In 2009, it is estimated that 2,384 TMT of corn will be directed towards ethanol production, a 72% increase from 2008 levels. This increase in demand from the ethanol industry however is offset by a decrease in demand from Canada?s shrinking livestock industry and therefore the corn plantings are expected to remain at the same level as in 2008. Canada is forecast to produce 10.6 million metric tons (MMT) of corn in 2009, and to import 2,350 TMT, mainly from the United States. The forecasted increase in corn imports is due to lower levels of domestic supply. With the forecasted expansion of the corn-based ethanol industry in 2010, the amount of corn required in 2010 is an estimated 3.604 MMT (see table 7.1), a 51% increase over the year 2009 requirements. The increase in demand for corn by the ethanol plants, and Canada?s limited corn-production capacity due to climatic factors will result in the feed and ethanol industry in Canada competing for corn. Many analysts say that this reduction in corn availability could be met with the ethanol by-product of DDRs. The Canadian livestock industry disagrees and has been very vocal on this issue, pointing to increases in feed costs as a reason for lower livestock output. Any shortfall in the ability to meet demand for corn domestically due to the re-direction of corn into ethanol use and away from feed will likely be met by imports of U.S. corn. However, the volume of potential increases in imports of U.S. corn will be mitigated by a shrinking Canadian livestock industry (and therefore a reduced demand for feed), the untapped corn growing capacities in Ontario and Quebec, high corn prices, and the ability to use feed corn substitutes for such as barley and DDGs. (ii) Ethanol Produced from Wheat Wheat is the feedstock for most of the balance of Canada?s ethanol production. In 2008, it accounted for 35% of the feedstock, and is estimated to account for 32%, and 25% of the grain-based ethanol feedstock for years 2009, and 2010, respectively. The newer wheat ethanol plants have more flexibility built-in as the pipes are larger and allow the use of other feedstock, such as corn, when wheat feedstock may be too expensive. The Husky Energy?s wheat-based ethanol plant in Minnedosa, Manitoba uses corn when wheat feedstock was unavailable or too expensive. However, Husky Energy has agreed that 80% of the feedstock used to produce ethanol will come from Manitoba producers. The agreement is with the Manitoba government and expires after 8 years. Table 7.3 Quantity of Wheat Used for Feed, Ethanol Production; in TMT Domestic Wheat Wheat Wheat Wheat Imports2 for Wheat for Production Imports1 from US Feed3 Ethanol4 2005 26,775 18 17 5,056 150 2006 25,265 26 25 4,800 215 2007 20,054 25 23 4,000 526 2008 28,611 22 20 3,864 762 2009(f) 23,950 20 18 3,564 1,145 1,2 import data based on a calendar year and includes only HS code 1001; source: Statistics Canada 3,4 not official statistics, estimates based on production in a calendar year As shown in Table 7.3, in 2009, it is estimated that 1,145 thousand metric tons (TMT) of wheat will be directed towards ethanol production, a 50% increase from year 2008 levels. Canada is forecast to produce 24.0 MMT of wheat in 2009, a 16.3% decrease from 2008 levels. By 2010, the openings of wheat-based ethanol plants in Western Canada will increase the demand of wheat destined for ethanol production to 1188 MMT (see Table 7.1), which represents a slight increase over the estimated 2009 wheat utilization for ethanol. As the ethanol industry grows, demand for different wheat varieties is also expected to grow resulting in increased competition between wheat end-users, such as the Canadian ethanol producers, livestock producers and the milling industry. The need for high-yielding, low-protein wheat by the livestock industry and the ethanol plants are in direct conflict with the needs of the flour industry. Increases in ethanol efficient wheat is expected to affect production patterns and result in more Canadian wheat farmers seeding area to lower protein/high starch wheat such as Winter Wheat and Canadian Prairie Spring Wheat rather than higher protein/lower starch wheat varieties used by the milling industry. The livestock sector, especially the hog sector, competes for the same wheat varieties as the ethanol sector. There are additional layers of complication when using wheat as a feedstock in ethanol production, depending on the co-products produced and the markets for which they are destined. The Canadian Wheat Board (CWB) controls the sales of wheat for human consumption and export and therefore as long as the ethanol is going to be used as fuel and t
Posted: 04 January 2010, last updated 4 January 2010

See more from Energy in Canada

Expert Views    
Biofuels Annual   By Foreign Agricultural Service
Alberta Firm Announces One of Largest Wind Projects   By Bedjasses
Hot Tips    
Canada Biofuel Annual Report 2009   By Foreign Agricultural Service
Canada's Kearl Oilsands Project   By Bedjasses
Renewable Energy Equipment   By Bedjasses