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USDA GAIN: Biofuels


12 July 2012

USDA GAIN: Canada Biofuels Annual 2012USDA GAIN: Canada Biofuels Annual 2012

On July 1, 2011, Canada implemented a federal mandate of 2 percent renewable content in the national distillate pool. This requirement is in addition to the mandate of 5 percent renewable content in the national diesel and heating oil pool. As the Canadian biofuels industry is preparing to comply with the requirements, production of ethanol and biodiesel have increased over the past year. Ethanol production in 2012 is estimated to increase 40 percent from 2011 levels, and biodiesel production is estimated to increase nearly 80 percent. At this time, the Canadian biofuels industry remains below Post’s estimates to meet the federal standards, and limited production suggests that Canada will not soon become a major player in the global ethanol market.
USDA GAIN Report - Biofuels

Policy and Programs

Context: Canada’s Overall Energy Situation

Unlike the United States, energy security is not a factor behind the recent and projected growth in Canada’s renewable fuel industry. Canada has the world’s second largest proven oil reserves (estimated at 180 billion barrels) and is one of the top 10 oil-exporting countries in the world.

While Canada is a significant producer of oil, it also ranks among the world’s top ten consumers of petroleum. Between the years of 2005-2009 transportation accounted for nearly one-third of energy consumption (see Appendix I, Table 9), and motor gasoline and diesel fuel oil accounted for approximately 86 percent of the energy used (see Appendix I, Table 10). A closer look at the use of energy within the transportation industry shows that on average between the years 2003-2009 (most recent available data), the share of energy used for freight averaged a little more than 41 percent per year and the share of energy used for passenger transportation averaged 55 percent (see Appendix I, Table 11).

A breakdown of transportation energy use by fuel type reveals that gasoline and diesel fuel account for an average of 54 percent and 32 percent, respectively, of the fuel type used in the period 2005-2009 and now dominate as the transportation sector’s main energy sources (see Appendix I, Table 10). Table 1 below illustrates the mandated biofuel blend rates for the Canadian transportation industry. It should be noted however that, as will be presented in the following section, the Canadian (federal) renewable fuel mandate goes beyond transportation fuel for diesel to include heating distillate oil.

A. National Biofuels Mandate

Canada’s government announced a renewable fuels strategy in late 2006, including a national renewable fuels mandate. Since that time, there have been legislative amendments and federal and provincial incentive programs that have encouraged the development of a Canadian renewable fuels industry. On August 23, 2010, the finalized (official) federal Renewable Fuel Regulations, came into force. The regulations set the five percent renewable fuel mandate for the national gasoline pool to come into effect on December 15, 2010 (full regulations). The commencement date for the mandated average 2 percent renewable fuel content in diesel fuel and heating distillate oil, which is also a provision of the federal Renewable Fuel Regulations, was omitted. The reason for this omission was that the demonstration of technical feasibility under the range of Canadian conditions had not yet been completed. On June 29, 2011, the federal government announced it was moving ahead with a July 1, 2011 implementation date for a federal mandate of two percent of renewable content in diesel fuel and heating oil. A permanent exemption has been provided for renewable content in diesel fuel and heating distillate oil sold in Newfoundland and Labrador to address the logistic challenges of blending biodiesel in this region. Temporary exemptions for renewable content in diesel fuel and heating distillate oil sold in Quebec and all Atlantic provinces have been provided until December, 31, 2012, to give eastern Canada time to install biodiesel blending infrastructure. The official regulations are available at http://www.gazette.gc.ca/rp-pr/p2/2011/2011-07-20/html/sor-dors143-eng.html. The Renewable Fuels Regulations are annexed to the Canadian Environmental Protection Act, 1999.

The overall structure is similar to the Renewable Fuel Standard in the United States, with the point of compliance at the point of production or importation. The objective of the regulations is to reduce green house gas (GHG) emissions by mandating renewable fuel content based on the gasoline volume, as well as diesel fuel and heating distillate oil volumes, fighting climate change. The regulations are estimated to result in an incremental reduction of GHG emissions of about one ton of carbon dioxide equivalent (1 MT CO2) per year over and above the reductions attributable to existing provincial requirements already in place. The regulations fulfill the commitments under the federal government`s Renewable Fuels Strategy of reducing GHG emissions from liquid petroleum fuels and creating a demand for renewable fuels in Canada.

B. Federal Programs to Encourage the Development of a Canadian Renewable Fuels Industry

With its announcement of a renewable fuels strategy, the Canadian government launched several programs designed to promote the development of a domestic renewable fuels industry. Several of the programs are designed to encourage agricultural producer involvement in renewable fuels and the usage of agricultural biomass to produce bioethanol. Many federal programs which were announced as part of the renewable fuel strategy expired at the end of March 31, 2011. The federal government has not, as of yet, announced any future measures to replace the programs which have expired.

C. Provincial Mandates and Programs to Encourage Renewable Fuels Industry Development

Provinces have led the way in 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 production and/or consumption incentives with differences in eligibility and duration, there may be barriers to trade and production in areas not well suited to bioethanol production. Canada’s refineries are mostly in western Canada (Alberta) and on the east coast (Newfoundland and Labrador), while most gasoline is used in central Canada (Quebec and Ontario). The federal government has made note of these barriers and sees the federal mandate as a means to work with provinces to harmonize provincial mandates to eliminate inter-provincial trade barriers. However, given the lead provinces have to develop provincial regulations, the ability of the federal government to prevent barriers and uneconomic production is unclear.

Several provinces have implemented provincial mandates on the amount of bioethanol required in the gasoline pool. Certain provinces have also brought in legislation and regulations that have resulted in a renewable fuel standard for diesel fuel coming into force ahead of the federal biodiesel mandate.

Cap-And-Trade Research

Provinces have also taken the lead in cap and trade initiatives. In Alberta, a Green Fund and an Offset System already exists to allow large emitters to purchase carbon credits from farmers, and a law enacted in Saskatchewan in late April 2010 (The Environmental Management and Protection Act 2010) would allow the purchase of carbon credits from farmers there. Provincial and state governments in Ontario, Quebec, Manitoba, British Columbia, and California have discussed a protocol under the Western Climate Initiative (WCI). Quebec and California officially implemented the WCI’s cap-and-trade regulations on January 1, 2012, and carbon emitters have been given until January 1, 2013 to make necessary adjustments. British Columbia, Ontario, and Manitoba have not yet named a start date for implementation but previously mentioned joining after the program starts. To date, there is a higher supply of carbon credits than demand, making them worth about $2.75/ton of sequestered carbon in the United States. In Alberta, carbon credits are trading at $9 to $13/ton, while in Europe, their value ranges from $20 to $30/ton. Future policy debates will focus on who claims the credits.

D. Factors Affecting the Long-term Viability of a Canadian Biofuel Industry

The long-term viability of producing biofuels in Canada will depend on a multitude of factors including federal/provincial regulations and implementation, 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 buildup of infrastructure to support the industry.

More detailed trade statistics are needed to measure the development of the biofuels market and the markets for the co-products. Canada’s limited production capacity, both in the short and medium term, suggest that Canada will not soon be a significant player in the global bioethanol market. While the possibility of increased bioethanol trade, especially between the northwest United States and Western Canada (wheat-bioethanol to the United States and corn-based bioethanol to Canada), is unlikely to develop quickly, there is an increasing amount of trade in the co-products of bioethanol production, such as distiller’s dried grains (DDGs).

i. Production

Bioethanol production in Canada will increase by 38 percent in 2012, due in part to a new plant coming on-line this fall (Growing Power Hairy Hill, see Table 22, Appendix III) as well as many plants either increasing or running at a higher percentage of capacity in 2012. Production is estimated to increase to 1,867 million liters, up from the estimated 1,350 million liters in 2011. Production is forecast to grow even further to 1,948 million liters in 2013 with the expected completion of the 38 million liter Enerkem Waste-to-Biofuels Facility in Edmonton, Alberta. Factors most affecting changes in production will include gasoline prices, technological improvements and the impact of federal and provincial mandates.

In 2012, it is estimated that 79.6 percent of the production of domestic bioethanol will be derived from corn, 20.1 percent from wheat and 0.3 percent from “other” feedstock such as wood waste, wheat straw, and landfill waste. Post forecasts that this will likely change to 76.3 percent corn, 22.5 percent wheat and 1.2 percent “other” feedstock for 2013 due to the estimated completion of the Enerkem, Edmonton plant in the second half of the year, which is estimated to produce 19 million liters of ethanol from landfill waste in 2013. Overall, Canada’s limited biofuel production capacity, both in the short and medium term, suggests that Canada’s entry into the global bioethanol market is still quite distant. In 2012, Ontario alone is estimated to account for 61 percent of current domestic bioethanol production capacity. Saskatchewan is estimated to account for 19 percent, Quebec is estimated to account for 9 percent, and Alberta and Manitoba combined are estimated to account for 11 percent.

While the federal and provincial programs have been designed to encourage bioethanol plants with greater agricultural producer/rural community equity or investment, Canadian bioethanol is produced by companies that range from (a) energy companies and energy marketers, to (b) companies which focus on grain-based bioethanol 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 bioethanol. ADM has invested in Husky’s large, wheat-based bioethanol production facility in Lloydminster, Saskatchewan. To date, multinationals have not expressed interest in Canadian produced bioethanol, seeing Canada primarily as a market for U.S.–produced bioethanol. This is unikely to change in the short to medium term as Canada is still working towards building enough production capacity to meet its domestic mandate.

ii. Impacts of Bioethanol Production on Feedstock Markets

Corn and wheat are the main feedstock for bioethanol production in Canada and the introduction of the mandatory renewable fuel content by the Canadian government undoubtedly have had and will have an impact on production patterns. At this time, there are no official statistics for the amount of corn and wheat directed into bioethanol production.

(a) Bioethanol Produced from Corn

Corn remains the main feedstock for Canadian bioethanol production. Ontario is the largest cornproducing province in Canada. In 2012, 63 percent of Canadian bioethanol production is expected to take place in Ontario. In 2012 and 2013, corn is expected to account for between 76 and 80 percent of bioethanol feedstock, respectively. While no new corn-based ethanol plants are expected to come online in 2012 and 2013, there are several corn-based plants that have been proposed.

(b) Bioethanol Produced from Wheat

Wheat is the feedstock for most of the balance of Canada’s bioethanol production. In 2011, it accounted for just under 25 percent of Canadian ethanol feedstock, and is forecast to account for 20-23 percent of bioethanol feedstock for years 2012, and 2013, respectively. The newer wheat bioethanol plants have more flexibility. 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 bioethanol plant in Minnedosa, Manitoba uses corn when wheat feedstock is unavailable or too expensive. However, Husky Energy has agreed that 80 percent of the feedstock used to produce bioethanol will come from Manitoba producers. The agreement is with the Manitoba government and expires in 2017.

As the bioethanol industry grows, demand for different wheat varieties is also expected to grow, resulting in increased competition between wheat end-users, such as the Canadian bioethanol producers, livestock producers and the milling industry. The need for high-yielding, low-protein wheat by the livestock industry and the bioethanol plants are in direct conflict with the needs of the flour industry. Increases in bioethanol 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 bioethanol sector.

Additional layers of complication that exist in Canada when wheat produced in Western Canada was used as a feedstock in bioethanol production are on the verge of removal. For nearly 70 years, the Canadian Wheat Board (CWB) has controlled the sales of wheat for human consumption and export. As long as the Western wheat bioethanol is used as fuel and the co-products such as DDG's went to feed livestock, the CWB has no involvement. If the plant fractionates the grain and removes components for human consumption, such as wheat gluten, then a portion of the wheat, technically, has to be purchased through the CWB. For the most part, however, bioethanol plants have purchased wheat in the same way a feed mill makes purchases, either directly from farmers or from a grain company. While the CWB promoted industrial uses for its western-grown grains and its mandate allowed it to enter the market for sales of wheat for bioethanol production, it chose not to do so. In late 2011, the Canadian federal government announced plans that will eliminate the CWB's involvement in sales of wheat for bioethanol production by August 1, 2012. Since the CWB has not been very involved in bioethanol production to date, it is unlikely that this change will have an effect on wheat-based bioethanol production.

iii. Consumption

Based on the trend of net national sales of gasoline used for road motor vehicles between 2006 and 2010, and the projected trend for 2010-2013 (see Table 5, below), the federal mandate of 5 percent renewable fuel content requires an estimated minimum of 2,054 million liters for 2012 and 2,074 million liters for 2013 of ethanol production, not just capacity. Production capacity of bioethanol is not expected to surpass 1,836 and 1,874 million liters in 2012, and 2013, respectively (see table 22, Appendix III).

iv. Trade

While there are no reliable trade statistics for Canada’s fuel ethanol due to broad and changing HS codes, Post forecasts that imports will fall to 500 million liters per year for 2012 and 2013, down from an estimated 684 million liters in 2011. This decrease is expected to be driven by an increase in domestic production. Post expects that as domestic production increases, fuel ethanol exports to the United States will increase as U.S. demand remains strong due to the RFS2 mandate. Also, fuel ethanol trade takes advantage of the trade corridors that make the most economic sense. Exports for 2012 and 2013 are forecast at 215 and 365 million liters, respectively.

Due to the North American Free Trade Agreement (NAFTA), there is no tariff on renewable fuels produced in the United States and imported into Canada. However, Canada does have a tariff on bioethanol 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 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.

As Canada continues to expand bio-fuel production capacity through federal and provincial programs/strategies, potential trade issues such as World Trade Organization (WTO) rules, biotechnology, and inter-provincial barriers contrary to the national treatment principle embodied in the WTO and the NAFTA may arise.

Confrontations reflecting these concerns are likely, although still a long ways off, as an international trade/market for bioethanol and bio-diesel has yet to develop. In the meantime, Canada will be expanding its biofuels industry in order to meet its federal and provincial mandates.

In recent years, nearly 100 percent bioethanol trade for Canada has been done with the United States. However, the possibility of significant increases in bioethanol trade, especially between the northwestern United States and Western Canada (wheat-based bioethanol to the United States and cornbased bioethanol to Canada), is unlikely to develop in the short to medium term. This is due mainly to the fact that Canada does not have excess bioethanol production capacity, which would permit large volumes of exports to the United States. In addition, the transportation, distribution, and infrastructure issues around bioethanol trade have yet to be resolved.

v. Ending Stocks

Post has used an estimate of 5 to 7 percent of production to calculate ending stocks for Canada’s ethanol industry, due to the lack of official statistics on ethanol stocks. Canada’s increase in production, from 1,350 million liters to 1,867 and 1,948 million liters, for 2012 and 2013 respectively, will be reflected in Canada’s stocks. Ending stocks for 2012 are expected to jump to 129 million liters, up from 32 million liters in 2011; they are expected to further rise to 137 million liters in 2013 (see Table 4, above).

i. Biodiesel Production

The federal biodiesel mandate of 2 percent in diesel fuel and distillate heating oil came into effect on July 1, 2011. A permanent exemption has been provided for renewable content in diesel fuel and heating distillate oil sold in Newfoundland and Labrador to address the logistic challenges of blending biodiesel in this region. Temporary exemptions for renewable content in diesel fuel and heating distillate oil sold in Quebec and all Atlantic provinces have been provided, until December, 31, 2012, to give Eastern Canada time to install biodiesel blending infrastructure. This announcement, in combination with the extension of the ecoABC Initiative (a program to assist in the construction of biofuel facilities that have a minimum of five percent producer investment) which has been extended until September of 2012, is likely to help spur on investment in biodiesel production facilities. With the ecoABC Initiative and forecasted increased production, industry is preparing to comply with the 2013 requirements.

Biodiesel production is projected to increase slightly in 2012 to 284 million liters, up from an estimated 158 million in 2011, due to new production capacity. In 2013, production is forecast to nearly double to 538 million liters, partially due to the expected completion of a 265 million liter plant. In the longer term, the EU’s increased demands for renewable energy has generated a potential and growing market for biodiesel exports from Canada, as has the RFS2 in the United States. With the current plants and four plants under construction, including a 265 million liter Archer Daniels Midland (ADM) plant, the federal biodiesel mandate is likely to be met with domestic production by 2014. ADM, a large American company involved in over 75 countries, is the first instance of multi-national interest in the Canadian biodiesel industry. Despite the current growth, future growth of the Canadian biodiesel industry may be limited due to the industry’s inability to secure cheap feedstock. Most of the current and forecasted increase in biodiesel comes from canola and strong world demand for vegetable oils may hinder Canada’s ability to take advantage of the growing biodiesel market opportunities.

The federal government’s biofuel strategy program is geared more towards bioethanol and is therefore limited in their ability to address the limiting factors for biodiesel market growth. This has implications when trying to determine the profitability for a biodiesel venture. For example, crushing plants can be used to produce oil for both biodiesel production and human consumption, but the federal government does not want to inadvertently subsidize crushing capacity for oils destined for human consumption. As mentioned previously, in order to help stimulate investment in the domestic production of biodiesel, 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, has been extended from March 31,2011 to September of 2012.

ii. Impacts of Biodiesel Production on Feedstock Markets

While biodiesel can be made from a variety of different feedstocks, prices and availability are the determining factors of which one will be used. Canola, due to the abundance of the Canadian production, has proven to be the natural feedstock choice. Projected canola-based biodiesel production shows increases from 63 million liters (22 percent production share) in 2012 to 188 million liters (35 percent share) in 2013, and even further in 2014. Key competitors facing canola oil for use in biodiesel are rendered animal fats (tallow), rendered oils (yellow grease), palm oil (which would be imported as Canada does not produce palm oil), and soybean oil. Canola and soybeans are high-priced feedstock for biodiesel since they are priced as food oils in international markets. Palm oil and rendered fats are priced at feed and industrial use levels.

In fall of 2011, the United States Environmental Protection Agency (EPA) signed the Canadian Aggregate Approach Petition to approve Canadian feedstocks, including canola, for biodiesel production in the United States. This decision provides secure access for Canadian canola as a sustainable feedstock for U.S. biodiesel markets. As a result, it is likely that there will be more Canadian exports of canola to the United States to meet RFS2, with some canola derived biodiesel returning to Canada.

Most of the growth in biodiesel production capacity has occurred in Western Canada, where the majority of the canola is grown, spurred on by provincial mandates in addition to the federal mandate.

Canola production has reached record high levels in recent years. Increased demand for canola oil from the food retail industry has resulted in higher prices. In 2012, canola producers have responded by planting record acreage, up 8 percent from an already record 2011 year. However, recent flooding in Saskatchewan’s canola fields may be a setback. Despite this supply response, some industry observers suggest that canola could remain too expensive, and that a 2 percent biodiesel blend must be met with cheaper feedstock. As demand for the feedstock increases, it is likely that canola prices will also increase.

While canola use for biodiesel by-itself may be expensive, the co-products from biodiesel production may make economic sense. Co-products include meal to be used in animal feed. There are limits on the profitability of using canola as a feedstock if by-products are part of the everyday production process. For example, off-seed canola may not be a suitable feedstock since this meal may not meet quality standards. Despite these limitations, co-products and the production capacity of the plants (these plants could be supplying over 40 percent of the federal 2 percent biodiesel mandate), combined with provincial biodiesel mandates may make the industry profitable, despite higher commodity prices.

In 2012, the share of biodiesel production from tallow (animal fats) is expected to decrease from estimated 2011 levels of 60 percent to 38 percent due to completion of new biodiesel plants using other feedstocks. While the use of tallow for biodiesel is forecast to increase by 62 percent in 2013, the share is forecast to fall from 38 percent to 32 percent with the expected completion of 265 million liter canolaoil and 170 million liter canola/soybean feedstock-based biodiesel plants. The share of biodiesel produced from yellow grease is forecast to fall to 16 percent in 2013 from 2012 levels of 27 percent. Most dramatically, biodiesel produced from canola oil is forecast to nearly triple from 63 million liters (a 22 percent share) in 2012, to 188 million liters (a 35 percent share) in 2013. This increase is principally due to the completion of two new biodiesel plants using canola as feedstock (see Appendix III, Table 23).

iii. ConsumptionCanada Biofuels Annual 2012

Based on the trend of net national sales of diesel used for road motor vehicles between 2006 and 2010 (see Table 7, below), and the federal mandate which includes renewable fuel content in both the diesel oil sales for transportation as well as heating, Post estimates that Canada will consume 585 million liters of biodiesel in 2012 and forecasts consumption at 581 million liters of biodiesel production in 2013 (see Table 6, above). By 2013, the temporary exemptions for eastern Canada and Quebec will have been lifted and the full federal mandate should be in force.

iv. Biodiesel Trade

Trade data for biodiesel is problematic since Canada has not had a dedicated tariff code for biodiesel. An HS code was assigned for 2012 trade, but products included under the code remains unclear. Adding to the complication, a European Union anti-dumping trade investigation which concluded in 2010, revealed inconsistencies between the European Union biodiesel import trade data and the Canadian biodiesel production capacity, which is still in its infancy. The trade data used in this report is therefore based on discussions with Canadian industry.

Lack of biodiesel production capacity in some provinces has meant that some provincial mandates have necessitated the importation of biodiesel to ensure compliance, such as BC in 2010. Imports are expected to continue to fill the gap between domestic production capacity and the required volume of biodiesel needed to meet the federal mandate, at least in the short run. Post expects to see a jump in imports in 2011 and 2012 in order to meet the federal mandate while domestic production capacity is still building. Imports of biodiesel are expected to fall in 2013 as significantly more production capacity comes on-line. Exports are expected to remain relatively stable in 2012-2013 as U.S. tends to import the Canadian canola to make US biodiesel rather than import the finished product.

Of note, the two Canadian companies that participated in the EU anti-dumping investigation have been exempt from the anti-dumping duties placed on the Canadian biodiesel industry following the investigation. Future Canadian biodiesel companies who wish to export biodiesel to the European Union will be provided the opportunity to apply for exemptions as well.

v. Ending Stocks

There are no official statistics kept on biodiesel stocks, so Post assumed ending stocks to follow a general trend at 5-7 percent of production. In 2012, stocks are expected to decrease as Canada begins to comply with the federal mandate. Stocks are forecast to lift slightly in 2013, due to an increase in domestic production capacity.

C. Advanced Biofuels

While Canada is still not a significant producer of advanced biofuels, over the past few years it has been making progress toward beginning full-scale operation plants. In 2009, Enerkem opened a demonstration biofuels and biochemicals facility; in spring of 2012, this plant began production of cellulosic ethanol via treated wood as feedstock at a 5 million liter capacity. Although this may be the only advanced biofuels plant in Canada at the current moment, Enerkem is undergoing construction of a 38 million liter, cellulosic ethanol plant in Edmonton, Alberta. Edmonton will provide the plant 100,000 dry metric tons of municipal solid waste to the plant as feedstock; it is expected to be operational in early- to mid-2013. Further into the future, Varennes Cellulosic Ethanol L.P., a joint venture of Enerkem and Greenfield Ethanol Inc., is also planning a full-scale, cellulosic ethanol plant in Varennes, Quebec. The plant will use Enerkem’s proprietary thermochemical technology to convert non-recyclable waste into 38 million liters of cellulosic ethanol per year.

Biomass for Heat and Power

A. Wood Pellets

There is current interest in exporting wood pellets from Canada to Europe to meet the increased demand for biofuels in European countries. The E.U. has been increasing funding for renewable energy production, including doubling the financial allotment of funds to renewable energy in 2007. In 2004, the E.U., announced that by 2020, 20 percent of its total energy consumption requirements will be renewable energy sources, greatly higher than their current 7 percent rate. The pellet industry in Canada, especially in the west, has grown rapidly. According to the Canadian Wood Pellet Association, in 2012,

Canada had 42 pellet plants with 3 million tons annual production capacity, compared to 2010’s 33 plants and 2 million tons capacity.

The province of British Columbia accounts for about 65 percent of Canadian production and capacity. Collectively, the provinces of Alberta, Quebec, New Brunswick, Nova Scotia, and New Brunswick account for 35 percent. According to Executive Director Gordon Murray of the Canadian Wood Pellet Association, it is estimated that 90 percent of Canadian pellets were exported to Europe during 2010. In the United States, nearly all 800,000 of wood pellets tons are consumed domestically.

B. Fuels Produced from Other Biomass

There has been growing interest and investment in producing bioenergy from sources other than corn and wheat. Recently, there have been announcements of joint ventures to make cellulosic bioethanol and biogas, including a joint cellulosic bioethanol venture announced by GreenField Bioethanol and Enerkem. Enerkem, a Quebec-based gasification and catalysis technology company, has developed technology to convert biomass such as municipal solid waste and wood residue into cellulosic bioethanol. Its commercial-scale demonstration facility in Westbury, Quebec, which was completed in 2009, reached 1,000 hours of operation in 2010 and agreed to sell all ethanol produced to GreenField Ethanol. Enerkem continues to grow, and is in the construction phase of its second plant, in partnership with the City of Edmonton and Alberta Innovates. The commercial waste-to-biofuels production facility is scheduled to begin ethanol production in the second half of 2013. It is expected to have a production capacity of 38 million liters of ethanol per year.

With support from the Government of Canada, Iogen Corporation built a demonstration plant to convert biomass fibers to bioethanol using enzyme technology. Additionally, Iogen and Shell Canada had decided to work jointly to construct a straw-based ethanol plant in western Canada. But with Shell’s decision to abandon the plans, it was announced in early May that the plant will no longer be constructed. Furthermore, Iogen is cutting its workforce by over half to about 110 employees. Located in Ottawa, Ontario, Iogen’s demonstration facility can process over 25 tons of wheat straw per week, but due to major restructuring, the plant is not currently producing any ethanol.

Biogas is also of increasing interest and investment. Two of the three bio-energy projects that received funding under Alberta’s Biorefining Commercialization and Market Development Program and the Bioenergy Infrastructure Development Program are for the development of biogas as an alternative source of energy. Kingdom Farm Inc. received a significant grant to review the potential for bio-gas from large scale Alberta hog operations. Highmark Renewables Research also received a significant grant for a bio-gas feasibility study at a large scale dairy facility.

Most fuels derived from non-grain biomass remain at the research level. One company moving to commercialize this technology is Lignol Energy Corporation, which specializes in cellulosic bioethanol and biorefining. Lignol announced the completion of a fully integrated industrial-scale biorefinery pilot plant in Burnaby, British Columbia in 2009. This plant is an end-to-end producer of cellulosic bioethanol. On June 15, 2010, Lignol signed a research and development agreement with Novozymes, the world’s leading producer of industrial enzymes, to make biofuel from wood chips and other forestry residues. The partners aim to develop a process for making biofuel from forestry waste at a cost as low as $2 per gallon, a price competitive with gasoline and corn bioethanol at the current United States’ market prices. On February 7, 2012, it was announced that Sustainable Development Technology Canada (SDTC) awarded $2.06 million to Lignol, in addition to $4.2 million already contributed. Ontario Power Generation (OPG) is looking to buy two to three million tons of biomass annually by 2015 – the date at which the Ontario government has mandated an end to burning coal for electricity generation. Biomass is targeted to replace coal as soon as technical obstacles are overcome. OPG will phase out the use of coal at its thermal electricity stations by the end of 2014. However, for biomass to completely replace coal, it must find a more efficient and condensed solution for transport and handling.

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