Mr. Chairman, honourable members, I'd like to thank you for inviting us, the Canadian Renewable Fuels Association, to appear before you today.
CRFA is a non-profit organization with a mission to promote renewable transportation fuels through consumer awareness and government liaison activities. Our membership is made up of representatives from all levels of the ethanol and biodiesel industry, including grain and cellulose ethanol producers, biodiesel producers, fuel technology providers, and agricultural associations.
A number of our members are here before you today: Bliss Baker with Commercial Alcohols, Tim Haig with Biox, Jeff Passmore with Iogen. We also have Ron Wardrop and Rory McAlpine with Maple Leaf Foods. However, to maximize the amount of time you'll have to ask us questions, I'm going to be making one presentation that will cover off a number of these folks.
I would also like to make the committee aware that the CRFA is currently undergoing a comprehensive policy consultation process with our members to look at what barriers exist to the development of a vibrant renewable fuels industry in Canada, as well as what regulatory instruments can be used to address these barriers. Don O'Connor, a globally recognized expert in renewable fuels, and Gil Assie, with the Saskatoon-based accounting firm Meyers Norris Penny, are leading the consultation process, which is in response, of course, to the government's commitment to require an average 5% content of renewable fuel, such as ethanol and biodiesel, in Canadian gasoline and diesel fuel by 2010.
It should go without saying that CRFA is enthusiastically supportive of the government's commitment, and we are encouraged by the warmth by which it has been received by provincial and territorial governments. We believe all levels of government are not only interested in the environmental benefits associated with blending renewable fuels like ethanol and biodiesel, but are also interested in the economic benefits associated with producing these fuels domestically.
To be successful in having ethanol and biodiesel production facilities built in Canada will require several things, including a stable economic and regulatory environment that is competitive with those found in neighbouring jurisdictions. While I'm not prepared to give specific recommendations on how to do this today, as our consultation process does not conclude until Monday, July 24, I am in a position to share some of the benefits to our economy in general, and to the agricultural sector in particular, of having three billion litres of the renewable fuel required to meet the government's commitment produced right here in Canada.
Let me start off by saying that the renewable fuels industry is poised to become a massive value-added user for primary agricultural commodities, second only to the livestock industry in terms of value and sheer volume. In order to back up that statement, I'll need to step back a little and provide some basic information on how ethanol and biodiesel are produced.
Ethanol is an alcohol-based fuel additive that is typically blended with gasoline at 10%, but it can be up to 85% for certain vehicles. Ethanol is typically made from renewable feedstocks that are high in sugar or starch, such as sugar cane, corn, and wheat. There is also a new form of ethanol production that produces ethanol by using the cellulose portion of plants, such as wheat straw, corn stover, or switchgrass. This is a technology that one of our members, Iogen, uses to make ethanol in its demonstration plant outside Ottawa.
In Canada, grain-based ethanol would typically be made from corn in Ontario and Quebec and from wheat in western Canada. About one-third of the production coming out of a dry mill ethanol plant would be ethanol. You get about 10 litres per bushel. About one-third would be industrial CO2 and one-third would be a high-protein animal feed known as distiller grains.
Biodiesel is essentially to diesel fuel what ethanol is to gasoline, except that it's made from fats and oils, such as canola, soybeans, and recycled restaurant grease. Although biodiesel can be used in blends of up to 100% in diesel engines, currently there are CGSB standards only for blends up to 5%. The yield for biodiesel is approximately one litre of biodiesel for every one litre of oilseeds or animal fats, and the primary co-product is glycerine.
The Canadian market for on-road transportation fuel is approximately 60 billion litres of fuel per year. Of that, 41 billion litres is gasoline and 19 billion is diesel fuel, meaning a 5% renewable fuel requirement would be approximately three billion litres of fuel per year. If you were to assume that the 5% requirement was met by the government's target of 500 million litres of biodiesel, and the remainder of about 2.5 billion litres by ethanol, you would create a market for 250 million bushels of corn and wheat, and about 500 million litres of fats and oils. That is an incredible amount of agricultural product.
Ethanol plants being built in North America typically range from 120 million litres to 200 million litres in annual production. Capital costs are in the range of 75¢ to $1 per litre, so a 120-million litre plant would cost in the range of $100 million to $120 million Canadian to build.
A 120-million litre plant would also create approximately 160 new jobs. About 40 of those would be direct, and about 120 of them would be indirect. Indirect jobs would be things like trucking, handling grain, and other service industries. It would raise local commodity prices by approximately 10¢ a bushel and inject about $75 million per year into the local economy. It means that 2.5 billion litres of ethanol required to meet the government's commitment would result in approximately 16 new ethanol plants and generate about 2,500 new jobs, a $2 billion to $2.5 billion one-time investment, and over $1 billion in economic activity each and every year.
As impressive as the three billion litres is, it's only a drop in the bucket in the context of a North American market that is expected to exceed 38 billion litres by 2010. The U.S. industry has over 100 ethanol plants in operation today, with 30 more under construction. The market for ethanol in the U.S. is expected to almost double over the next two years. Although much smaller, the market for biodiesel in the United States is approximately 500 million litres today, but is expected to exceed two billion litres over the same period. So there are aggressive growth curves for both commodities.
This provides a potentially huge growing and lucrative market for Canadian renewable fuel production. However, if we fail to put in place a stable and competitive economic and regulatory environment for ethanol and biodiesel producers, Canadian grains and oilseeds are likely to be processed at facilities located in the United States.
What is our ability to produce these fuels over and above the amount required to meet the 5% target that the government has laid out? To use just one example, Canada produces approximately 22 million tonnes of wheat per year, and exports approximately 70% of that to be processed in other countries. Those 15 million tonnes of wheat that we are currently exporting could be processed right here at home, making approximately 5.5 billion litres of ethanol, far in excess of what would be required for our own needs, and providing a lucrative export commodity to markets like the U.S.
To produce that amount of ethanol you would require an additional 36 150-million-litre ethanol facilities. Using the same methodology as I described above, you would yield a capital investment of just under $5 billion, and an additional 5,760 jobs in rural Canada. This would be without taking acres away from other crops, switching to higher-yielding varieties with a higher starch content, or tapping into the estimated vast quantities of cellulosic material estimated to be able to produce an additional 10 billion litres of ethanol a year.
The potential for biodiesel is equally compelling. Canada's canola oil production alone has fluctuated between 1.5 billion litres and three billion litres per year. Add to that rendered animal fats, recycled grease, and soybean oil, and Canada has the ability to be a world-class producer of biodiesel as well.
In addition to raising local commodity prices, ethanol and biodiesel plants can help even more money make its way to the farm gate by having primary agricultural producers participate in equity ownership of these production facilities. Farmers and local business people own approximately 60% of the current U.S. ethanol industry. However, the desire for local ownership must be balanced against the reality of the difficulty of raising equity from farmers and rural communities hit hard by declining farm revenues and shrinking communities. In some cases projects that are wholly owned by farmers will proceed, in other cases they'll be partnered with companies that are already in the fuel business, and in some cases projects will be entirely corporately owned.
Some advocates say that you can overcome the problem of raising enough capital by simply building smaller plants, but I would caution against that approach. There are real economies of scale at play in both ethanol and biodiesel production. Based on a recent analysis developed by Natural Resources Canada using financial models for biodiesel and ethanol plants across North America, a 200-million-litre-a-year ethanol plant would have production costs 15% lower and a return on investment almost three times higher than that of a 25-million-litre-a-year plant. The story is very similar for biodiesel. I've included those graphs in the package in front of you.
So according to the CRFA and its members, primary agriculture producer participation should be encouraged; however, the government should not pursue policies that encourage the creation of an inefficient industry or limit others from participating in this market.
Let me close by saying there are great economic and social benefits for both farmers and agribusiness in having a vibrant renewable fuels industry; however, to realize them we must have a competitive industry built on a solid economic and regulatory foundation that is competitive with other countries.
I welcome the opportunity to report back to the committee with these details toward the end of July, after our consultation process is concluded.
Thank you.