Evidence of meeting #17 for Agriculture and Agri-Food in the 40th Parliament, 2nd session. (The original version is on Parliament’s site, as are the minutes.) The winning word was fuel.
A recording is available from Parliament.
Conservative
The Chair Conservative Larry Miller
We'll call this meeting to order.
We'd like to welcome our witnesses here today from the Canadian Renewable Fuels Association: Mr. Quaiattini, Mr. Haig, and Mr. Passmore. We have all three of them here. And from the Canadian Petroleum Products Institute, we welcome Mr. Peter Boag and Mr. Tony Macerollo.
We'll open up with each organization having ten minutes or less for their presentation. We'll start with the Canadian Renewable Fuels Association, and Mr. Quaiattini.
Gordon Quaiattini President, Canadian Renewable Fuels Association
Thank you, Mr. Chairman, and good morning to all the members of the committee. Thank you for having us.
Again, as the chairman said, my name is Gordon Quaiattini. I am the president of the Canadian Renewable Fuels Association. The CRFA represents the full value chain of stakeholders committed to building a robust and dynamic renewable fuels industry here in Canada.
I am pleased to be joined by Jeff Passmore, the chairman of the board of the Canadian Renewable Fuels Association. Jeff is also the executive vice-president of Iogen Corporation, a global leader in the development of next-generation cellulosic ethanol. Also with me is Tim Haig, the chief executive officer of BIOX Corporation, Canada's largest biodiesel producer. Tim is also the immediate past chair of the CRFA.
Ladies and gentlemen, in these difficult times, I appear before you today with a message of new opportunity, new hope, and new growth. Renewable fuels are now and in the coming years a story of new economic opportunity for Canadian farmers and rural Canada. Renewable fuels are creating new markets for agricultural producers, revitalizing communities, reducing harmful greenhouse gases, and offering consumers new choice at the pump. Every year, new advances in technologies for making renewable fuels like ethanol and biodiesel are opening up even more opportunities, and offer more economic and social benefits. Next-generation biofuels are rapidly coming to market, and thanks to the hard work of many members and parties in the House of Commons, Canada stands to benefit even further.
Let me first give you a sense of our industry on some key metrics. Renewable fuels in Canada today, including current and planned projects, will create some 14,000 new jobs and generate $1.5 billion in new economic investment in Canada. Even if we don't grow beyond what's on the books now—and I believe we will—renewable fuels will be responsible for 10,000 direct and indirect permanent jobs, and roughly $600 million in annual economic activity, much of that rooted in rural Canada, close to the feedstock sources we require to make biofuels.
The demand our plants create will amount to a 240-million-bushel new domestic market for Canadian-grown oilseeds and grains, which will help keep commodity prices at a fair level, thus lowering government support payments, and will assist in making more farms across Canada financially viable again.
Having new markets and value-added processing here at home are especially important on the prairies, where wheat growers have seen the price of that commodity drop in real dollars for over a century. Yet they still rely overwhelmingly on export markets. The biofuels option finally gives them some choice.
The good news about these numbers is that Canadians overwhelmingly agree that we as a nation are on the right track. The CRFA just completed an independent nationwide survey of Canadians, and the results were clear: 69% of Canadians support the move to replace fossil fuels in part with renewable fuels; 76% of Canadians approve of the new law to introduce a national renewable fuel standard, which boosts ethanol and biodiesel content at the pump and, by extension, guarantees market share for our agriculture producers; and 87% of Canadians support federal and provincial government policies and programs that would invest in the development of next-generation biofuels made from non-food feedstocks, such as agricultural biomass, waste materials, and algae.
The renewable fuels sector is in the infancy of a transformation, a bio-revolution that will be every bit as far-reaching as the information revolution in the 1980s. It is most apparent in our industry--that is, in the creation of renewable fuels that draw on what we harvest rather than what we extract. But we are only at the beginning, the cornerstone upon which this vast new opportunity is being built. Soon the full potential of the bio-economy will be plain to see, as all kinds of biomass, grown and harvested, will also be the feedstock for plastics, chemicals, pharmaceuticals, and many other materials. New jobs will be created, industrial policy will adapt, and agriculture can again become a truly growth industry.
Obviously, the bio-economy will not wipe away the need for other resources. The correct precedent to consider, quite frankly, is our own. Renewable fuels will not supplant oil—at least not in any of our lifetimes—but we are able to supplement and add to the energy mix, and by doing so we moderate the price. Renewable fuels such as ethanol and biodiesel are the only viable, real, and accessible alternatives to oil for transportation fuels today and in the foreseeable future.
These are some of the broad benefits that are felt by all, but there are specific benefits as well, most notably for Canadian agricultural producers and rural communities. Canadian growers will become suppliers to not just the food and fuel sectors, but also to industries of all sorts. Consequently, rural communities stand to gain from rising farm incomes and major investments in infrastructure. All of this will place a premium on the issue of sustainability, which is one of the core questions included in your work. Indeed, sustainability is fundamental to secure both the required environmental and productivity achievements of our sector.
On this point, allow me to pause and offer the committee a concrete example drawn from our own experience. A year ago, when crude oil prices were skyrocketing on their way to nearly $150 per barrel, there was a season of intense debate—a misleading and deeply unfortunate debate—with respect to fuel and food. The accusation was that demand for biofuels was leading farmers to divert their grains. Corn was the most prominent example. Indeed, notwithstanding the obvious hyper-inflationary effect of record oil prices, biofuels were also tagged for rising crop prices, leading to the additional suggestion that we were making it more expensive for cattlemen to feed their livestock, thus leading to higher prices at the grocery store.
None of that was true. After exports, North America generated a two-billion-bushel surplus in corn, far outstripping the combined demand of food, feed, and biofuels. Moreover, the inflationary effect was sparked by oil prices, not biofuels. As the price of oil has dropped, so too have prices for commodities right across the board—not always to their pre-spike levels, but certainly down to far more sustainable standards. Simply said, high oil prices were the culprit.
If there was one positive factor to emerge from that entire discussion, it was the spotlight it shone on sustainability and the outstanding performance of Canadian growers. It merits mention because the record of our agriculture sector is poorly understood, which means it is poorly promoted.
This means we are making too little of a global competitive advantage that Canada should be proudly consolidating and sharing around the world. For example, yields are increasing dramatically, even with fewer inputs. In the 1980s, farmers could generate roughly 70 bushels of corn per acre. Now that is up to 150 bushels per acre. And recent predictions see yields growing within five to ten years to 300 bushels per acre. Advances in all areas of crop science are occurring.
Canadian growers are world leaders in keeping direct soil emissions low. Our performance outstrips that of nearly every major European and Eurasian competitor, and by as much as 500% in some cases. And Canadian agriculture leads in areas of finding efficiencies and using new technologies in farming, such as no-till usage. More needs to be done, but we are in a position to lead from the front.
Environmentally, the International Energy Agency recently published a report that made clear that grain ethanol enjoys a 55% advantage over traditional gasoline when it comes to reducing harmful greenhouse gas emissions. Similarly, the energy balance for ethanol was determined to far outpace that of fossil fuels.
So when it comes to the future and fashioning policies that support this sector, we urge the committee to place sustainability at the core of your efforts. This is how we get more from less, and how we do so in a way that nurtures our relationship with croplands, and how we respect and increase environmental performance.
Let me close by making a few broad recommendations in that respect.
First, maintain and expand, as time unfolds, support for renewable fuels. That will undoubtedly sound quite self-interested, but let me give you the publicly interested rationale. The bio-economy is coming, but so far it is largely anchored in biofuels. That is where the action is. The tools, experience, and expertise are being developed by way of supporting renewable fuels. So pressing our advantage in this area only serves to reinforce the leadership Canadian farmers are developing in the bio-economy.
Second, help producers finance the costs of transitioning to sustainable practices. Often the price of adopting sustainable farming practices is felt in short-term revenue forgone. And for farm families struggling to get by, that's a tough price to pay. Government can help by expanding its support for that transition.
Third, do not slow down the stampede toward sustainability by asking our farmers to meet a series of onerous bureaucratic tests that will only increase the cost of transformation. Government should assume the burden of collecting data, measuring change, and reporting success.
Fourth, the government should combine forces with provincial counterparts and other relevant agencies to create an international promotion campaign to support the sustainability success of our agricultural producers. To coin a phrase, we've been hiding our light under a bushel, and it's well past time we told our story.
Finally, we are calling on this committee and the federal government to support an accelerated process to put in place the required regulations to implement and enforce the national renewable fuels standard. Canada's Parliament passed Bill C-33 in June of 2008. The environmental and economic development opportunities that we have outlined will only be realized by ensuring that the 2010 commitment to implement the RFS is kept. The renewable fuels industry stands ready to work cooperatively with all stakeholders in a transparent and accelerated consultative process to get the job done.
In closing, let me thank the House of Commons for its leadership, and simply reiterate that Canada, and rural Canada in particular, is uniquely positioned to grow and prosper from the further development of renewable fuels and next-generation renewable fuels. We are only beginning to realize the true value of this new and promising industry.
Thank you.
Thank you, Mr. Chairman.
Conservative
Peter Boag President, Canadian Petroleum Products Institute
Thank you, Mr. Chairman and members.
Good morning. I'm Peter Boag, president of the Canadian Petroleum Products Institute. With me this morning is Mr. Tony Macerollo, our vice-president of public and government affairs.
We certainly appreciate the opportunity to meet and speak with you today on the subject of competitiveness of the Canadian agricultural sector.
By way of introduction, the Canadian Petroleum Products Institute represents the refining and marketing sector of the petroleum industry, what's commonly known as the downstream petroleum sector. Our aim as an institute is to advance best practices in regard to the environment and health and safety, as well as to provide information on the industry in order to assist in sound public policy development.
The agricultural sector is important to our members for three principal reasons: one, the agricultural sector is a large and important customer of our members; two, the emergence of renewable fuels is creating new collaborative relationships with our members; and three, CPPI members are also neighbours of much of the agricultural community, from refining and terminal facilities to pipelines.
For a moment, consider the following facts from Statistics Canada, taken from the 2006 agricultural census. There are nearly 250,000 farms in Canada, with nearly 750,000 tractors worth $13 billion, 500,000 trucks worth over $5 billion, 300,000 cargo and pickup vans worth $3.5 billion, 100,000 combines worth $4 billion, and 750,000 pieces of tillage and cultivation equipment, swathers, mower conditioners, and passenger vehicles, worth about another $6.5 billion.
That's a lot of expensive equipment that requires high-quality fuel to operate. Providing high-quality fuel choices to farmers and other consumers is the principal preoccupation of CPPI members. For Canada's agricultural sector, quality fuel equals productivity and competitiveness. Simple things can be important, like ensuring the fuel delivered to farmers' tanks operates dependably year-round.
So what have we been doing to deliver on our commitment to high-quality fuel choices? Reducing sulphur content has been a major focus during the past decade. This multi-billion-dollar investment program started with the reduction of sulphur in diesel for heavy-duty trucks and on-road applications, from 500 parts per million to 15 parts per million. This phase was completed in 2006.
CPPI members are now in the process of reducing sulphur content in off-road diesel, diesel principally used on farms, from 500 parts per million to 15 parts per million. This process began in 2007 and will be complete by June 2010.
Reducing sulphur in diesel protects the environment and human health through the reduction of harmful emissions from diesel-powered engines and equipment. The phased approach that we've taken ensures that the level of sulphur in diesel fuel used in off-road engines—farm vehicles, for example—will not impede the effective operation of advanced emission control technologies.
Our most important contribution to ensuring the competitiveness of the Canadian agricultural sector is ensuring a highly productive refining sector in Canada. Our members work hard to ensure that all consumers, including farmers, have access to high-quality, competitively priced fuels.
I'm happy to say that Canadian consumers, including farmers, benefit from fuel costs that are among the lowest in the western world, generally second only to those in the United States. This fact is supported by data provided by independent third-party analysts, and I think we have for distribution later an example of some of that data, which shows where Canadian prices and costs relate to those of competitors around the world.
An evolving relationship between the refining and marketing sector and the Canadian agricultural sector is the evolution and use of biofuel blends using ethanol and renewable diesel. CPPI recognizes that this represents a new area of economic opportunity for the agricultural sector under the right conditions. Indeed, several CPPI members themselves are very active in the biofuel marketplace.
Shell is one of the world's largest distributors of first-generation transport biofuels. Shell and my colleagues at logen Corporation are considering investing in a full-scale commercial cellulosic ethanol plant in Saskatchewan, with potential opportunities for farmers to find new markets for wheat straw.
Husky Energy's Minnedosa ethanol plant is one of the largest plants of its kind in western Canada, producing some 130 million litres of ethanol per year. That's matched by a second plant in Lloydminster, Saskatchewan, which also produces that quantity of ethanol. Together these plants make Husky the largest producer and marketer of ethanol in western Canada.
In Ontario, Suncor Energy has its own specific relationship with the agriculture sector, including an investment relationship with a group of farmers. Suncor's St. Clair ethanol plant has a current production capacity of 200 million litres per year. A $120-million expansion is under way and is expected to double its capacity to 400 million litres per year.
The plant currently uses 20 million bushels of corn annually, approximately 10% of Ontario's annual corn crop. Of course, that consumption will double when the expansion is completed.
Many of you will know that in 2006, CPPI supported the desire of the federal government to implement a national renewable fuels mandate. In partnership with our colleagues at the Canadian Renewable Fuels Association, we offered an agenda and key elements for its successful implementation.
We appeared last year before this committee as it was examining Bill C-33. We supported its passage but cautioned that time was running out for implementation of a 2010 mandate.
We are now here almost one year later, and, I am sorry to say, we have to inform members of this committee that there have been more than a few hiccups with the implementation of the renewable fuels strategy that will make its launch, in our view, much less optimal than it could have been.
When the notice of intent to require renewable content in transportation fuel was published in December 2006, there were few provincial mandates in place. This is no longer the case. The hard reality is that the proliferation of provincial mandates has created a patchwork of different fuel requirement that, in the end, may create additional barriers to the efficient and free movement of product between provinces.
The notice of intent quite rightly estimated a regulatory design period of about two years. It is complicated for the federal government and for fuel providers. It's not a simple matter.
Had things gone according to plan, the plans laid out in the December 2006 NOI, I wouldn't be relaying these concerns to you today. Unfortunately, the government has not met its path forward and timetable as laid out in the NOI.
In the absence of regulatory certainty, CPPI members have been constrained in their ability to move forward to complete implementation planning and infrastructure investment and acquire the necessary approvals from provincial and local jurisdictions.
As a result of the delays encountered since the December 2006 publication of the NOI, the majority of CPPI members will be unable to meet a 5% renewable mandate for gasoline beginning in January 2010.
This is a fixable problem, but it will involve some compromise and creativity. In terms of timing, I suggest that a 2012 implementation period for both the 5% renewable content in gasoline and the 2% biodiesel would be more appropriate. At a minimum, a flexible and phased approach will be required.
It is unfortunate that it has come to this. Regardless, there are only so many hours in the day to accomplish the work that needs to be done. We don't yet have the regulatory certainty for much of that work to proceed without causing potential negative unintended consequences for consumers like farmers.
I should say that we have not stood still, though, in that intervening period. In particular, we have been working hard to better understand how biodiesel solutions in particular might apply in a Canadian setting. This is especially important for farmers, as significant users of diesel fuel all the way from the tractor to the furnace that heats the farm.
We have been an active partner in projects related to renewable diesel. CPPI supported the Alberta renewable diesel demonstration project, led by Shell and Climate Change Central, and is now working on a NRCan- sponsored Imperial Oil biodiesel research project in Sarnia.
In the Alberta project, the ARDD has shown that B2 blends of canola, methyl ester, and 2% blends of hydrogenation-derived renewable diesel are fully operable in winter conditions in the study area when cloud points are adjusted to meet CGSB requirements. The demonstration has also shown that B5 blends can be successfully made and used in shoulder and summer seasons.
We gained a critical understanding on the infrastructure requirements of quality assurance precautions essential to ensuring, in particular, proper cold flow properties of biodiesel blends in winter conditions.
The next challenge will be to move from the controlled conditions of the successful demonstration project to a real-world rollout in real time. Petroleum refiners and marketers must now ensure that we can reliably supply customers, such as farmers, through a complex national distribution network that includes thousands of retail outlets across the country, many of which are independently owned and operated.
Successfully bringing biodiesel to market on this scale will require a considerable amount of work and expense to be undertaken by fuel suppliers. There are standards issues as yet unresolved, only a limited distribution infrastructure, and several outstanding issues with regard to storage, blending, and transportation of biodiesel.
The key finding of the Alberta demonstration is that considerably more jet-type aviation kerosene fuel must be added to the petroleum blend stock in 2% and 5% biodiesel blends to ensure that these blends will work in Canadian weather conditions. Canada is a current net importer of this type of fuel, which could increase our reliance on foreign fuel sources.
CPPI members are committed to meeting quality standards and the expectations of consumers. Governments must be careful that the design of mandates doesn't lead to operational problems--for example, the waxing of fuel in cold weather conditions. An ongoing biodiesel research project in Sarnia is addressing some of the additional challenges, particularly those that relate to the stability of biodiesel blends in low-temperature conditions.
It's also important to acknowledge that many questions have been raised globally since the publication of the NOI about the merits of biofuels. These questions span a wide range of issues, from the life cycle environmental performance of biofuels to issues regarding the food-for-fuel issue, to massive subsidization globally of biofuels. This larger debate over the role and merits of biofuels is best left to other forums; however, I will emphasize the important need for robust and credible life-cycle analysis to support a biofuel agenda driven by an environmental performance policy objective. In the absence of this, I urge you to carefully review the use of CEPA for mandating renewable transportation fuel requirements. I might add that Canada will never be able to match the generous biofuel subsidy program regime south of the border.
I do want to end on a positive note and reinforce that CPPI supports a thriving Canadian agricultural economy. We are partners, and from time to time we may have differences of opinion and get caught in situations that may seem intractable, but there's always been a solution. Canadian petroleum refiners are committed to finding appropriate solutions to the challenges that we face today, particularly with respect to the implementation of the federal RFS.
Conservative
The Chair Conservative Larry Miller
Thank you.
We'll move to questioning.
Mr. Valeriote, for seven minutes.
Liberal
Frank Valeriote Liberal Guelph, ON
Thanks, Gordon, and I'd like to thank all of you for attending today and sharing your thoughts on this important industry.
Gordon, my first question is for you. You talk about 69% of Canadians supporting the move to replace fossil fuels in part with renewable fuels, and then you recite that 76% of Canadians approved of the new law. Being new to Parliament and new to this committee, I need to dispel in my own mind some of the myths that may be out there.
You've tried to dispel one of those myths by saying that it really isn't a challenge to our food supply because we had a surplus in corn this year. I'm not completely convinced by that argument, because there may be years when we don't have a surplus in corn and in fact the fuel industry will be in competition with the food industry for corn as food. I'm hoping that you folks will focus on non-food agricultural products, other cellulose like switchgrass, etc.
And can you talk to me about the environmental impact? There's clearly a proposition out there that the GHGs that are emitted in the farming and creation of these fuels exceed the benefits from using the fuels. Could you talk to me about that at length?
President, Canadian Renewable Fuels Association
I appreciate the question and the premise about the myth, because that's exactly what it is, a myth.
The International Energy Agency released a report within the last month, which is the most up-to-date life-cycle assessment evaluation of renewable fuels, and they looked back over the last 20 years of renewable fuels development, so data back in the 1980s, 1990s, and also in fact projecting forward into 2015. So the number that I make reference to, the 55% reduction of greenhouse gas by blending a litre of ethanol as compared to fossil fuel, is the most accurate life-cycle assessment data we have that demonstrates the greenhouse gas benefits that are derived by ethanol.
Liberal
Frank Valeriote Liberal Guelph, ON
And for clarity, that includes any emissions from the whole life cycle?
President, Canadian Renewable Fuels Association
That is exactly what life cycle assessment means.
And the model that they use, quite frankly, is a credit to the Government of Canada. The GHGenius model, which is a life-cycle assessment model, deemed one of the most comprehensive, on a global basis, was developed through Natural Resources Canada. And it is not only used here in Canada for, quite frankly, life-cycle assessment on all forms of energy—oil production, renewable fuels production, wind, solar—it's viable for all forms of energy use, and it is the most comprehensive.
Liberal
Frank Valeriote Liberal Guelph, ON
And is the author of that report at arm's length from the industry?
President, Canadian Renewable Fuels Association
Sure. We'd be happy to. I can submit it to the committee. I don't have it with me today, but I will certainly get it to the clerk, for sure.
Liberal
Frank Valeriote Liberal Guelph, ON
I would appreciate a copy.
I have another question. On your last page, you say, “Second, help producers finance the costs of transitioning to sustainable practices.... Government can help by expanding its support for that transition.” Tell me what you have in mind when you talk about government expanding its support for that transition. Give us some elements that you see.
President, Canadian Renewable Fuels Association
I don't know that there are any specific elements. It's more the broader issue of the agenda around sustainability. We are being asked, as a biofuels industry, to take that issue very seriously from an economics, environmental, and social perspective. In doing so, we have suggested to a number of different forums, including the Canadian government, that looking at the issues around sustainability with respect to our industry by default implies that you would have to look at our feedstock sources as well. So when you look at a number of practices that have been put in place, which I alluded to in our presentation, Canada is a significant leader in that effort. We use lower amounts of inputs in our agriculture. In fertilizer inputs, for example, nitrogen content is clearly diminishing. We have no-till practices. The province of Quebec has fairly progressive agricultural practices with respect to where farmland is located, ensuring that you're not planting crops near open waterways and things like that.
Our members, our producers in Quebec, GreenField Ethanol and their Varennes project, in fact go beyond provincial standards and have established sustainability criteria practices, so that if you want to provide that feedstock to that ethanol plant, you have to meet a number of these additional conditions. So I think my suggestion is that we simply look at some of those models that we already have and expand them.
Liberal
Frank Valeriote Liberal Guelph, ON
Thank you.
I have another question, for either Mr. Boag or Mr. Macerollo. The relationship between biofuel refineries and oil refineries has sometimes been quite tense in the United States, and I would like to know how you would qualify this relationship in Canada. How would you describe it? Does the fact that some of the most important biofuel producers in Canada are also major players in the oil and gas industry have an impact on the competitive landscape? How do farmers stand to benefit or suffer, frankly, from that relationship?
President, Canadian Petroleum Products Institute
I would first answer your question by saying I don't think that in Canada there's the same degree of tension you've just implied is in the U.S. As you quite rightly acknowledge, a number of our member companies are in both the petroleum-refining business and the renewable fuel industry. So that clearly provides a different dynamic. I think another telling point, to answer your question, would be the fact that our industry supported the federal renewable fuel centre. We worked diligently with our colleagues at CRFA to lay out what we thought would be the most efficient and effective path for the government towards implementation of that mandate.
Liberal
Frank Valeriote Liberal Guelph, ON
To what extent do you think this government has satisfied the need for it to participate in research in this particular industry, whether supporting the industry itself or universities? Can you give us your opinion on that? Research is vital to this industry.
President, Canadian Petroleum Products Institute
There's no question. There is research going on in a number of different arenas. Some of that research I've talked about this morning in terms of where industry is participating, particularly around the area of the implementation of the biodiesel mandate. In fact, one of the requirements was to satisfy some issues with respect to the demonstration of the feasibility of the addition of biodiesel, before implementation of the biodiesel mandate at the latest in 2012.
We're also, as an industry, working with universities and examining, for example, some of the issues with respect to the impacts of ethanol and gasoline in the water table when spills occur. So yes, research is occurring. I'm not knowledgeable enough to tell you all of the research that's going on in all of the potential institutes in Canada, but certainly research to ensure that biofuels work for Canadians and that they deliver on the policy objectives that government is seeking is a critical requirement.
Conservative
Bloc
André Bellavance Bloc Richmond—Arthabaska, QC
Thank you for your testimony. I would like to talk about the sector's economic health. It is not that easy to find information, because most of your members are private companies.
Conservative
The Chair Conservative Larry Miller
Excuse me, Mr. Bellavance. My volume isn't coming through very well.
Just try again, André.
Bloc
André Bellavance Bloc Richmond—Arthabaska, QC
I was talking about the economic health of the biofuels industry. We do not have access to a lot of information because the companies are private. But we can connect some dots, especially with what is happening in the United States.
In 2008, production went up but profits went down. Is that correct?