Natural Resources Committee on June 15th, 2006

[Alan Tonks, Liberal, York South—Weston, ON]

Thank you, Mr. Chair.

I want to follow up on Mr. Allen's question with respect to the sustainability of regional capital investments in ethanol, be it cellulose-based, grain-based, biodiesel.... And I appreciate working toward a national strategy with respect to renewable fuels.

Yesterday or the day before we had solar and wind technology producers or investors or whatever you want to call them, and we talked about the opportunity with respect to the energy grid changing from a north-south direction to an east-west direction and what was in that for wind in terms of integration with hydro. There are lots of opportunities out there.

But the politics of all this appear to be very competitive. We have the softwood lumber issue with the United States.... Are the forces of integration in terms of capital formulation, in terms of investment incentives through NAFTA or other means--are we looking at those with respect to a continental approach? What's your take on the most recent trends in that regard? It's one thing to have a strategy paper that says it's good for Canadians; it's another thing to convince Americans from an overall consumer perspective it's also good for them.

My question to Mr. Perez is what can the committee do once this policy paper is ready? What can we do to assist you in the challenge of a more integrated, broader regime on a more competitive scale that will act as a full factor for our own more regionalized investment?

[Alain Perez]

The U.S. refining industry is very big and the Canadian refining industry is smaller, but the Canadian refining industry can produce at the same cost as the U.S. We beat them and we export, even though we're smaller. So you have an example of an industry that, albeit smaller, is not just competitive, it's better than the U.S. refining industry.

Let's project that to ethanol. First, you need to build plants of the scale that can compete with the U.S. That's pretty clear.

In terms of NAFTA, unfortunately, the U.S. started their policy long before we started discussing this here. So in this case you're going to have to adjust to what's already there. That's a fact of life. If you don't adjust your agricultural policies, these members will buy their grain in the U.S. unless you erect barriers, and you cannot, politically or by fair treaty. So it's a question of adjusting. It doesn't mean spending and matching them dollar for dollar; we can be much more creative.

Where I think Canada could have an edge is where Jesse has been making an eloquent pitch for the development of new technologies. Iogen is Canadian. Most of the work done on users of biodiesel and the energy company he's talking about are Canadian companies or Canadian affiliates. Canada has a long history of developing technologies ahead of the U.S., from the telephone on. But you have to look beyond 2010.

Let's do something for 2010. Beyond 2010, what can you do to encourage the development of Canadian technology? And with all due respect to your committee, I'm surprised the federal ministry of industry is not involved. Agriculture is involved; environment is involved; you're involved; that's totally appropriate. Where is the federal agency that is supposed to look at new technologies, competitiveness, etc? I think they should also be at the table and they should look beyond 2010. We can beat the U.S. beyond 2010. Between now and then I would suggest if you want a national policy, you need to adjust to what they've been doing so we will remain competitive.

Would you agree, Kory?

[Kory Teneycke]

Yes.

I'll give one illustration of what Alain's talking about. Jesse referred to it earlier as well; it is this problem with commercialization.

Many of the members of this committee have toured the facility at Iogen. It is state-of-the-art technology; it's getting press all around the world in recognition of that. The commercial development and the programs to have that first cellulose ethanol plant built are not anywhere close to being competitive with what's available to Iogen to do that in the United States. They're not even close. They're not within 100 kilometres of close.

That is a shame, because it was a Canadian-developed technology. The Canadian government invested $20 million in R and D in developing it, and just as the goose is ready to lay its first golden egg, we sell it for one dollar to the United States. All the economic benefits associated with that investment we made end up being realized in another market. Why? It's because we won't provide a loan guarantee for it, because there's some philosophical opposition to loan guarantees within the Department of Finance--and, frankly, there's very little engagement from the industry department on this issue.

I think we are about to have another example of that--not that we need a lot more to demonstrate that we have a problem with commercialization of new technologies.

There are similar challenges on biodiesel. I could go on, but I'll just use the one example for reasons of time.

[Alan Tonks, Liberal, York South—Weston, ON]

I have a comment on that.

When we were having our hearings on environment and sustainable investments and so on, we found that we couldn't get the right players at the table. We were reaching out to see if we could have committee meetings with industry at the time. I would suggest that at some point we should have industry and finance together, to find out what their strategies are and what their disposition is towards loan guarantees.

We should be seeking out answers because there's a huge opportunity lost when you look at the competitive units of scale that are the reality within our investment community. As Mr. Perez has pointed out, this is a window of opportunity that is rather narrow in general terms, so at some future point we should be looking at that kind of a meeting.

Thank you very much, Mr. Chair.

[The Chair, Conservative, Lee Richardson]

Thank you. Thank you for your responses.

Mr. Paradis, do you have any questions? No?

Then Mr. Trost is next, please.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Christian and I will split our time here.

I have one very small, almost off-the-topic technical question here. Your remarks about biodiesel caught my attention. We were talking about greenhouse gases, etc., but my understanding is there's quite a push to go to low-sulphur diesel.

[Alain Perez]

I'm sorry, there is a...?

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

There's quite a push to move from high-sulphur-content diesels to low-sulphur-content diesels. Isn't that correct?

[Alain Perez]

This has been done; this is done.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Yes, yes, I understand.

One of the benefits, according to a technical expert I talked to, is that mixing in biodiesel is one of the better solutions for mixing in with low-sulphur diesel. Is that correct? Is that potentially...?

There's a very big difference for the trucking industry for moving to a 5% biodiesel, or are you just doing it as an additive? There are real technical differences between using it more as an additive and using it as a fuel. Would that change the approach of certain industry responses?

[Alain Perez]

The biodiesel would have no sulphur, because it does not come from fossil fuel. If you add that, it will lower the concentration of sulphur in diesel. That's a plus, even though it would be a very small amount. You put 2% in something that already has just 10 parts per million, because we've gone down from 500 parts per million to 10 parts per million effective June 1 of this year--so we're there.

Do you want to say a word about the technical issues around biodiesel, so it's clear in the mind that it's indeed back on sulphur?

[Jack Belletrutti, Vice-President, Canadian Petroleum Products Institute]

First of all, low-sulphur diesel is essentially a new product that basically starts June 1 for on-road vehicles. It hasn't been extensively tested with biodiesel, for example, so we're not exactly sure how that's going to work out. It's not the same as testing it with 500 parts per million, so it's something that lies ahead of us to test out, to make sure....

Even on its own, very low-sulphur diesel does tend to reduce the lubricity of the fuel, so we need to find out if we have to make any adjustments to make sure the low-sulphur diesel performs in the vehicles--in the trucks--to the same degree it did before.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

This is a bit of a technical question. Someone made a suggestion that biodiesel would help the lubricity. John Deere evidently uses it for all of their.... So there was some talk that from a technical perspective, it might actually be better.

[Jack Belletrutti]

That's one of the pluses, but there are pluses and minuses. And the minus, the big one, was mentioned by Jesse.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Cold flow, yes.

[Jack Belletrutti]

It's cold flow because of Canadian conditions. And there's a significant difference between biodiesel and fossil-fuel-based diesel.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Could you give the number you're using for cold flow? I've heard all sorts of things. It's all over the board, the difference in cold flow between biodiesel and regular diesel. I've literally seen three or four different sets of numbers, and I'm not always sure what to believe.

[Jack Belletrutti]

The measure that's used is called cloud point, and it's in degrees Celsius.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Yes, I'm familiar with that.

[Jack Belletrutti]

What I have for biodiesel is anywhere from minus 3 degrees Celsius to plus 11 degrees Celsius, whereas ultra-low-sulphur diesel is between minus 1 degree Celsius and minus 47 degrees Celsius. That's really the big discrepancy.

So if you get very cold in Canada, you have a problem.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

I understand the physics.

[Jack Belletrutti]

There are additives that one can add to the blend to counter that effect, but it's very limited, how much you can do. You can improve it by one or two degrees. That's basically the effect of additives.

That's the fundamental issue on the negative side.

The other one, quite honestly, is that the sources of biodiesel are so varied. I mean, they can come from french-fry grease, grains like canola and soy, or animal renderings, and when you turn those into biodiesel, the properties are quite a bit different.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

I understand there are arguments about the European and the American...and how we should go from there.

Kory, do you want to answer the question?

[Kory Teneycke]

I think Jack just made the point I was going to raise. The reason there's such a variation and why you've seen different numbers is that it's very affected by what feedstock was used to make the biodiesel. And even those have their pluses and minuses. The rendered animal fats have worse cold flow properties, but higher cetane, which is also something that is of value when you're blending it. So I think it's quite possible that the type of biodiesel in demand will have some seasonal variance.

The largest plant in Canada is using a mix of tallow and canola oil. They aren't making biodiesel from just canola or just tallow; they're doing about a 50-50 mix, which gives you totally different cold flow properties and cetane numbers.

So it is very difficult to give a hard and fast answer on that because it really depends on what you're making the biodiesel out of and whether it's a blend--

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

But that would depend, then, on Canadian technical standards, what we'd come up with on our technical standards.