Natural Resources Committee on June 15th, 2006

[Kory Teneycke]

Well, maybe I'll talk about the ethanol expansion program, because it's something we're working on very closely with the government right now.

I think the ethanol expansion program was captured, along with many other government spending programs where the money hadn't actually rolled out the door, in a freeze that affected many other areas. One by one, these various programs are either getting a thumbs-up or a thumbs-down. Our understanding is that it's going to Treasury Board very shortly and the government is recommending that it proceed. We're encouraged by that. We think the money will shortly flow. If it doesn't, I would agree that it would be very inconsistent with the government's broader goals.

In terms of environmental benefits, I actually agree with the modelling the Martin government did on what the environmental benefits of a renewable fuel standard would be. There's a range of 4.5 to 5 megatonnes. Those are exactly the same numbers and the same models that this government is using.

Is an annual reduction of 4.5 to 5 megatonnes in GHGs for transportation the solution to climate change? Absolutely not. Is it a huge reduction compared to reductions that we've seen everywhere else across our economy in terms of GHG reductions? Yes, it's one of the largest.

To throw too many barbs at a 4.5 to 5 megatonne reduction would be an incomplete picture without also talking about exactly how much we have reduced GHG emissions in megatonnes. It's a big number in comparison to what else we've done.

[Roy Cullen, Liberal, Etobicoke North, ON]

Mr. Row, do you want to comment?

[Jesse Row]

I would agree with Mr. Teneycke that it is a step in the right direction, but I think the messaging we would provide around this is that there is a lot more to do. That's really the main message, that there are a lot of emissions out there that do need to be addressed that haven't been addressed yet.

To get back to your original question regarding potential inconsistency in policy, I think we've heard it many times today that if we have a renewable fuel standard without any way to ensure that some of the production occurs in Canada, likely we'll be importing all of it, and a lot of the benefits that we're going to get from a renewable fuel standard will go south of the border.

Certainly we do need to be having policies that are consistent, which maximize the benefits on the economic side, on the environmental side, and the social side as well.

[Roy Cullen, Liberal, Etobicoke North, ON]

Thank you.

Mr. Perez, you mentioned the need to have some common standards across Canada for interprovincial purposes and also so that Canadians can capture the benefits of looking at harmonizing what they're doing in the United States versus what we do here in interprovincial harmonization.

There was a meeting recently with the ministers where this commitment to biofuels was made. Was there any discussion, do you know, or was there any follow-on in terms of looking at harmonizing or creating uniform standards? Does that resonate with the government? Are they listening? Do they appreciate it as a problem?

We heard from the officials the other day that they understand that it's an issue and that they are working on it. Do you get the same sense that it's going to be resolved, or how is it proceeding?

[Alain Perez]

It's resonating, because no Canadian government is going to tell you that they want to do something that is in clear contravention with NAFTA. But at the same time I know that it's probably the most difficult subject in terms of federal-provincial relations.

If a province--not naming any--says “I want the ethanol produced in my province, using the corn grown by my farmers, and if it's not that way you're not getting any subsidies”, and the subsidies are like 30¢ or 35¢ a litre, any Canadian government is going to have a fight on their hands unless they provide compensation, so we're back to how much money is going to flow from federal coffers to the various constituencies.

We think the danger there is that the kind of policy that Saskatchewan, for instance, has put forth not only creates trade issues between provinces and with NAFTA, but it creates also very small plants, which will not be competitive.

Co-op members are going to be competing with Archer Daniels Midland and with Cargill and with Suncor and with Husky, and maybe other oil companies. And the oil companies aren't going to build small plants. They're going to build plants that can be very efficient and export.

Encouraging a small farm co-op to build a small ethanol plant might make local political sense, but it's going to create long-term headaches for you. So it's resonating, but at the same time I see alarm bells going on, saying, whoops, politically difficult. And as to how you resolve that--good luck.

[The Chair, Conservative, Lee Richardson]

I think we'll pick it up on the next round, Mr. Cullen.

[Roy Cullen, Liberal, Etobicoke North, ON]

Especially on that point, yes.

[The Chair, Conservative, Lee Richardson]

Monsieur Ouellet.

[Christian Ouellet, Bloc, Brome—Missisquoi, QC]

I believe Mr. Tonks asked a good question about incentives and the steps that would allow us to be effective in the reduction of greenhouse gases. That was where his question was leading.

You didn't talk about that but one may wonder if the results we could achieve by reducing vehicle gas consumption would be as significant. As was rightly said by Mr. Cullen, ethanol is not a panacea for the reduction of greenhouse gases, far from it.

Let's go back briefly to agriculture. Mr. Cardin asked you what could be the impact on agriculture and on food production. In my riding, grain corn is priced at $117 a ton. A few years ago, it was $180 a ton. If we start to produce ethanol a big way, what will be the price of grain corn? UPA believes that the price could go as high as $250 a ton. If they're right, this would have a huge impact on food.

So, one can't say that it couldn't have an impact on food and agriculture. It will have one, that's obvious. It will also have an impact on greenhouse gases because, the more we use wood fiber to produce ethanol, which is more effective as Mr. Row stated, the more we will cut carbon sinks since we will cut more trees. This is exactly what's happening now in Brazil where carbon is collected back on Earth.

Therefore, it's not necessarily an effective solution. One understands Brazil's position but we would have more difficulty to accept that becoming Canada's position because we already have oil. It's difficult to understand why you want big subsidies to produce ethanol instead of letting the market evolve freely.

Why you do you say that biodiesel has problems? That's what you said in your briefs. Why not ask for subsidies to set standards so that biodiesel would always be on an equal footing and the trucking industry and buses would be able to use it? Why don't we carry out serious research on cold climates and biodiesel? There's not enough money to do that. We're only doing small-scale studies.

[Alain Perez]

More time is needed. All I said is that 2010 is a bit too close to make a decision on biodiesel.

As far as conservation is concerned, we're not very credible in the industry when we tell people to cut down on their consumption. However, we would like that to happen, for all sorts of reasons that I could explain if you wish.

Canada is going to generate about 800 megatons of greenhouse gases or CO₂ equivalent. Here, we're only talking of 3 to 5 Mt. The automobile sector accounts for 25% of this 800 Mt. Keep this in mind: if today's vehicles were as heavy as in 1985 and if we were using engines with the same power as in 1985, we would be using 30% less gas, which represents 60 Mt.

So, we're all for a national policy on ethanol, absolutely, but why is there such a deafening silence on conservation measures when the benefits would be so obvious?

[Christian Ouellet, Bloc, Brome—Missisquoi, QC]

We can't do one without the other. We can't choose ethanol without choosing at the same time to cut down on our consumption and to improve our energy efficiency.

Generally speaking, research is carried out by industry. Independent researchers are few and far between. You probably know Mr. Patzek who teaches at the University of California in Berkeley and who stated that, if one were to add all the activities required to produce grain corn -- ground tilling, fertilizer making and spreading, pesticides made from all the molecules, harvesting, transportation, processing and distribution -- taking into account the low energy efficiency of ethanol since we know that 1 litre of gas is equal to 1.5 liter of ethanol, the end result would be 6 units of energy used to produce 1 liter of ethanol. He's not saying you would need 6 L to produce 1 but 6 units of energy.

Other researchers have come to similar conclusions. Dr. Pimentel of Cornell University has concluded that you need 29% more energy to produce 1 litre of ethanol than what ethanol would give you afterwards because ethanol, which is an alcohol, is not very efficient.

What do you think of those independent studies compared to studies carried out by researchers who are more in agreement with industry?

[Jesse Row]

I think, from our research, we had exactly the same question. As an environmental organization, we want to look at it from an environmental perspective. Certainly if there's going to be no benefit to this, we don't want to be supporting it and seeing it being promoted as an environmental activity. So we did conduct our own research, and we have looked at the research of others. The large majority of the research says that there is a reduction in the life cycle of greenhouse gas emissions. I am aware of several studies that do not provide those same conclusions. For example, Dr. Pimentel is probably one of the more famous fellows who is not in favour of this. His research has been discredited by many. So at this point, as an environmental organization, we are fairly comfortable in the research that's out there and the research that we've done to say that there is a life cycle greenhouse gas benefit to this technology.

There are several environmental organizations in the United States that have taken the same approach and said we want to look at all the research and make sure we're actually promoting something that's good for the environment. They've come to the same conclusion as well.

[The Chair, Conservative, Lee Richardson]

Thank you.

Next, could we have Mr. Allen, please?

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Thank you, Mr. Chairman.

I've got a couple of questions I'd like comments on. Mr. Row, you hit on it when you started to talk about “regional”. When we start formulating a national policy about this, it seems like it starts in the west, and then there's the question of scale. I'm from eastern Canada, and when you start talking about these products based on agricultural products and things, we'd have to pretty well clear all our land to even have anything close to being the size and scale that it would take to get an economical ethanol plant. I understand that we're talking about somewhere in the area of 200 million to 300 million litres as the kind of target now for an economical plant.

So maybe you could share with me how some of the other smaller centres, whether they be in the U.S. or in other places in Canada, benefit economically when you consider transportation. That's the only thing you can do--transport it somewhere else when it's done--and then it's not economical any more. So how would a small centre be able to benefit from a renewable fuel strategy like this?

[Jesse Row]

Kory, you probably have better examples than I do.

[Kory Teneycke]

Yes, I think it's going to be very regionally specific. More of these fuels will be produced in areas closer to where their feedstocks are. So you're correct in pointing out that this is a bigger story on the prairies than it's going to be in the Maritimes. However, that's not to say that there aren't opportunities for production that are possible on a smaller scale because of the economics of various industries that are already located there. For instance, you would probably never on the prairies or in the midwest build an ethanol facility using potato waste, because you don't have as many potatoes growing there. There isn't an existing potato processing industry in Saskatchewan as there would be in P.E.I. and New Brunswick, but because there is potato processing in P.E.I. and New Brunswick, there is actually a potentially good feedstock.

Alain mentioned some of these other technologies very briefly, like Fischer-Tropsch technologies, in which you're gasifying wood fibre; or you could use a process similar to Iogen's, in which you're using enzymes to attack them. There's clearly a very vibrant forest industry in Atlantic Canada, which has generated feedstock that could be used for production of these fuels. Plus, there's also opportunity to import things like palm oil to make biodiesel. There's a company in Halifax that's making a biofuel using fish oil currently.

So there are some opportunities to do that, and the economics will be very regional, based on things that are already happening that are generating those feedstocks. So scale is important, but that's not to say that there won't be examples of smaller plants that, because of those local economics, are viable.

I think for Canada at large, this is a very good economic story. Saskatchewan doesn't have any oceans, but it does have agricultural land, so it doesn't mean supporting the fishing industry is bad for Canada just because Saskatchewan doesn't have an ocean. Having the prairie regions doing well I think is going to be good for all other parts of the country also.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

I'd like to have just a quick follow-up on that. My understanding is that once you get outside of corn and that type of thing and cellulose, and you get to potatoes, it is very energy-intensive to even create ethanol out of potatoes.

[Kory Teneycke]

Surprisingly, I don't think the issue with potatoes is so much energy intensity as it is that the starch content of potatoes is a lot lower than it is for corn and wheat. So I think it's less an issue of energy intensity and more an issue of feedstock supply and volume. It takes a lot more potatoes to make a litre of ethanol than it does corn or wheat. You need to have a lot of them available, year in and year out, in order to make that work.

That would be a risk factor associated with using potatoes. What happens if there's a bad potato crop? What happens if there's a very good potato crop, in terms of quality and the amount of waste potato that is reduced in that year? What are you going to do in terms of the feedstock for that one year in five where that might be the situation? I think that's more the issue for people who have looked at it: the risk associated with feedstock supply.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Does anybody else want to comment? Go ahead.

[Jesse Row]

From my perspective, I actually haven't done a lot of research on the potato as a feedstock. That's primarily because it's not at the top of the list. We've been focusing very much on the big players in that game. So, no, I wouldn't have anything to add on that front.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Mr. Perez, I have a quick point on one of the comments that you made before.

This is interesting. Every time you try to develop a policy, you always want to create a policy that is comprehensive enough, yet not so comprehensive that it restricts your flexibility down the road, because as you pointed out, who knows what fuel prices will be. In the world we live in right now, we can speculate that the prices won't go down in the future.

So what is that right level of detail, from your perspective? You said don't rush to get to a comprehensive strategy. At the same time, we've got to get somewhere, sooner rather than later, so how do we create something that is flexible enough for us?

[Alain Perez]

Thank you.

My comment about not rushing was specific to biodiesel. I said don't rush it, because instead of imposing it on the Canadian trucking industry, we believe it can be used in other ways that would provide the same benefits.

In terms of a comprehensive policy, I think you have to go back to the principles that we outlined. If you could have a policy that follows those principles, we believe it would be successful. You need to create a competitive Canadian industry. Those plants need to be able to compete with U.S. plants.

You need to create a policy that allows the free flow of product so that the market mechanism we have today stays the same. Then, you know why the price of petroleum is what it is, as opposed to, well, you know, it's a small niche market in Saskatchewan and therefore it's much higher.

So we're not saying don't rush. By 2010, we believe there could be a national policy that could provide the umbrella for a competitive free trade industry in Canada. We're sure about this for ethanol; for other fuels, we're not sure.

That's all we're saying. Give us a bit of time to try to find how other biofuels could be marketed. You don't have to pay for the research; we're doing it.

[Jesse Row]

I would like to make a comment on biodiesel, if I could.

There has been some conversation as to where the biodiesel industry is right now. There are questions as to whether it's going to be acceptable to the consumer. The trucking industry is one of the more vocal and larger consumers out there. We've actually been working with some large energy companies on the biodiesel issue and trying to figure out what the biggest market concerns are. Certainly the fuel properties and meeting the standards that are currently out there are their biggest questions.

The conclusion that we've come to--and we've been working in cooperation with these energy companies and have similar conclusions on this--is that it's the cold flow properties that are the big challenge. Their feeling is that they will be able to meet the standards for cold flow for diesel that is in the pumps right now. They'll be able to take biodiesel and meet the exact same standard they're reaching right now with diesel. That's where they need to be. That's their bottom line.

We agree with that. If you put a product out there that's not going to be successful, basically, that's not good for anybody.

The energy companies say they can do it. They just need to do a little bit of work to make sure that they can get there. Absolutely, I think this work needs to be done. I see a very bright future for biodiesel in this country, and I believe it is coming. From their perspective, they're ready to do it.

In my opinion, they're probably not going to jump in with their own two feet without some sort of signal from the government that this is the direction we're headed. So I think a signal around biodiesel needs to come in order for us to get there.

[Alain Perez]

I would support what has been said.

[The Chair, Conservative, Lee Richardson]

Mr. Tonks.