Good afternoon, everyone. Thank you, Mr. Chair and all the members of this committee, for the opportunity to discuss with you today the cost-effective opportunity to reduce pollution through the use of biodiesel.
For those not as familiar with it, biodiesel is a type of fuel processed from biological matter and other non-fossil fuel feedstocks and blended with diesel for use in diesel engines. One litre of pure 100% biodiesel, or B100, has a carbon intensity that is roughly 92% lower than one litre of conventional diesel fuel and also reduces other pollutants and criteria air contaminants by up to 100% versus regular diesel.
As a climate change solution, biodiesel is broadly supported by both environmental organizations and farmers' organizations. Biodiesel blends, ranging from B5 to B20, which means there is 5% to 20% biodiesel, are used by municipalities like Toronto, York Region, Waterloo, Guelph, Kingston, Brampton, Mississauga, as well as corporate fleets like Loblaws, Labatt and Robert Transport. The State of Minnesota, the entire state, mandates B20 biodiesel in all diesel sold between May and October. In these jurisdictions, blends are adjusted in extreme cold temperatures to account for a higher cloud point in biodiesel.
In instances that are more controlled for temperature, like shipping and underground mining, adjusting the blends is generally less necessary. For example, we are currently supplying a pilot project in the Great Lakes that is running B100 pure biodiesel in a major shipping fleet. We also supply mines in northern Ontario with high-blend biofuels.
If this is true, why aren't more companies and municipalities using it?
What stands in the way of a rapid scale-up in biodiesel is the price gap between biodiesel and regular diesel. Currently, that gap is roughly 15 cents per litre of B20 or about 75 cents per each pure litre of B100. Eliminating this delta would expand biodiesel from a relatively small segment of our economy willing to pay the premium for the social licence of using a cleaner fuel, to a broader market of those willing to adopt a cleaner fuel because it doesn't cost them more. It would also encourage those using a low blend to use a higher blend.
As is reasonably expected, we can't expect companies to pay more for cleaner fuel when their competitors have the option not to. That green premium can only be closed in two ways: either accurately add the social costs of conventional fuels to the price of conventional fuels, or help bring down the cost of the alternatives.
While the clean fuel standard may reduce the price gap over time, third party modelling shows it is expected to take about five years for the CFS to have a meaningful impact on the difference. Similarly, the carbon price currently has an impact, but the price is too low on its own to prompt the market shift we need. In addition, many sectors are granted exemptions to the carbon price and, therefore, it doesn't apply to their cost of conventional fuels anyway. Mining and shipping are two such sectors.
We recommend the federal government put in place a blender's credit to eliminate the price gap between diesel and biodiesel. The credit should be limited to those using a high blend of fuel to avoid funding those who are already using a low blend or those who are complying or need to comply with federal or provincial mandates. This type of credit already exists in the U.S. and is the reason that their average blend is higher than in Canada.
Based on calculations by Golder Associates, the average cost to the government will be approximately $50 per tonne, based on the average price for biodiesel over the past few years. As the price fluctuates and the gap narrows, that price per tonne or blender's credit could also reduce.
There are few, if any, initiatives in this part of the transportation sector that can achieve reductions at this price, and other options would also force us into path dependency. There are significant co-benefits with biodiesel, such as the advantages of deriving much of that feedstock from domestic sources closer to where the fuel is being used. Biodiesel would be cheaper and utilizes existing infrastructure so that money spent here doesn't lock us into a technology that may limit us in the future.
I would like to thank you all for giving us this opportunity. I look forward to any questions you may have.