Canadian biofuels document triggers official denials

Environment Canada at odds with U.S. study claiming subsidies a waste

BY GARY PARK FOR GREENING OF OIL

A spreading North American debate over the costs and benefits of ethanol and biofuel policies lends itself to easy misunderstanding.

Take the case of what has been described as a “poorly worded” Canadian government document that indicated Ottawa—already under fire for its wavering on climate change measures—might be backing away from possibly its strongest policy initiatives to reduce greenhouse gases. The document, released Jan. 6, said that based on global production levels over the past three years “there is now evidence of implications to the environment from biofuels-based ethanol production facilities.”

While ethanol and biodiesel were still viewed as “green” energy sources by some, “criticism of biofuels has also grown remarkably throughout recent years,” the government paper said. “Experiences in the U.S. and Brazil now suggest that existing biofuels production facilities are responsible for the generation of a range of new air and water-related problems as well as concerns over human health.”

Far from clear-cut evidence that Canada was about to abandon its goal of 5 percent renewable fuels in gasoline this year and 2 percent renewable fuels in diesel by 2011, but hardly the appearance of a ringing endorsement for the policy at a time when almost 400 reports in the United States over the last six years have suggested that biofuels plants are in breach of environmental and health rules.

Biofuels industry not running scared

But Canada’s renewable fuels industry is not running scared over the government document. Gordon Quaiattini, president of the Canadian Renewable Fuels Association, told Greening of Oil that, appearances to the contrary, the government is not engaged in a review of its policy.

He said regulations to implement the ethanol and biodiesel targets “will be coming out shortly” and was emphatic that Canada will meet its Sept. 1 start date for the 5 percent mandate. “There is no retreat whatsoever,” Quaiattini said. He blamed any confusion stemming from the government publication on a “poorly written” Request for Proposal to establish environmental benchmarks on the existing performance at biofuels plants.

Canadian agency issues reassurances

Environment Canada, which said that report is due by March 31, told the Canadian Press that commissioning the study “does not presuppose that there are any harmful effects from (the biofuels) facilities, nor does it change the government of Canada’s commitment to renewable fuels.”

In a follow-up email to clarify the purpose of its benchmarking study, Environment Canada said it wants to provide “more comprehensive and detailed information to better identify, characterize and predict the environmental implications of biofuel production in Canada.”

That commitment includes C$1.5 billion in federal money over the 2007-2016 period to increase biofuel production, targeting a 76 percent increase by the end of 2011, although it is not clear whether those goals are still achievable given the number of new or expanded plants that have been sidetracked by the economic downturn.

Quaiattini told the news agency that renewable fuels offer “demonstrated benefits both in terms of environmental performance and economic impact. We welcome the opportunity to confirm those results and, provided the methodology is fair, we have no doubt the advantages of renewable fuels will again be demonstrated.”

Rice/Baker study finds subsidies waste of money

While Canadian federal and provincial governments insist renewable fuels carry both economic and environmental benefits for Canada, there are rumblings of discontent in the United States, notably in a report this month from Rice University’s Baker Institute which said government biofuels subsidies are a waste of money that have neither enhanced U.S. energy security, nor yielded environmental benefits.

The U.S. Renewable Fuels Association quickly fired back, alleging the study was partly financed by Chevron to continue an “orchestrated campaign to limit and ultimately eliminate the use of biofuels to displace foreign oil.”

The lobby group said the study was based on date information and “questionable assumptions.” A spokesman for the association said the analysis relied on “myths, generalities, and half-truths to dismiss ethanol, while providing no comparison to our increasingly dangerous and costly addiction to oil.”

The study said the U.S. government spent $4 billion in 2008 to replace about 2 percent of the U.S. gasoline supply with the average cost at $82 per barrel, or $1.95 per gallon above retail prices.

The United States provides a tax credit of 45 cents per gallon to companies that blend ethanol with gasoline.

But the study said the end result is that ethanol is displacing the equivalent of only 185 barrels per day of gasoline from total demand of about 9 million bpd.

The study authors said the 2 percent figure used for the cost calculation was based on removing the amount of ethanol replacing the gasoline additive MTBE and also factoring in the lower energy content of ethanol compared with gasoline.

The report also questioned whether import tariffs of 54 cents per gallon limited the United States ability to meet biofuels mandates, the daunting challenge of converting gasoline-powered vehicles to handle fuel with more than 10 percent ethanol and the need for pipelines to move corn-based ethanol from the Midwest to the major markets.

It said removing the tariffs would likely enable the United States to meet its target of 36 billion gallons of ethanol by 2022 largely through imports from Latin America alone, thus reducing the “market power and influence” of OPEC.

In Canada, some British Columbia gasoline stations have stopped selling biodiesel because the cost of the fuel could rise by as much as 22 cents per liter in 2010 when the provincial government removes a tax exemption, making biodiesel more expensive than regular gasoline.

United Petroleum Products, which sells about 250,000 liters of biodiesel in the Greater Vancouver area each month, is on the verge of removing the alternative fuel from its pumps. As well as its own retail and commercial fuelling stations, the company supplies biodiesel to other outlets, including Autogas Propane, which has decided to stop selling the fuel.

The B.C. Sustainable Energy Association endorses dropping the tax exemption, but favors exempting biofuels from a 4.14 cents per liter provincial carbon tax.

Links of interest

Environment Canada

U.S. biofuels study

Canadian Renewable Fuels Association

B.C. Sustainable Energy Association

Contact Gary Park through publisher@greeningofoil.com