Special report: Canola-based biodiesel

by World Grain Staff
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With additional government funding now available, Canadian officials believe the industry is poised for expansion

by Leo Quigley

Canada’s biodiesel industry has lagged behind the United States (U.S.) even though its principle oilseed crop, canola (rapeseed), is an excellent feedstock for the process.

While government support for biodiesel production has been generous south of the border, Canada’s struggling biodiesel industry has only recently seen government funding and, even at that, the amount was less than the industry felt was needed.

But with the recent addition of funding from some provincial governments, it appears the biodiesel industry in Western Canada, based primarily on canola, is poised to blossom.

To encourage production, the Canadian government set a biodiesel production target of 500 million liters (130 million gallons) by 2010 in its 2007 budget. The budget also included a C$2 billion investment in the renewable fuels industry, with C$1.5 billion over a seven-year period going toward operating incentives to renewable alternatives to diesel (biodiesel) and gasoline (ethanol).

The federal budget also promised to eliminate the excise tax on biodiesel and ethanol by April 1, 2008, and contribute C$500 million over seven years "to invest with the private sector in establishing large-scale facilities for the production of next-generation renewable fuels."

However, the details of how these funds will be injected into the industry have not been made clear. With an imbalance of subsidies between Canada and the U.S., the fledgling industry faces the possibility of Canadian-grown canola flowing south to feed biodiesel plants in the U.S.’s northern states. To make matters worse, with a lack of parity in subsidies, biodiesel produced by U.S. plants at a dollar-per-gallon subsidy could flow north for sale in Canada, capturing whatever excise tax and road tax incentives are available north of the border.

Tyler Bjornson, vice-president of corporate affairs with the Canola Council of Canada, refers to this possibility as "double dipping" by U.S. biodiesel plants.

Bjornson told World Grain that growers north of the border are concerned that Canada has fallen far behind in promoting biofuels as a viable alternative to petroleum and are relieved that Ottawa has finally taken steps to encourage investment in the industry.

"The main mechanism that has driven investment in biodiesel in the United States is their $1-per-gallon blender’s tax credit. That tax credit translates into about 30 cents per liter here in Canada," he said.

"There’s a big disparity in how the tax environment treats biofuels in Canada compared to what has been offered in the United States. So, investments — rightfully so — have been made in the U.S."

Bjornson is optimistic, however, that Ottawa’s most recent budget, which put in place a production incentive of up to 20¢ per liter, will help to kick-start the industry.

"This takes us quite a ways toward parity with the U.S. blender’s tax credit," he said. "And various provinces have topped that up to give us parity. In particular, Alberta has an up-to-14-cent biofuels production incentive."

Bjornson said there’s tremendous interest in biodiesel, ranging from the typical agribusiness that has biofuels production facilities globally, to farmer-led groups interested in building a biodiesel facility, to investors that are new to the industry and are prepared to invest new money in it.

"They’re just waiting for the policy environment to get sorted out so they can start constructing," he said.

As of mid-May, there were five major biodiesel production facilities in Canada that were either on the drawing board or going into production that would use canola as a feedstock. They are:

• Dominion Energy — Located near Innisfail, Alberta, the C$400-million biodiesel and ethanol refinery will include a canola crushing plant and ethanol facility. The plant is designed to produce 374 million liters per year of both biodiesel and ethanol using canola grown by local producers. Claiming that it will be the largest bio-refinery in Canada, the venture is being led by Floridabased Dominion Energy Services, LLC. • Canadian Bioenergy Corporation — In July 2006, CBC announced the purchase of 12.5 acres of land near Fort Saskatchewan, Alberta for the construction of a biodiesel refinery. Located adjacent to the local Bunge Canada oilseed crushing and refining plant, the facility is slated to produce about 114 million liters of biodiesel annually as well as 10,000 tonnes of glycerin when it is completed in 2008.

• Canadian Green Fuels — Based in Regina, Saskatchewan, CGF went into production in February of this year and was the first operational commercial/industrial-scale biodiesel processing plant in Western Canada. In making the announcement, the company said that its processor uses a "counter current reaction which effectively obsoletes all other commercially available technology." The plant uses primarily locally grown canola as its feedstock. CGF is planning to eventually supply the South Saskatchewan area with about 150 million liters of biodiesel a year and expects there will also be sales opportunities south of the Canadianborder.

• Western Biodiesel, Inc. — Situated north of High River, Alberta, Western Biodiesel is located near Cargill Foods, one of the largest beef slaughtering plants in Canada. Expected to open this August, the facility will produce 19 million liters of biodiesel a year using primarily beef tallow, but also canola oil, as a feedstock. The firm has already locked in 90% of its sales over a three-year period to a Calgary distributor and is considering a second-phase expansion that would produce an additional 19 million liters.

• Biofrost Bio-blends — A homegrown facility located near Arborg, Manitoba, Biofrost started as a seed cleaning plant and oilseed crushing facility, processing mostly flaxseed and hemp, and has since expanded its production to about 8 million liters annually using off-grade oilseeds and wild mustard seed. The company expects to produce about 8 million liters of canola biodiesel this year. BBB offers farmers a reduced price for biodiesel if they deliver oilseeds to their facility and has partnered with small producers in Shoal Lake, Roblin, St. Agathe and Beausejour, Manitoba.

While production of biodiesel in the U.S. is being driven partially by oil security concerns, that’s not the case north of the border. Recently, Jeff Rubin, chief economist at CIBC World Markets, predicted that within 10 years Alberta’s oil sand could become the single largest supplier of oil worldwide, surpassing Saudi Arabia.

This being the case, the biodiesel imperative in Canada is entirely environmental in nature and is being pushed by a federal government commitment to lower greenhouse gas emissions and to support Canada’s commitment to the Koyota Accord.

To this end, Ottawa recently legislated that 5% average renewable content, such as ethanol, must be included in Canadian gasoline by 2010 and that regulations requiring diesel fuel and heating oil to contain 2% renewable content, such as biodiesel, are on their way.

For producers of canola, the growth of the biodiesel industry is good news for three reasons: biodiesel will provide a market for low-quality seed; it will provide an outlet for surplus canola; and world markets for end-products are more secure than for canola seed alone.

Studies have shown that biodiesel can provide at least a partial solution to reducing automotive and truck emissions of carbon monoxide, hydrocarbons and particulates from high sulphur diesel.

In its report, "A Review of Environmental Assessments of Biodiesel Displacing Fossil Diesel," prepared by the Auto 21 Network of the Centres of Excellence and the Canola Council of Canada, it was concluded that: "… the production of biodiesel using canola as a feedstock reduces dependence on fossil energy by 85 percent per unit of fossil diesel displaced. Biodiesel production and use also decreases greenhouse gas emission by between 85 and 110 percent per unit of fossil diesel displaced.

"Its most remarkable impact on air quality is the elimination of toxic emissions. Its use has also been shown to reduce particulate emissions, carbon monoxide and hydrocarbons."

Used as a feedstock, canola produces essentially two byproducts: canola meal and glycerin. Canola meal, or canola cake, which is also a byproduct of Western Canada’s well-established canola crushing industry, has long been used as a cattle feed, particularly by the dairy industry. Canola meal is known to increase milk production.

This attribute of canola meal, as opposed to soybean meal, is now being marketed in China, and research is under way to further improve canola meal as a feed for hogs and poultry and to increase the oil content of the seed. Canada’s aquaculture industry also appears to be a ready market for canola protein concentrates to replace today’s expensive fish meals.

Glycerin, on the other hand, is an accepted lubricant with a wide variety of industrial and personal care uses, including soap making. And should there be a surplus of glycerin or canola meal, both can be used as a fuel source for biogas production.

Nevertheless, even Bjornson admits that the biodiesel industry is based largely on government subsidies and is prone to all the problems associated with agricultural subsidies, including the possibility that government could quickly reduce or eliminate its financial support.

To avoid this, Bjornson said Canada’s biodiesel industry would have to stress vertical integration within the industry and research and development to create new uses for biodiesel and new products.

"What will be important is that this industry innovates so it continues to look for new product development," he said. "Biodiesel is a fatty acid methyl ester, and that’s the basic chemical building block for a lot of interesting things, like plastics and polymers.

"So, if we’re looking out at the future, I’d say those companies ought to be doing a lot of research and development into how they can market their product to value-added industries."

Based in Vancouver, British Columbia, Canada, Leo Quigley writes for a variety of national and international publications specializing in agriculture and transportation. He can be reached at Quigley@dccnet.com.