From: Petroleum News - 31/05/2009
The Canadian government is falling into line with the United States as it plans a sharp hike in the use of grain-based ethanol in transportation fuels, ignoring the growing concerns over the greenhouse gas emissions that stem from agricultural practices used to grow feedstock grains and a shakeout that is taking place in the U.S. ethanol industry.
According to government sources, Environment Minister Jim Prentice has gained cabinet backing to introduce regulations mandating that refiners include at least 5 percent ethanol in their gasoline by fall 2010.
Although there has been no confirmation from Prentice’s office, his officials have laid out plans to invited industry representatives.
However, Prentice has left little doubt that Canada is ready to mirror whatever action President Barack Obama takes.
“We will work together to ensure we have a single dominant North American standard for carbon emissions and fuel economy,” he told reporters in Calgary.
“The automotive industry in North America is deeply integrated. Therefore it doesn’t profit any of us, either as consumers or manufacturers, to have competing standards.”
Indirect emissions a factorThe Canadian government estimates grain-based fuels can lower GHGs by 40 percent compared with conventional gasoline, but it has not yet taken account of the indirect emissions that result from deforestation and increased land cultivation needed to meet the demand for biofuels.
Both the United States government and California have acknowledged in recent weeks that once those emissions are factored in, ethanol could be just as “dirty” as gasoline.
But the Obama administration is so committed to green energy that the Environmental Protection Agency is expected to make a far-reaching decision this year in response to a request from the ethanol industry to raise the maximum amount of ethanol that can be added to gasoline from 10 percent to as much as 15 percent (known as E15), although the expectation is that the EPA will settle for something between E10 and E15.
Growth Energy, an ethanol lobbying group, and 54 ethanol manufacturers have asked the EPA for a waiver of the Clean Air Act so that more ethanol can be added to gasoline.
Problems possibleThe Center for Auto Safety has warned that adopting E15 could trigger a host of problems, notably adding US$1,600 to the cost of producing a car, the voiding of car warranties, not to mention the impact on millions of engines in everything from boats to chainsaws and lawn mowers, potentially setting off a wave of lawsuits.
However, opting for E15 would probably stop some of the bleeding among U.S. ethanol producers, who insist the increase they propose is necessary because the U.S. Energy Independence and Security Act of 2007 includes a renewable fuels standard that requires a steady increase in the use of biofuels from 11 billion gallons in 2009 to 36 billion gallons in 2022, including 21 billion gallons of advanced biofuels, comprising 16 billion gallons of cellulosic biofuel.
But, because Americans are buying far less gasoline than was anticipated when the law was passed, the American Petroleum Institute said that by 2010 or 2011 it will be impossible to meet the renewable fuels standard if the ethanol content is held at E10.
Pulling in the opposite direction is a U.S. Energy Department study last year that tested 16 late-model cars and found, on average, that mileage dropped 5 percent with E15 compared with gasoline that contained no ethanol.
Given the fact that engines vary widely in their age and technology, the EPA has indicated it might approve the use of E15 for some vehicles and not for others.
Standard not yet setWhile this debate follows its meandering path, the Canadian government has been unable to deliver on legislation adopted a year ago requiring it to set a renewable fuels standard.
Trying to establish regulations has collided with arguments that ethanol demand has driven food prices higher.
Gord Quaiattini, president of the Canadian Renewable Fuels Association, said a federal mandate will boost investment in new biofuels capacity at a time when the industry has been hit hard by a drop in gasoline prices, high feedstock costs and the credit crunch.
In the U.S. the corn-based ethanol industry was broadsided when California regulators said much of the U.S. supply was little better than gasoline, when indirect emissions were included.
Among those factors, the EPA said corn-ethanol producers who fuel their production processes with natural gas generate 5 percent more GHGs per gallon of fuel than gasoline producers over a 30-year period, while ethanol producers who use coal create 34 percent more GHGs. All Canadian producers use natural gas.
Natural Resources Canada calculates biofuel GHGs using a Canadian-developed model that reflects differences in grain feedstocks, fuels and agricultural techniques, determining that on average grain-based ethanol produces 40 percent less GHGs than gasoline. But the department does not include indirect land use emissions in that calculation.
The International Energy Agency estimates that emissions gains from corn-based ethanol will double in the 1995-2015 period and estimates that corn-based ethanol will lower its emissions by 55 percent as the manufacturing methods become more efficient.
U.S. producers changingHowever, critics in Canada accuse the Canadian government of overstating the environmental gains that can be achieved through its biofuels policy when it fails to estimate the emissions that result from agricultural land-use practices.
Some suggest the government is more concerned about providing markets for grain growers and incentives to build biofuels plants in struggling rural areas.
Currently, Canada has 11 ethanol producers using corn, wheat, straw and wood waste as feedstock to deliver the equivalent of about 400 million gallons per year of ethanol to the market.
To date, none have filed for bankruptcy, unlike the U.S. where the lineup of producers is undergoing drastic changes as a result of bankruptcies, including the arrival of U.S. petroleum refiners in the sector, seeking fire-sale prices for assets that help them meet renewables mandates.
Typical of the deal-making was the US$123.5 million paid by Green Plains Renewable Energy for two plants formerly owned by bankrupt VeraSun Energy with combined output capacity of 150 million gallons per year.
But this scramble has produced warnings from analysts who say the rock-bottom acquisitions will allow buyers to restart facilities and run them at lower margins, putting added pressure on other producers.
Petroleum refiner Valero Energy entered the ethanol picture through an auction of VeraSun plants by acquiring seven completed facilities and one under development, while Sunco bought a New York plant previously owned by bankrupt Northeast Biofuels.
Sunco pulled off its deal for an estimated price of 19 cents per gallon of capacity, compared to the normal construction cost of $1.50-$2 per gallon for a new plant.