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B-Zero: National biodiesel mandate fails to achieve objectives

Remember the “national” biodiesel mandate; how it was supposed to reduce greenhouse gas emissions and create new opportunities for farmers and rural communities even though the government’s own Regulatory Impact Analysis...

Remember the “national” biodiesel mandate; how it was supposed to reduce greenhouse gas emissions and create new opportunities for farmers and rural communities even though the government’s own Regulatory Impact Analysis Statement showed the requirement for an average 2% biofuel content requirement for all diesel fuel sold in Canada would result in a net cost of about $2.4 billion over the next 25 years with only an incremental reduction (a mere one megatonne of CO2 per year) in GHG?

We sure do, considering how CTA fought for protection for the consumer – ie., truckers, to ensure the fuel would work in our vehicles’ engines; that our warranties would not be nullified if the stuff messed up our engines; and, that it would not increase fuel costs. Our demands were reasonable: regulated fuel quality standards and a 5% cap on the biofuel content. (B5 is the level currently tolerated in most heavy truck warranties). In the end, the economic interests of farmers and biofuel feedstock producers prevailed over those of the consumer.

In fairness, things had been relatively quiet during the mandate’s first 18 months. There were few complaints about filters gumming up, supply shortages, etc. Then again, the winter of 2012 had been relatively mild and the provinces east of Ontario were exempt.

With the onset of 2013, a government press release announced amendments to the regulations to permanently rescind the inclusion of home heating oil (no doubt due to the impact on price) and to extend the Maritime exemption by another six months. This prompted us to want to find out how things were really going.

Discussions with refiners indicated they were managing to meet the 2% average by selling higher bio-content diesel in the warmer months in regions of the country and conversely by selling biodiesel with lower or no biofuel content at all at colder temperatures. Moreover, biodiesel of greater than B5 is only being sold where a customer (ie., a bus company in Vancouver) demands it.

And, almost all the biodiesel sold in Canada is imported, from countries like Indonesia. That’s because the refiners want a higher-quality, more advanced form of biodiesel (hydrogenation-derived diesel or HDRD) than is produced in Canada. HDRD is less costly in terms of the infrastructure required, performs better in cold weather and is readily available elsewhere.

We also reviewed an August 2012 evaluation from the federal Natural Resources department (NRCan) of the government’s biofuels initiatives. It confirms what we heard from the refiners and more.

According to NRCan, from 2004-2011, the government sank $537 million into biofuel subsidies – 96% to support plant expansion and production incentives. Notwithstanding, “many funded recipients appear not yet to have achieved operations that can be sustained without the incentives, a continued need exists for (subsidies) until 2016-2017 when the program ends.” By then the total amount of the subsidy is expected to total $1.2 billion. Moreover, as of December 2011, only 25% (123 million litres) of the December 2012 biodiesel production target (500 million litres) had been met. Only three of the 14 existing biodiesel facilities were producing at levels near capacity and “almost 59% of built production capacity was idle.”

Some biodiesel plants had already closed down or were mothballed. According to NRCan, the “long-term outcome of creating a competitive renewable fuels sector remains to be realized and, given the numerous external factors influencing the sector, it is unknown how the industry will respond when the incentives cease in 2016-17.”

As of now, “the available evidence suggests that biodiesel has less promising prospects for achieving profitability compared to ethanol.”

The report also confirms, “refiner preferences for a more advanced form of biodiesel, hydrogenation-derived renewable diesel, which is not currently produced in Canada, and which is being imported to meet the regulatory requirements.”

It concedes there are “questions about first generation biofuels as a cost-effective means to reduce GHG emissions” and “beyond the requirements of federal and provincial regulations, there is uncertainty as to future export potential for biofuels.”

As for HDRD production in Canada, the report says “additional research to investigate the technical and financial feasibility of domestic production.”  In other words, don’t hold your breath.

Despite this, the renewable fuels industry continues to push for more subsidies and even higher levels of biofuel content at both the federal and provincial levels. Adding more provincial mandates on top of the federal one would limit the ability for refiners to “average” between regions depending on climate, pushing biofuel content levels above those acceptable under current warranties.

NRCan doesn’t rule out further subsidies after the current program comes to an end. This is a policy we can ill afford. We’d be much better off if they would concentrate on increasing the penetration of GHG-reducing technologies into the heavy truck fleet and incenting investment in alternative fuel vehicles like LNG trucks and hybrids if it truly wishes to promote Canadian innovation and GHG reduction.

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