Biofuels industry gets lift from federal bill

Advocates expect acceleration in growth as viable alternative to oil

“The House of Commons voted to grow beyond oil,” said Gordon Quaiattini, president of the Canadian Renewable Fuels Association.

“Thanks to this vote, we will lower greenhouse-gas emissions, provide new opportunities for Canadian farmers, and bring about competition at the pump. With oil and gas prices at record highs, the case for viable alternatives to petroleum has never been stronger.”

The Conservatives and Liberals joined forces to pass Bill C-33 by 173 votes to 64. The legislation will implement a national renewable-fuels standard, requiring ethanol- and bio- diesel-blended transportation fuels in Canada.

The bill, passed last month, still needs to be approved by the Senate.

If enacted, it would require that gasoline have five-per-cent ethanol content by 2010; and by 2012, it mandates that diesel fuel have a two-per-cent renewable content.

Jeff Passmore, executive vice-president of Iogen Corp., a biotechnology firm specializing in cellulose ethanol (a renewable biofuel that can be used in today’s cars), said the bill and the Renewable Fuel Standard in Canada is a critical development for next-generation biofuels such as cellulosic ethanol.

According to the federal government, next-generation biofuels are renewable alternatives to gasoline, produced from non-traditional feed-stocks such as wheat straw, corn stover, wood residue and switchgrass.

They are also renewable alternatives to diesel, produced from non-traditional feedstocks such as waste oils and animal fats.

Recent media reports and critics have questioned the sustainability of biofuels and noted the increasing amount of corn being diverted from the global food supply to produce fuel.

Articles in Time Magazine, National Geographic and other publications offered evidence on why biofuels are not the social and environmental panacea for soaring oil prices and increasing greenhouse-gas emissions.

However, Bob Mann, senior product development with Jantzi Research, an independent investment research firm based in Toronto, says the issue of biofuels is more complex.

For Mann, it boils down to economics. He questions any industry that is supported by government subsidies, saying, “it’s a tenuous way to build a market.”

“In (U.S. President George W.) Bush’s last State of the Nation address, he indicated that biofuel is one solution to the energy crisis,” says Mann.

This was an indication that quotas would be implemented, he adds. “In itself, the (U.S.) government is creating the (domestic) market. Without subsidies or quotas, the market would not be viable.

“The single largest risk is if the government changes,” says Mann. “If a new government decides that biofuels are not good, and they take the subsidies off the table, the industry will crash.”

As a result, he questions if business or consumers should invest in this fledgling industry.

“They need to take into account that, while they think they can pick the winner, there will be a shake-out.

“Even if (the industry) does take off, from a strategic sense, as the first movers, the only advantage will be in building partnerships and locking up supply chains,” says Mann. “Even those companies that are able to enter into competitive agreements, like any typical commodities-based industry – there really will be little advantage in being the first.”

He cites the steel industry as an example. While Western countries initially produced and nurtured steel production, it was Korea, India and Japan that went on to build factories with the latest technologies and quickly assumed the role of primary steel producers.

Social and environmental factors aside, Mann believes it is “better to wait for an industry to mature and then pick a winner.”

Proponents of the biofuel bill, however, disagree.

“Right now, as a result of grain ethanol, we have a market in Canada, we have infrastructure, we have customers using our product, we have companies like GreenField that have earnings and investments and are pouring millions into research and development for next-generation cellulosic ethanol,” says Bob Gallant, president and CEO of GreenField Ethanol.

The company’s plants are based in Chatham and Tiverton, north of London, Ont., and in Vareness, Que., northeast of Montreal.

Greenfield is also in the final stages of construction of a new plant in Johnstown, Ont., 350 kilometres east of Toronto, that will create 50 permanent jobs and more than 200 construction jobs in eastern Ontario. It will also provide farmers with a new market for 20 million surplus bushels of corn per year.

“The passage of Bill C-33 will help companies like ours provide Canadians with a much-needed alternative to expensive, polluting, ozone-depleting non-renewable oil,” says Gallant.

Originally published in Business Edge on June 27, 2008