Vancouver, Canada (GLOBE-Net) - The United Nations says biofuels could provide 25% of the world’s energy needs within two decades; US President George W. Bush points to ethanol as one way to cure his nation’s ‘addiction to oil’; even multi-billionaire Bill Gates has thrown a large chunk of cash towards the financing of biofuels development. In what could be one of the next great developments in the energy sector, what will be Canada’s role?

Soaring oil prices and concerns over the climate change impacts of fossil fuel energy are the main factors behind worldwide interest in biofuels. Not only could biofuels play a major role in climate change mitigation and adaptation strategies, much of the technology needed to make them economically viable is currently available.

With its large agricultural resource industry and home to some of the world’s leading biofuels firms, Canada could leverage this opportunity into new areas of economic growth and improved environmental performance. However, Canada currently lags behind the world leaders in biofuel production and consumption, according to a recent study released by the Canadian Renewable Fuels Association.

The study by international commodities research firm F.O. Licht notes that biofuels consumption in Canada has been “quite low.” In 2004, (the latest available comparative figures) total ethanol production and consumption in Canada amounted to approximately 250 million litres, or just “0.7% of the country’s total gasoline consumption.” Limited industrial biodiesel production in Canada began in late 2005.

The potential of the biofuels market for Canada is significant. Not only do renewable fuels such as ethanol and biodiesel lower emissions and reduce greenhouse gases, they also provide a hedge against rising fuel prices and create sustainable jobs in rural Canada, notes the Association.

Canada’s current biofuel market

Currently, both biodiesel and ethanol are used in Canada, mainly in transport and specialty industrial applications. Ethanol in Canada is almost entirely grain-based, made from cereals produced in the Prairie agricultural region.

Industrial-scale biodiesel production takes place at Rothsay Biodiesel plant in Montreal with an estimated capacity of 30 million litres per year; a BIOX facility in Hamilton is expected to come online at the end of May, producing 66 million litres annually.

Suncor recently agreed to supply the Toronto Transit Commission with over 120 million litres of biodiesel for its bus fleet, but the fuel must be sourced from producers in Texas and Florida, as there are no Canadian facilities that are certified for quality according to ISO standards.

Currently, the main incentive for fuel ethanol is a federal excise tax exemption of 10 cents per litre of ethanol blended with gas. Support is also provided through programs such as the Ethanol Expansion Program and the Future Fuels Initiative, making $118 million available to support the construction or expansion of 11 grain based ethanol plants.

The federal government has stated that Canada will enact a 5% Renewable Fuels Standard for gasoline and on-road diesel by 2010, representing 3.1 billion litres of biofuels per year, or more than twelve times what the country currently produces. Several provinces maintain road tax exemptions for ethanol fuels, and some have mandatory blending requirements.

Even with these policies, Canada still falls far behind world leaders Brazil, the United States, and the European Union. Through a combination of tax credits, production incentives and subsidies for energy crop production these areas have developed leadership that has increased their production of bio-ethanol in particular. Brazil recently declared oil-independence, largely as a result of a burgeoning sugar cane ethanol industry that began in the 1970s. In Brazil, a barrel of ethanol costs half as much as a barrel of oil.

The Future of Biofuels

A recent report by the Ernst & Young Renewable Energy Group notes a trend emerging across a number of markets reflecting increased equality between the three main drivers of renewable energy: environmental, economic and security of supply. The industry has historically been driven by ‘top down’ incentives such as subsidies and fiscal measures that are designed to achieve macro-economic and environmental objectives, notes the report.

“However, green power demand is becoming an increasingly important ‘bottom up’ driver for the industry. Rocketing power prices are forcing consumers to consider more sophisticated power procurement strategies. Renewable energy can provide a hedge against power market volatility and consumers can achieve significant value through green power procurement,” the report states.

The Ernst & Young report is available for review, Click Here.

With strong growth predicted in Europe, biodiesel production should rise in Canada and around the world, as an economic, environmentally-friendly option for many transport fleets. Because it requires little or no adaptation of existing vehicles, biodiesel can be quickly deployed once the production scale is large enough to make it economical.

Ethanol production will also continue to rise, as economic incentives and agricultural interests make it a viable addition to regular gasoline. Recent statements from US President George Bush, the United Nations and other organizations have also drawn attention to an emerging biofuels technology: cellulose ethanol. Significant because it can be produced from waste agricultural products such as straw instead of food crops like sugar beets and corn, cellulose ethanol represents an improvement in efficiency and life-cycle greenhouse gas emissions over grain based ethanol.

Canada’s Iogen Corporation is a world leader in cellulose ethanol production, with a proprietary enzyme technology used to convert wheat straw into ethanol at its demonstration facility in Ottawa. With support from the Government of Canada, Petro Canada and Royal Dutch/Shell, Iogen has improved its production process and now hopes to build a $400 million commercial facility. Buoyed by a recent $30 million investment from Goldman Sachs, the company is scouting locations, with Canada, the United States and Germany as the prime candidates.

Although feedstocks are plentiful in both Canada and the United States, and the necessary infrastructure is in place in both countries, the C$400 million (US$344 million) cost of a single plant is proving difficult to finance, Iogen’s Executive Vice President Jeff Passmore told conference delegates at GLOBE 2006.

Investors and industry analysts are optimistic about the future of cellulose ethanol however, encouraged by demonstration results and policy announcements by many governments.

The European Union will rely heavily on biomass to meet its renewable energy targets, giving increased preference to ‘second-generation’ biofuels that include cellulose ethanol, and will need to import a portion of its biofuel needs at least until 2030. The United States, with a huge agricultural lobby promoting corn-fed ethanol, will also look to develop to cellulose-based fuels. China has also announced they will move away from grain and corn feedstocks, and search for non-food inputs to support their goal of increasing ethanol production tenfold by 2020.

With this worldwide interest, how can Canada take advantage of extensive agricultural, forestry and technology assets to create a strong domestic biofuels industry?

It starts with strong technology development and government support, say analysts. The Renewable Fuels Standard is a positive step, and other funding could even be expanded to take advantage of the growing North American and European markets. Canada has extensive agricultural and forest lands which could be used for feedstocks without damaging food exports.

At present, Canada imports corn from the United States to produce ethanol, but as biofuel production in the U.S. increases, this supply may become choked unless other biofuel sources are found. Switchgrass, a perennial tall grass found in abundance in southern Manitoba and Ontario, as well as throughout the United States, may be the answer.

“We really think switchgrass has got a great future,” said Maurice Hladik, marketing director for Iogen Corporation. “It has a very high ethanol yield.”

Iogen’s proprietary enzyme technology makes it a home-grown world leader in the exploitation of switchgrass as an ethanol source and fostering growth in the Canadian biofuels sector. Many other new technologies and companies are likely to come forward as the market develops, each bringing economic and environmental benefits. Taking advantage of these opportunities will require consistent legislative and regulatory encouragement by both federal and provincial governments.

Overall, biofuels have gathered such momentum they will be sure to form a large part of the energy supply mix in the future. Ideally suited to existing infrastructure, and more cost effective than other renewable energy technologies, bioethanol and biodiesel are here to stay. Canada has significant promise in this area, and entrepreneurial spirit mixed with government support may enable the development of a strong domestic industry.