Alberta’s support for bio-fuels yields an uncertain harvest
Millions earmarked for bio-energy would be better spent elsewhere, critics say
Keith Jones points to the oil sands when asked about the wisdom of government providing financial support to the fledgling bio-fuels sector. It’s no secret that the resource – frequently cited by the likes of Natural Resources Minister Joe Oliver as a creator of immense wealth in Canada – was marginal and unprofitable, propped up by public funds for decades until it came of age in the late 1990s.
Jones, who is president of the Airdrie, Alberta-based Fame Bio-refinery pilot plant, doesn’t see why the biofuels industry should be viewed any differently. The Fame demonstration plant, which produces one million liters of bio-diesel annually from distressed canola seed, has used funding provided by the Alberta government to help get the plant operating.
“That’s a smart policy that mirrors what the federal and provincial governments did for the oil sands,” he says. “The policy objective is very similar: this is a risky industry with real economic challenges in the near term because of the technology development requirement.”
But comparing the bio-fuels sector with the oil sands seems a bit of a stretch. The oil sands have emerged as a revenue-generating and job-creating star for Alberta. The Alberta government’s February budget projects bitumen royalties to total $5.6 billion during the 2012-2013 fiscal year. And that take will grow larger if production from the oil sands grows from the 1.6 million barrels per day in 2011 to 3.7 million by 2025, as forecasted by the Canadian Association of Petroleum Producers.
Meanwhile, the bio-fuels sector in Alberta consists of a handful of operating and proposed plants that currently produce no more than 20 million liters of biodiesel annually. And with the returns on investment minimal thus far, it’s fair to ask whether the Alberta government would be better off spending millions in taxpayer dollars elsewhere – particularly in advancing technologies that could make the province’s oil and gas industry cleaner and less carbon-intensive.
In the short-term, Alison Redford’s Conservative government is staying the course in its support of bio-fuel development in Wildrose Country. The 2012 budget released in February commits a government that is seeking re-election this spring to invest $444 million over the next three years in bio-energy projects.
Considering the size of the bio-fuels sector, government support has been substantial. According to Alberta Energy, the provincial government has awarded approximately $150 million under its Bio-refining Commercialization and Market Development Program and Bio-energy Infrastructure Development Program to date. Payouts range from $18,550 to North Star Bio-diesel Refineries to $17.2 million for Growing Power Hairy Hill L.P.
“The estimated amount of private sector investment this will leverage is more than $2 billion,” says Alberta Energy spokesperson Christine King. On top of that, the Bio-energy Producer Credit Program (BPCP) has provided about $38 million from 2007 to March 2011 in production incentives to bio-energy producers.
It’s that kind of stability in government funding that the Alberta bio-diesel industry desperately needs, proponents say. Without the subsidies, Albertan producers have a difficult time competing with U.S. bio-diesel producers (a record 4.1 billion liters was produced there in 2011) who can export their output to Canadian customers. Interim president and chairman of the Canadian Renewable Fuels Association, Tim Haig, extols the positives of government subsidies to the bio-fuels industry. But he bristles when naysayers call government financial support for his sector subsidies.
“Let’s start by saying it’s an investment by government, not support,” he says. “We need to change the talk around statements like subsidies. These are investments. The government and the Conference Board of Canada report $2.3 billion a year of return in taxes to coffers and they’ve only put in $1.5 billion federally over a nine-year period. You’ve got to admit that’s a pretty good return.”
There are a few reasons why supporting a bio-fuels sector has landed on the agenda of both provincial and federal governments. As consumers grow more concerned about the environmental effects of fossil fuel consumption and developing green alternatives to a resource that is getting harder to find and more expensive to produce, the allure of using crops like canola or corn to produce bio-diesel has increased.
Renewable fuel standards (RFS) have also helped. Alberta’s RFS came into affect in 2011. It requires that an average of two per cent renewable alcohol be blended into diesel fuel and an average of five per cent renewable alcohol be blended into gasoline sold in Alberta. One of the key policies in place to support home-grown bio-diesel producers is the BPCP. Since it was instituted in 2007, it has provided guaranteed returns on the bio-diesel produced by Alberta companies. Companies making second-generation ethanol, for example, would receive 14 cents a liter from the Alberta government for the first 150 million liters produced in a year. Production in excess of that would receive nine cents a liter.
Alberta Energy’s King says the government’s continued support of bio-diesel producers makes sense on a number of fronts. It aids in reducing carbon emissions; it assists the province in developing more value-added industry; and it provides the agricultural sector with another market to sell its product to.
It is also good for the province’s livestock industry, she says. “Alberta typically imports feed grains from Saskatchewan,” she says. “By producing ethanol in Alberta, a byproduct called distiller’s grain is produced. Distiller’s grain is a good source of feed and can be included readily in various livestock diets. In fact, the integration of ethanol facilities with livestock operations can be complementary.”
Kevin Grier, senior market analyst at Guelph’s George Morris Centre, which bills itself as Canada’s independent agri-food think tank, has a different take on Alberta’s bio-diesel support programs. “Alberta is one of the largest oil and livestock producing regions in the world,” he says. “How successive governments manage to connect the dots on subsidizing ethanol being a good idea is hard to understand.”
Grier co-authored the organization’s recent report, Impact of Canadian Ethanol Policy on Canada’s Livestock and Meat Industry. The study found the creation and support of the ethanol industry in Canada via federal and provincial subsidies, grants and mandated usage creates a subsidized competitor for Canadian feed grains that form the basis of Canada’s export-based livestock and meat industry.
Among other conclusions, the authors claim Canadian ethanol production increases the price of feed grains in Eastern and Western Canada by about $15 to 20 per tonne and $5 to 10 per tonne respectively; amounting to losses for Canadian producers of about $130 million a year. “This study demonstrated that ethanol policies of subsidies and forced usage [mandates], which created an industry where one would not have existed without the policies, resulted in higher relative grain prices in Canada,” Grier says.
“This makes livestock feeding less competitive and increases costs. It’s clear the livestock sector would have been much better off if the governments had just written cheques to grain farmers instead of subsidizing ethanol.”
But as proponents and opponents debate the wisdom of public investment in the bio-diesel sector, it’s fair to ask whether the $444 million earmarked for Alberta bio-energy initiatives would have a bigger impact if it was invested in studying ways to reduce the impacts of bitumen extraction or making oil sands crude less carbon intensive. Breakthroughs in these areas could do more to reduce the environmental impact of Alberta’s petroleum industry and improve the province’s standing as a provider of clean energy.
There is already research looking at solutions to these thorny issues. The University of Alberta’s Centre for Oil Sands Innovation (COSI) is actively researching use of natural bacterial biofilms to completely detoxify tailings water. “I think with the bad press on tailings ponds alone, to remove that stigma from the processing would have a huge effect,” says Howard Ceri, professor of biological sciences at the University of Calgary and part of COSI. “If we can get this working to the scale needed I don’t imagine the cost will be an issue.” Another COSI researcher is Tony Yeung, a University of Toronto chemical engineering professor who’s had breakthrough successes with non-aqueous bitumen extraction. “Instead of using water you use an organic solvent to wash the sand,” he explains.
At Alberta Energy, King says public funds can support both cleaner oil sands and bio-fuels. “Better and more efficient extraction of oil sands and supporting bio-energy are not mutually exclusive,” she says.
Still, some, like the Pembina Institute, think the money could be spent more wisely. “For greenhouse gas [GHG] reduction there are a lot of things that are more cost effective,” says Benjamin Thibault, Pembina’s legal and policy analyst. “Research consistently points to energy efficiency as the most cost effective way to reduce emissions. There are a lot of technologies already on the shelf that don’t require any more research, but need support in being implemented. The same goes for many renewable energy technologies such as wind power.”
Pembina’s 2011 report, Responsible Action? An Assessment of Alberta’s GHG Policies, states that oil sands extraction and upgrading accounted for almost one-fifth of Alberta’s GHG emissions in 2009, and close to half of the growth in Alberta’s emissions since 1990. “The large scale and rapid expansion of this industry give it great national as well as provincial significance,” the report states. “In the absence of dramatic changes in technology, ongoing expansion of the industry will result in continued growth in emissions.”
But what do leading energy economists think: would public bio-diesel support funds be better spent on reducing impacts of oil sands production? “Yes, definitely,” says Ujjayant Chakravorty, professor and Canada research chair, Alberta School of Business and Department of Economics at the University of Alberta. “But on the other hand, the returns on some of that research may not be clear. For example, cleaning up tailings ponds – those marginal costs are extremely high.”
While the Alberta government has been steadfast in its financial support of bio-diesel development, the same cannot be said for the federal government. The Department of Natural Resources-sponsored ecoEnergy for Bio-fuels Program was another important funding source for biofuel producers.
Just like Alberta’s BPCP, the ecoEnergy program provided guaranteed rates for each liter of ethanol and bio-diesel produced. But in October of 2011, funding for the program ran out. The funding issues hit at least one Alberta producer hard. High River-based Western Biodiesel Inc., with a goal to produce 19 million liters of biodiesel annually, closed its doors in 2011 partly because it said the federal government owed it $600,000 in incentives under the program.
The Western Diesel case illustrates how bumpy the road can be in building an industry from scratch. It is also a lesson in how government support – no matter how well intentioned – can struggle to bring about the desired result. “There is a high degree of uncertainty – it’s not really clear what the return on subsidies is,” says Dr. Chakravorty. “So you have to make assumptions to be able to justify whether it is beneficial or not to invest in bio-fuels.”Related