Canada is well-positioned to profit both environmentally and economically from a growing biofuel industry, but faces risks in scaling up biofuel production in a way that is sustainable and competitive, warns a new report by Werner Antweiler at the University of B.C.’s Sauder School of Business.
While biofuels can play a significant role in decarbonizing transportation, there can be negative environmental impacts and impacts on food production, Antweiler notes in a new report for the C.D. Howe Institute.
On the other hand, biofuels could benefit farmers in the prairie provinces with the production of energy crops, like canola, on marginal farmland, foster new biofuel refining businesses, such as the Tidewater Renewables refinery in Prince George, and make significant emissions reductions in transportation.
Biofuels can be made from food crops, like corn, animal fats, biological waste, and non-food crops such as wood waste.
Antweiler notes in his report that biofuels production can “either shift or increase the use of agricultural land, which can have negative impacts, including deforestation, which can shrinks natural carbon sinks. Expanding frontiers of agricultural production can also develop new land conflicts with local or Indigenous communities.
“On the upside, it creates a new market with new employment opportunities and potential for economic growth, and it can help reduce carbon dioxide emissions. It can also improve Canada’s energy security and stabilize energy prices.”
Biofuels could provide prairie farmers with new markets for energy crops such as canola, which can be grown on more marginal farmland.
Antweiler noted that China is a major importer of Canadian canola oil, but increasing trade restrictions could result in the loss of that market.
“Canola imports that Chinese have from Canada are under the highest threat of retaliation, and so developing a new market for canola that is domestic would really help the industry make sure that they’re not at the vagaries of trade retaliation,” he said.
Antweiler said there essentially two generations of biofuels. The first include ethanol and biodiesel. Next generation biofuels include renewable diesel, biomethane and sustainable aviation fuels.
Biodiesel and ethanol are blending fuels that can reduce the carbon intensity of gasoline and diesel, but can't entirely replace them, whereas renewable diesel is a drop-in fuel that is chemically identical to diesel made from fossil fuels. These fuels can play an outsized role in decarbonizing transportation, Antweiler said.
Low carbon and clean fuel standards that have been implemented provincially – in B.C. and Alberta – as well as new federal standards are important climate action tools that Antweiler said are more effective than carbon pricing.
“My sense has been that carbon pricing hasn’t been particularly effective for the transportation sector,” Antweiler said.
“They (low carbon fuel standards) are quite effective because, if you’re reducing the emission intensity of fuels by 30 per cent by 2030, that would be a significant effect. Even if you don’t have any other policy, like carbon pricing in place, then it’s super crucial to have other policies that actually tweak our emission intensity.”
A number of new biofuel refineries are either being built or planned in both B.C. and Alberta.
Imperial Oil is building a $720 million renewable diesel refinery in Edmonton at the Strathcona refinery that will use canola, soy, sunflower oils and hydrogen -- produced from natural gas with carbon-sequestration facilities -- to make renewable diesel.
In Prince George, Tidewater Renewables has built a new refinery that will make renewable diesel from canola, tallow and tall oil (a byproduct of kraft pulp making).
“There are several projects underway here in Canada that will significantly increase the RD production in the next number of years,” Antweiler said.
Parkland Fuel Corp. (TSX:PKI) also has a small biofuel facility that makes its fuel from products like animal waste.
In 2022, Parkland announced plans to expand that capacity with a $600 million biofuel refinery, but the plan was scrapped in 2023, due to market uncertainty and new American policies that may favour biofuel production in the U.S., to the exclusion of Canadian biofuels.
“For various reasons, mostly coming out of competition from the U.S., they don’t really see that happening in B.C. yet,” Antweiler said.
The Inflation Reduction Act in the U.S. includes a section that encourages next-generation biofuel production in the U.S. Canadian producers may not be eligible for those incentives, and it’s entirely unclear what a Donald Trump administration will do with those policies.
“The question is: are we confined to the Canadian market, or can we actually also deliver to the U.S. market?” Antweiler said. “That is the billion-dollar question here.”
Antweiler said policy harmonization between the U.S. and Canada, and within Canada as well, will be needed to support Canada’s biofuel industry.
Because of the oversized impact biofuels could have as a climate action tool, it’s important that the low carbon and clean fuel standards that have been adopted federally and provincially not only be maintained, but harmonized.
In the lead-up to the recent provincial election in B.C., B.C. Conservative Party Leader John Rustad pledged to scrap not only B.C.’s carbon tax, but its low carbon fuel standard, as well.
Antweiler said he hopes federal Conservative Party Leader Pierrie Poilievre will have “a more nuanced view” of these policies than Rustad.
“I don’t think he fully appreciates what the policy does, in terms of opportunities for Canadian producers,” Antweiler said. “I think this is an industry that can create a lot of jobs, so I think people like John Rustad should have a really serious second look at that, rather than dismissing all climate policies. Some actually have significant opportunity potential for Canada.
“There is one federal party that has said they want to move back from carbon pricing for at least the transportation sector, and that means we need different policies that will shift us towards a cleaner future. And the opportunities are, number one, biofuels and, number two, electric vehicles. These are the game-changers.
“If carbon pricing disappears overnight, at least for the non-industrial sector, then we do need these two mandates – the biofuels mandate and the zero-emission vehicle mandate to really move us forward. These are the two remaining games in town that could really move the needle.”
