Table of Contents
- Executive Summary
1.0 Introduction and Background
- 1.1 Introduction and Scope
- 1.2 Overview of the ATF Sub-Sub-Activity
- 1.3 Alignment with the Renewable Fuels Strategy (RFS)
- 1.4 Expected Results
- 1.5 Stakeholders and Beneficiaries
- 1.6 Governance
- 1.7 Resources
- 1.8 ATF Programs and Activities
- 2.0 Evaluation Approach and Methodologies
3.0 Evaluation Findings
- 3.1 Relevance
- 3.2 Performance
- 4.0 Conclusion
- Appendix A: ATF Sub-Sub Activity Components and Results
- Appendix B: Resources by Program
This report presents the findings of an evaluation of Natural Resources Canada’s (NRCan) Alternative Transportation Fuels (ATF) sub-sub-activity. The expected result of the ATF sub-sub-activity is increased production and use of alternative transportation fuels.
It comprises the following programs and $537.4 million in expenditures from 2004–05 to 2010–11:
- Ethanol Expansion Program (EEP) ($99.0 million) used repayable contributions to support the construction or expansion of nine ethanol plants. The expected results are expanded production and increased consumer uptake, and establishment of the first cellulose plant in Canada. These intermediate outcomes contribute to the final outcome of, “reductions in the transportation sector’s GHG emissions (as ethanol replaces conventional fuels).” This Program is now in the repayment stage.
- ecoENERGY for Biofuels (ecoEBF) is a production incentive program ($432.0 million during the evaluation period) providing contribution funding to 33 ethanol and biodiesel facilities. The Program supports the production of renewable alternatives to gasoline and renewable alternatives to diesel, and encourages the development of a competitive renewable fuels industry in Canada by directly providing production incentives to producers. The original budget for ecoENERGY for Biofuels was $1.5 billion over nine years, starting in 2008, in support of biofuels in Canada and the regulations. Contribution payments are expected to total $1.2 billion and will continue for some facilities until 2016-17.
- National Renewable Diesel Demonstration Initiative (NRDDI) involved $3.6 million in expenditures and funded eight projects designed to address questions related to the use of renewable first generation biodiesel fuels in the petroleum industry. The Initiative, which ended in March 2011, produced demonstration data to inform the design, development and implementation of the federal regulation requiring renewable diesel content in the distillate pool; stakeholder support of feasibility of regulation; and favourable reception of the regulation into target marketplace.
- Policy, Financial and Technical Functions within the sub-sub-activity provide policy and technical advice and support ($2.8 million) to inform decisions about renewable fuels policies, programs, activities and regulations. Key outputs include GHGenius (a lifecycle analysis model), Natural Gas Roadmap, a financial model, Sustainability Guiding Principles for Biofuels and working groups.
- Oversight (shared with Environment Canada) of the NextGen BioFuels Fund (NGBF) Agreement, delivered by Sustainable Development Technology Canada, involved 0.5 NRCan full-time equivalent (FTE) annually.
The evaluation covers the period from 2005–06 to 2010–11 (and back to 2004–05 for the EEP). However, performance data for EEP and ecoEBF are reported up to December 2011. Over this period, $513.3 million (96%) of the $537.4 million in total expenditures for the ATF sub-sub-activity was used for contributions to support plant expansion (EEP) and provide production incentives for biofuels (ecoEBF).
Renewable Fuels Strategy
Most of the programs and activities within this sub-sub-activity are part of the Renewable Fuels Strategy (RFS), a horizontal strategy announced in 2006 involving NRCan, Environment Canada, and Agriculture and Agri-Food Canada (AAFC). The strategy contains four interdependent components responding to both the demand and supply sides of the biofuels market. NRCan contributes to three of these components:
- increasing the retail availability of renewable fuels through regulation (NRDDI and policy/technical support);
- supporting the expansion of Canadian production of renewable fuels (directly contributed through ecoEBF and policy/technical support); and
- accelerating the commercialization of new technologies (oversight of NGBF).
An important element of the RFS which was led by Environment Canada is the design and implementation of Canada’s Renewable Fuels Regulations requiring five percent renewable fuel content based on the gasoline pool, which came into effect as of December 2010 and two percent renewable fuel content in diesel, which came into effect as of July 2011. Agriculture and Agri-Foods Canada is responsible for the delivery of ecoAgriculture Biofuels Capital (ecoABC) initiative that is designed to provide an opportunity for agricultural producers to diversify their economic base and participate in the biofuels industry through equity investment in biofuels production facilities.
The scope of the evaluation is restricted to the NRCan ATF programs and activities and does not include an assessment of the relevance and performance of the Renewable Fuels Strategy.
Evaluation Objectives, Methodology and Limitations
This evaluation assessed issues related to the:
- relevance of the ATF sub-sub-activity in terms of addressing continuing need, alignment with federal government priorities, and alignment with the role of the federal government;
- effectiveness of the ATF sub-sub-activity, that is, the degree to which it has achieved its expected results; given that the evaluation covers different programs each program is also assessed against their expected outcomes; and
- efficiency and economy of the ATF sub-sub-activity programs and activities.
The evaluation used the following lines of evidence:
- a document review (135 documents);
- a literature review (focusing on forecasted demand for biofuels; greenhouse gas GHG emissions trends in the on-road transportation sector; the potential of biofuels to reduce GHG emissions; and strengths and weaknesses of life cycle analysis);
- forty-eight key informant interviews with NRCan program management (28) representatives of other federal departments (4); provincial governments (5) and industry (11);
- an industry study comprising a document review of the financial state of the biofuels industry and factors influencing profitability and a review of funded facilities; and
- ten case studies (six ethanol and three biodiesel facilities and one on the use of GHGenius by the Government of British Columbia).
The analysis of competitiveness of the biofuels sector relied on financial information provided by contribution recipients. While the data provided by the ecoEnergy for Biofuels proponents meets financial reporting requirements as specified in the contribution agreements, economic analysis of the cost data in its provided form would have required formulating assumptions and conducting additional analysis and modelling which were beyond the scope of this evaluation. Hence, an economic analysis could not be conducted. It should be noted that the Fuels, Policies and Programs Division commissioned a financial analysis of ecoEBF producers. This occurred after the timeframe of the evaluation and is therefore not included as an information source in this report.
Despite assurances of confidentiality, facilities were reluctant to release information they believed to be proprietary and that was not specified in the funding agreement as a reporting requirement. Consequently, the case study methodology had to be modified to eliminate direct linkages of facility information with interview responses, weakening the ability of the case studies to examine facility efficiency, especially economies of scale.
ecoEBF: Given that biofuels is a nascent industry, particularly with respect to biodiesel, government subsidies are viewed as important to enhancing its growth and competitiveness. Within the framework of the Renewable Fuels Strategy and the fact that many funded recipients appear not yet to have achieved operations that can be sustained without the incentives, a continued need exists for the ecoEBF until 2016-2017 when the Program ends. An assessment of the continued need for the Renewable Fuels Strategy is beyond the scope of this evaluation.
EEP: This Program resulted in the construction or expansion of nine ethanol facilities. EEP is now in the repayment stage and no need exists to introduce additional ethanol production capacity through capital incentives at this time. EEP has a long-term goal to reduce GHG emissions. Given cost-effectiveness issues identified through the literature review, the continued need for first generation ethanol programs as a primary means to reduce greenhouse gas emissions is unclear.
NRDDI: This Program is complete and has achieved its performance targets despite having been terminated a year earlier than originally intended in order to meet the accelerated effective date for the regulation for the renewable fuel content in the distillate pool.
While NRDDI achieved its objectives, there may be a need for an initiative like NRDDI to address additional technical research into next generation biodiesel, and further analysis on how the current renewable fuel regulations and other policies could impact the availability and security of Canada’s fuel supply.
Policy, Financial and Technical Functions: Stakeholders view NRCan as a valuable source of information on the biofuels sector. Many stakeholders would like to continue to strengthen their relationship with NRCan’s Fuels, Policy and Programs Division (FPPD). The Division has supported the development of useful tools such as GHGenius and a financial model. GHGenius has become an increasingly important tool for policy and regulatory development at the federal and provincial levels.
NGBF Financial Oversight: NRCan interviewees noted that federal oversight is needed as long as Sustainable Development Technology Canada delivers the NextGen BioFuels Fund. As of at December 2011, no NextGen Biofuels projects had been approved for funding.
Consistency with federal and departmental priorities
The promotion of domestic ethanol and biodiesel is consistent with federal priorities of clean energy, GHG emissions reductions and rural economic development as outlined in both speeches from the Throne and the Renewable Fuels Strategy. The programs and activities forming the sub-sub-activity also support NRCan’s environmental responsibility strategic outcome and NRCan priorities relating to clean energy. Unlike ecoEBF, EEP has an explicit GHG emissions reduction outcome.
Legitimacy and appropriateness of role
Financial incentives to manufacturers are one legitimate approach to support the development of a competitive biofuels industry and the increase in supply of biofuels to meet the regulations on renewable content in fuel. Biofuels policy/programming is a shared federal–provincial jurisdiction and both orders of government have implemented renewable fuel mandates and incentive programs to support the sector.
While federal and provincial/territorial governments engage in demand side (fuel content regulations) and supply side (incentives), there is no evidence of unnecessary overlap or duplication in the incentives offered to industry to produce biofuels. The designs of EEP and ecoEBF are intended to minimize duplication.
The ATF sub-sub-activity has met or is making good progress towards most of its performance targets, with the exception of the 2012 biodiesel production target. 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.
Increased Domestic Production of Renewable Fuels — EEP and ecoEBF
EEP and ecoEBF have contributed to increasing Canada’s biofuels nameplate production capacity significantly from 186 million litres in 2003 to a forecasted 1.86 billion litresFootnote 1 in December 2012. Signed capacity is expected to increase to a maximum of 20.3 billion litres subsequent to December 2012: 1.98 billion litres for ethanol and 538 million litres for biodiesel.
- EEP met 94 percent of its long-term production target. By 2010, the nine participating facilities produced an additional 942 million litres of ethanol, close to the target of 1 billion litres of additional ethanol production.
ecoEBF is close to meeting its ethanol production targets but is falling short of its biodiesel production targets.
- As of December 2011, ecoEBF achieved 83 percent of its December 2012 ethanol target, having incented 1.66 billion litres of actual ethanol production compared to its target of 2.0 billion litres of actual ethanol production.
- As of December 2011, ecoEBF had only achieved 25 percent of its December 2012 biodiesel production target, having incented 123 million litres of actual biodiesel production compared to its target of 500 million litres of actual biodiesel production.
Table 1 summarizes ecoEBF progress with respect to biofuels production capacity (both signed contribution agreements and built capacity) and actual production levels.
|Signed Production Capacity as of December 2012||Built Production Capacity as of December 2011||Actual Production January to December 2011|
|Ethanol||1.8 billion||1.7 billion||1.7 billion|
|Biodiesel||507 million||225 million||123 million|
Realisation of a Competitive Biofuels Industry
A competitive domestic renewable fuels industry is an end outcome of ecoEBF. As of 2011 (five years prior to the end of ecoEBF), it is not possible, given the external factors influencing the industry, to conclude on whether the firms are on a trajectory to become profitable. However, the available evidence suggests that biodiesel has less promising prospects for achieving profitability compared to ethanol.
As of December 2011, biodiesel built production capacity was 225 million litres while actual production was 123 million litres per year (just under half of its built production capacity was idle). A key factor influencing biodiesel production is refiner preferences for a more advanced form of biodiesel, hydrogenation-derived renewable diesel (HDRD), which is not currently produced in Canada, and which is being imported to meet the regulatory requirements.
Other external factors influencing the low levels of biodiesel production and sales include the recent introduction of the federal regulation mandating biofuel use (July 2011); feedstock costs; fuel prices; and foreign biofuel policies such as the recently discontinued U.S. Blender’s Tax Credit.
Ethanol facilities that are large, vertically integrated, and/or able to sell co-products may be viable in the future without production incentives. Industry representatives indicated that ethanol facilities are more likely to be profitable than conventional biodiesel for three reasons: the maturity of the ethanol industry; less expensive production technology; and the production of co-products such as distillers dried grains (DDG) which are of growing importance in feeding livestock and carbon-dioxide used to carbonate drinks.
Forecasting of the future competitiveness of biofuels is made difficult by the myriad external factors influencing the industry. Document and interview evidence indicates that the competitiveness of the biofuels industry is especially dependent on oil and feedstock prices. Moreover, the extent of technological improvements that will occur over the next ten years, potentially reducing the costs of production, is not known. Next generation technologies, such as cellulosic technologies, that might reduce the costs of production (and decrease competition with food supplies) are currently in the development or demonstration phases and their viability is still uncertain.
Beyond the requirements of federal and provincial regulations, there is uncertainty as to future export potential for biofuels. Historically, biofuel policies of other jurisdictions, such as the United States, have provided limited or variable market access for Canadian biofuels.
GHG Emissions Reductions — EEP Only
Using lifecycle analysis (i.e., GHGenius), NRCan estimated that EEP facilities reduced GHG emissions by approximately 4.5 megatonnes (Mt) in total between 2004–05 and 2009–10. The target was met in 2009–10 and 2010–11 as EEP facilities produced just over one billion litres in total in each of those years. However, it should be noted that these estimated reductions cannot be attributed solely to EEP as facilities also benefitted from the excise tax credit, and then received production incentives through ecoEBF as of January 2009.
Research has called into question the replacement of conventional fuels with biofuels, particularly first generation ethanol, as a cost effective method to reduce greenhouse gas emissions. More research in a Canadian context is needed to increase understanding of this central policy issue for the Renewable Fuels Strategy.
NRDDI, Policy, Financial and Technical Functions, and NGBF Oversight
NRDDI: This Initiative demonstrated the technical feasibility of a two percent blend of biodiesel (B2 blend) under Canadian conditions, and informed the development and implementation of the Renewable Fuels Regulations for biodiesel. However, the production of biodiesel continues to lag and competition from imported next generation biodiesel suggests the need for additional research to investigate the technical and financial feasibility of domestic production.
NGBF Oversight: According to NRCan interviewees, NRCan’s oversight (shared with Environment Canada) of the NextGen BioFuels Fund, delivered by Sustainable Development and Technology Canada, provides financial accountability. Since funds are disbursed equally from both departments, both are responsible for oversight activities.
Policy, Financial and Technical Functions: Stakeholders (NRCan, other federal government, provincial/territories governments, and industry interviewees) indicated capacity to make informed decisions. They cited, as examples, the participation in working groups, use of GHGenius and the financial model, and engagement of stakeholders in various activities (e.g., Natural Gas Roadmap and Sustainability Guiding Principles for Biofuels).
NRCan interviewees note that policy development with respect to next generation biofuels is constrained by the third-party delivery structure of the NextGen Biofuels Fund because this arrangement limits the amount of micro level industry-related information NRCan receives.
The federal environmental assessment process applies to projects funded by the federal government such as EEP or ecoEBF-funded facilities. While environmental regulations and requirements vary, provinces generally require a certificate of approval to produce ethanol and biodiesel. In some cases, this may require an environmental assessment (EA). A positive unintended outcome of the EA work done in relation to biofuel facilities is the increased information sharing between provincial and federal stakeholders. NRCan interview evidence suggests that this increased information sharing may have led to improved compliance with provincial and federal environmental regulations (i.e., Canadian Environmental Assessment Regulations).
International debate about using foods as feedstocks for biofuels continues. A number of studies indicate the complexity of this subject and note that there are multiple factors in addition to the growth in the production of biofuels that have contributed to increases in worldwide food prices, including oil prices and the devaluation of the U.S. dollar. Interviewees noted that the impact on food prices in Canada is likely minimal given that a smaller percentage of feedstock is used for biofuel as compared to other countries such as the United States.
Economy and efficiency
The ATF sub-sub-activity is economic and efficient with a low cost of administration per dollar of contribution. The EEP has an estimated administrative cost to total contribution ratio of two cents per dollar contributed. The ecoEBF costs about four cents per dollar contributed. This places these programs in the lower range of delivery costs for contributions programs.
The EEP Program has an estimated leverage ratio of 1:6.05 public to private investment ($1 of public investment for every $6.05 of private investment). However, the evaluation lacked data to accurately determine the leveraging ratio for ecoEBF.
Coordination of support to the biofuels industry is accomplished through the Renewable Fuels Strategy Board of Directors (AAFC, EC and NRCan) and informal relationships among programs.
ATF programs and activities demonstrated the following best practices:
- use of multidisciplinary teams to work on biofuels initiatives;
- early engagement of key stakeholders in program design/delivery and policy development; and
- stacking provisions that limited the combined federal and provincial government subsidies available to projects (e.g., EEP and ecoEBF).
A Horizontal Results-Based Management and Accountability Framework was not created for the RFS. Some interviewees suggested that a framework could help formalize relationships across the departments, ensure clearer roles and responsibilities, enhance communications at the senior management level, and improve accountability by evaluating the Renewable Fuels Strategy in relation to its multiple goals.
There were delays in the preparation and sign-off of ecoEBF contribution agreements attributed to insufficient staff training and functional support.
The evaluation suggests two lessons learned:
- the merit of a formal governance structure to enhance accountability, clarity of roles and responsibilities and communications for horizontal initiatives; and
- recognition that managing a large, complex contribution program requires training for staff and support from financial and legal experts.
There were several suggestions for improvements including further strengthening ATF linkages with industry, improving NRCan’s understanding of the end-use component (e.g., distribution infrastructure) of the biofuels industry, and development of a more coordinated federal strategy for transportation fuels.
ATF programming is relevant and is consistent with federal and NRCan priorities, particularly with respect to the federal government’s Renewable Fuels Strategy and clean energy. Given that many ecoEBF-funded facilities appear not yet to have achieved operations that can be sustained without the incentives and that this Program is an integral part of the Renewable Fuels Strategy, a continued need exists for this Program until 2017.
ATF programming has met or has made good progress towards achieving most of its performance targets. It has contributed to substantial increases in ethanol and biodiesel production levels. However, the ecoEBF is not on track to achieve its biodiesel production targets. While trends for ethanol are somewhat encouraging, the prospects for a competitive biofuels sector in 2017 are uncertain due to a complex set of external factors influencing the industry. Given the challenge to the domestic biodiesel industry from HDRD, additional insight is needed as to whether this advanced form of biodiesel can be produced domestically at a profit.
The literature raises questions about first generation biofuels as a cost-effective means to reduce GHG emissions. While greenhouse gas emissions reduction is an explicit goal of the EEP, this is not the case for ecoEBF. However, the Renewable Fuels Strategy is clear that reducing GHG emissions is a priority and interviewees concur this is implicit in ecoEBF.
Both the Ethanol Expansion Program and the Renewable Fuels Strategy (i.e., NextGen Biofuels Fund) contain elements that aim to support next generation biofuels. EEP was not successful in establishing the first commercial cellulose-based ethanol plant in Canada. As of December 2011, there were no commercial next generation biofuel facilities in Canada. The potential for next generation technologies to reduce the costs of production and decrease competition with food supplies has yet to be realized given that technologies are still in the demonstration stage. A federal strategy for next generation biofuels may be required.
Whether some form of federal support for biofuels should be considered in 2017 will depend on a broader review of the Renewable Fuels Strategy and federal energy, climate change and economic objectives at that time. It is important that NRCan continue to monitor ATF programming and market conditions to inform policy and program development.
Given the findings of the evaluation and the nature of the ongoing components of the ATF sub-sub-activity, two recommendations are made to ensure continued diligence in meeting NRCan’s obligations and in maintaining capacity to inform future policy decisions.
|Recommendations||Management Response||Responsible Official/Sector
|1. NRCan’s Fuels, Policy and Programs Division to continue to monitor and report the performance of ATF programs.||Energy Sector accepts this recommendation.
The Fuels, Policy and Programs Division (Office of Energy Efficiency) will monitor the performance of ATF programs and report regularly to senior management on the progress and performance of its programs.
Weekly updates on ecoENERGY for Biofuels will continue to be provided through the Deputy Minister Dashboard, and all other program activities/milestones and results will continue to be tracked in BEERS/ AMI/Quarterlies.
Reports to senior management will be prepared as required.
|2. NRCan’s Fuels, Policy and Programs Division to continue to track market conditions relevant to biofuels to inform policy development.||Energy Sector accepts this recommendation.
The Fuels, Policy and Programs Division will track market conditions relevant to biofuels using detailed program data as well as external sources.
The Fuels, Policy and Programs Division will inform policy development through regular meetings with officials in the Oil Sands and Energy Security Division (Petroleum Resources Branch) and through the development of joint briefing materials.
1.0 Introduction and Background
1.1 Introduction and Scope
This report presents the findings of an evaluation of NRCan’s Alternative Transportation Fuels (ATF) sub-sub-activity, which comprises the following programs and activities:
- Ethanol Expansion Program (EEP);
- ecoENERGY for Biofuels (ecoEBF);
- National Renewable Diesel Demonstration Initiative (NRDDI);
- Policy, financial and technical functions within the sub-sub-activity (including GHGenius); and
- NRCan’s oversight role in relation to the NextGen Biofuels Fund (NGBF) Funding Agreement.
Covering expenditures from 2005–06 to 2010–11 (and back to 2004–05 for the EEP since that program has not been previously evaluated) and performance data up to December 2011, this evaluation meets NRCan’s Evaluation Plan requirement to evaluate the ATF sub-sub-activity.
Also part of the ATF sub-sub-activity, but not included in this evaluation, is the Opportunities Envelope and the Market Development Incentive Payment (MDIP) Fund. These programs were virtually inactive during the timeframe of the evaluation and hence were not included within its scope.
The evaluation scope is limited to the assessment of the ATF programs and activities and does not include an examination of the overall relevance and performance of the Renewable Fuels Strategy. There is no horizontal performance measurement strategy in place to evaluate the strategy.
The evaluation did not address the extent to which the ecoEBF reduced GHG emissions. This was because a reduction of GHGs is not an outcome of the Results-based Management and Accountability Framework (RMAF) for ecoEBF. Greenhouse gas emission reductions are attributable to the regulation for renewable fuel content component of the RFS, administered by Environment Canada. ecoEBF supports both federal and provincial regulations by supporting domestic production of renewable fuels. Therefore, the cost-effectiveness of ecoEBF in relation to GHG emissions reduction was not assessed.
1.2 Overview of the ATF Sub-Sub-Activity
Figure 1 shows the components and overall expenditures ($537.4 million) for the ATF sub-sub-activity programming and activities between 2004–05 and 2010–11.
Figure 1: Expenditures by ATF program 2004-05 to 2010-11
In support of the sub-sub-activity, NRCan provided EEP funding to build or expand nine ethanol facilities, ecoEBF funding to 33 ethanol and biodiesel facilities, and NRDDI funding to seven demonstration projects and one study.
The expected result of the ATF sub-sub-activity is increased production and use of alternative transportation fuels. Key performance targets for EEP and ecoEBF are as follows:
- one billion litres of additional ethanol production funded by EEP (no target date specified);
- two billion litres of domestic production of renewable alternatives to gasoline, funded by ecoEBF (by December 2012); and
- five hundred million litres of domestic production of renewable alternatives to diesel, funded by ecoEBF (by December 2012). Footnote 2
As shown in Figure 2, the ATFsub-sub-activity programs and activities considered in the evaluation have been active over different timeframes.
Figure 2: Timing of ATF Sub-Sub Activity programs and activities
The ATF sub-sub-activity is also linked to other parts of NRCan: Clean Energy Transportation in the Office of Energy Research and Development; CanmetENERGY (research and development); the Canadian Forest Service (feedstock assessment), and the Earth Sciences Sector (feedstock mapping) to develop next generation strategies for biofuels.
Most of the programs and activities forming part of NRCan’s ATF sub-sub-activity align with components of the RFS.Footnote 3 Announced in December 2006 following discussions among federal and provincial ministers responsible for renewable fuels, the RFS is a four-pronged biofuels strategy intended to:
- reduce GHG emissions resulting from fuel use;
- encourage greater production of biofuels;
- accelerate the commercialization of new biofuel technologies; and
- provide new market opportunities for agricultural producers and rural communities.Footnote 4
The RFS guides activity and collaboration in the area of renewable fuels among NRCan, EC and AAFC.Footnote 5 Table 2 shows how the programs and activities forming part of NRCan’s ATF sub-sub-activity align with various components of the RFS. NRCan supported component #1 by administering the NRDDI; component #2 by administering the ecoEBF Program; and component #3 by providing joint oversight of SDTC’s NextGen Biofuels Fund (NGBF) with Environment Canada. The Fuels, Policy and Program Division’s (FPPD) policy, financial and technical functions support all three components.
|Component||ATF Sub-Sub Activity programs|
|1. Increasing the retail availability of renewable fuels through regulation||
|2. Supporting the expansion of Canadian production of renewable fuels||
|3. Accelerating the commercialization of new technologies||
|4. Assisting farmers to seize new opportunities in this sectorFootnote 6||
Source: Government of Canada. (2011). ecoENERGY Renewable Fuels Strategy. Retrieved from /ecoaction/.
Note that the Ethanol Expansion Program was established as part of the Climate Change Plan for Canada.
An important element of the RFS is the design and implementation of Canada’s Renewable Fuels Regulations. In December 2006, EC issued a Notice of Intent to develop and implement federal regulations requiring five percent renewable fuel content based on the gasoline pool by 2010 and two percent renewable fuel content in diesel and heating oil by 2012, which was subsequently moved ahead to 2011.Footnote 7 Proposed regulations (Gazette 1) for gasoline were published in April 2010 and, after a consultation period, the finalized version appeared (Gazette 2) in September of the same year. The new regulations came into effect on December 15, 2010.Footnote 8 Similarly, amendments expanding the regulation to include a biodiesel mandateFootnote 9 were first published (Gazette 1) in February 2011 and came into effect on July 1, 2011.Footnote 10 When these two regulatory provisions are combined with provincial regulations, they are expected to reduce GHG emissions by about four megatonnes per year, equivalent to taking almost one million vehicles from the road.Footnote 11
One important feature of the RFS is the existence of RFS components on both the demand and supply sides of the biofuels market. By requiring proportions of Canada’s gasoline and distillate pools to consist of renewable fuel content, the ethanol and biodiesel mandates create market demand for renewable fuels. At the same time, production incentives offered through the ecoEBF Program act on the supply side of the market by supporting the operation of biofuels producers.Footnote 12
1.4 Expected Results
The logic model as presented in Appendix A summarizes the key expected resultsFootnote 13 for the programs and activities comprising the ATF sub-sub-activity.
- EEP: key outputs and immediate outcomes such as the construction of ethanol plants are expected to expand production and increase consumer uptake, and establish the first cellulose plant in Canada. These intermediate outcomes contribute to the final outcome of, “reductions in the transportation sector’s GHG emissions (as ethanol replaces conventional fuels).”Footnote 14
- ecoEBF: activities and outputs are expected to stimulate uptake, thereby increasing domestic production of alternative fuels and contributing to meeting the regulations for renewable fuel content. Ultimately, the Program is expected to facilitate the development of a competitive renewable fuels industry and increased domestic production of renewable fuels.Footnote 15
- NRDDI: the key outputs and the immediate outcomes — demonstration data to inform regulatory development, stakeholder support of scientific credibility and feasibility of regulation, and favourable reception of the regulation into target marketplace — were expected to contribute to the design, development, and implementation of the federal regulation requiring renewable content in the distillate pool. This federal regulation is expected to lead to the development of a domestic renewable fuels industry.Footnote 16
- FPPD’s policy, financial, and technical functions are expected to help inform decisions about renewable fuels policies, programs, activities, and regulations. They are also expected to support the achievement of outcomes associated with other programs and activities.
With the exception of the EEP, a legacy program, these programs and activities are expected to contribute to the expected results of the RFS. EEP and the excise tax exemption for ethanol were precursors to the RFS as they were original measures instituted at the federal level to support biofuel production in Canada.
- Oversight of the NextGen Biofuels Fund will be examined in relation to NRCan’s oversight role, not in relation to the expected results of the Fund which is delivered by SDTC.
1.5 Stakeholders and Beneficiaries
Many stakeholders/beneficiaries are involved in the ATF programs and activities. These include the following:
- other branches and divisions within NRCan, e.g., CanmetENERGY; Petroleum Resources Branch; Office of Energy Research and Development (OERD);
- other federal departments and agencies (e.g., EC, AAFC, Transport Canada) through collaboration on the RFS and through their use of the FPPD’s policy and technical support;
- provincial and territorial governments (collaborated with the federal government to develop the RFS and are potential users of FPPD’s policy and technical support, particularly GHGenius);
- renewable fuel producers, blenders, refiners, distributors, retailers, testing facilities, technology developers, marketers, and users;
- industry associations (e.g., Canadian Renewable Fuels Association, Canadian Independent Petroleum Marketers Association, Canadian Petroleum Products Institute, Canadian Natural Gas Vehicle Alliance); and
- research associations and universities (i.e., through the implementation of demonstration projects through the NRDDI).Footnote 17
NRCan’s FFPD manages the ATF sub-sub-activity. As of December 2011, the FPPD had 33 full-time equivalents (FTEs), which is up from about 16 FTEs in 2007.
Over the evaluation period (2004–05 to 2010–11), total expenditures for the ATF sub-sub-activity were $537.4 million; of this, $513.3 million (96 percent) was used for contributions to support plant expansion and provide production incentives for biofuels. Table 3 shows the allocation of the ATF sub-sub-activity’s expenditures by program.
|Program||Planned expenditures||Actual expenditures|
|Policy, Financial, and Technical Function||n/a||2.8|
Source: FPPD financial records
* Programs end in 2017 (for NGBF the repayment phase will continue thereafter until 2027).
Appendix B presents additional information on planned and actual expenditures by program.
1.8 ATF Programs and Activities
This section summarizes the programs and activities comprising the ATF sub-sub-activity.
1.8.1 Ethanol Expansion Program
This Program funded the construction of new, or the expansion of existing first-generation ethanol facilities. A total of nine facilities received funding at a cost of $99.0 million. All of these plants have been constructed and, together, have the nameplate capacity to produce more than one billion litres of ethanol per year. All nine plants are currently in the repayment stage although only four facilities are sufficiently profitable to make actual repayments. All nine are participating in the ecoEBF Program.
The EEP aimed to increase ethanol production, which when blended with gasoline reduced transportation-related GHG emissions. It provided repayable capital incentive contributions to organizations planning to build or expand ethanol production facilities.Footnote 19 By helping to develop Canadian ethanol markets, the EEP was expected to contribute to the partial displacement of conventional fuels by renewable alternatives. This would contribute to the reduction of GHG emissions by the transportation sector. Projects are assessed against repayment criteria on an annual basis up to 2017 and, where triggered, repayments are required. Final repayments are due by January 30, 2017, and if the total contribution is not repaid by that time, then the remaining amounts owing are forgiven.
EEP Delivery Mechanisms and Governance
The Program provided contributions, with repayment terms, toward the construction of new or expansion of existing fuel ethanol production facilities. The amount of the contribution offered to a successful proponent was based on multiplying the plant’s production by a contribution rate in dollars per litre ethanol production (or in Round 2, dollars per litre nameplate production capacity).Footnote 20 The contribution rate was based on a rate proposed by the proponent, determined by dividing the eligible costs requested by the proponent for the project by the proponent’s proposed annual fuel ethanol production.Footnote 21 The contribution was designed to be repayable contingent on favorable market conditions (i.e., the plant repays 20 percent of the profit above $0.20/L)
The EEP was a component of the Future Fuels Initiative and was co-managed by NRCan’s Office of Energy Efficiency (OEE) and AAFC through a Joint Management Committee.Footnote 22 Financial responsibility and the role of monitoring project achievements reside with NRCan. NRCan worked with AAFC and other federal departments to develop a Request for Proposals, review submissions, and select winning proposals, but was solely responsible for disbursing funds to successful applicants and monitoring and auditing funded projects. Within the FPPD, the EEP is overseen by the Financial and Market Analysis Unit — now that the Program is in the repayment stage.
1.8.2 ecoENERGY for Biofuels
As of December 2011, NRCan had signed agreements with 33 companies with a combined annual production capacity of 1,807 million litres of ethanol and 507 million litres of biodiesel.Footnote 23 Total projected contribution funding for these 33 projects for the period from 2008–09 to 2016–17 is estimated at $1.23 billion. FPPD staff report that agreements are in place with all of the companies deemed eligible to receive program funding. The Program is no longer accepting applications.
ecoEBF is a nine-year program (2008-09 to 2016-17) that provides non-repayable operating incentives to encourage the growth of a competitive domestic renewable fuels industry, increase production of alternatives to conventional transportation fuels, and satisfy demands for renewable fuels stemming from federal regulations.Footnote 24
ecoEBF Delivery Mechanisms and Governance
The Program provides up to seven years of assistance per facility in the form of non-repayable contributions in order to boost Canadian production of ethanol and biodiesel. After program changes were implemented in December 2009, applicants must either have built an ethanol or biodiesel facility (“existing producers”) or be able to demonstrate the “advanced state of readiness” of their project by March 31, 2010 (“new producers”).Footnote 25 All facilities must be built by September 30, 2012, the mandatory deadline for construction completion in accordance with the Terms and Conditions of the Program.
The incentive structure has changed over the life of the Program:
- Originally, the incentive was set at 50 percent of the difference between the margin needed by the industry to generate a rate of return (not exceeding 20 percent) and the actual margin obtained (the industry margin). The expectation was that provincial funding would further address any gap. The actual incentive rate paid (calculated quarterly) to all plants varied according to actual industry profitability and further was capped at pre-specified rates that declined over time. Also, the total amount payable to any producer in a given year could not exceed an amount equal to 30 percent of the Program’s volume limit for ethanol and biodiesel.
- Program changes in 2008 altered the rate calculation to eliminate the gap between the profitability and industry margins (through federal contribution of 100 percent rather than 50 percent); in addition, the calculation was adjusted such that provincial contributions could affect the amount of funding received (i.e., should provincial funding be received, the federal contribution would be reduced).
- The most recent set of changes to program design and delivery came into effect in December 2009. To reduce funding uncertainty for producers, the mechanism for disbursing funds changed from a variable incentive rate to a fixed, annual incentive rate, declining over time. Incentive rates for biodiesel production were increased, and the cap on contributions to biodiesel projects was changed from a volume-based cap to a monetary cap to encourage construction of larger plants.Footnote 26 In addition, program funds were re-profiled to “better align funds to the actual volumes expected for the remaining years of the Program,” enabling ecoEBF to fund more projects and increase the amount of renewable fuel produced.Footnote 27 The construction end date was also changed to September 2012.
The ecoEBF Program is managed by the ecoEBF Unit within the FPPD. The Deputy Director is responsible for a range of activities, including program development and overall management, developing operational policies, reviewing applications, disbursing funds, developing and monitoring contribution agreements, reviewing environmental assessments, reporting on program performance, auditing recipients and projects, and verifying incentive payment requests. Additionally, the environmental assessment staff evaluates the potential environmental impact of ecoEBF projects and signs off on environmental assessments. Policy and technical staff also provide program support.
The Financial and Markets Analysis Unit is responsible for conducting comprehensive financial analysis and performing due diligence for grants and contributions payments being managed by the ecoENERGY for Biofuels Program. Their work includes the payment process involving payment verification and ensures compliance with financial reporting requirements, including the review of proponent semi-annual and annual reports.
Groups outside NRCan also support the governance of the Program. AAFC and EC work with NRCan to ensure that the Program complements the other pillars of the RFS, industry associations help promote the Program and develop the infrastructure to deliver the fuel to users, and provincial and territorial governments leverage program funding by collaborating on the development of complementary programming in their respective jurisdictions.
The NRDDI provided financial support to eligible recipients for demonstration projects assessing the technical feasibility of incorporating an average two percent renewable content into the distillate pool by 2012. The Program ultimately funded seven demonstration projects worth $2.3 million and one infrastructure study.Footnote 28 All funded projects are now complete and have reported on results. It is important to note that when the Government of Canada advanced the diesel regulation date from 2012 to 2011; the NRDDI had to be completed by mid-2010, one year earlier than planned.
In December 2006, as part of its RFS, the Government announced its intention to regulate an annual average of two percent renewable content in diesel fuel and heating oil by 2012, upon successful demonstration of renewable diesel use in diverse applications under the range of Canadian climatic conditions. Announced in 2008, the NRDDI was created to support the proposed regulation by funding demonstration projects that address stakeholders’ questions about renewable diesel use in Canada. The Program also supported a study to examine infrastructure readiness for the regulation.Footnote 29 To identify priorities for the demonstration projects, the Program consulted with fuel producers and end-user organizations to determine their questions and with the input of multi-sectoral/technical committees, helped these organizations develop and deliver demonstration projects to respond to their sector’s questions. The expected outcomes of the NRDDI were:
- critical technical data obtained to inform the potential for and design and implementation of the related regulation;
- stakeholders’ concerns related to renewable diesel use, in particular, quality, operability, distribution, storage, compatibility with ultra-low sulphur diesel, emerging engine emission control technology, and engine/system components are addressed; and
- favourable reception of regulation into target marketplace.
NRDDI Delivery Mechanisms and Governance
NRCan provided non-repayable contributions of up to 50 percent of total project costs for approved projects (total government assistance not to exceed 75 percent). Eligible recipients included for-profit and non-profit organizations, industry and research associations, and universities in Canada. Projects included a multi-stakeholder steering and technical committee to facilitate acceptance of results by stakeholders. Renewable diesel and base diesel used in the demonstration projects was representative of fuels that could be available in Canada and meet industry standards.
The NRDDI was administered by FPPD. The Director of the FPPD monitored program performance and ensured that the Program was on track to achieve expected outcomes
A key deliverable of the NRDDI was production of a final report to EC (the regulatory agency) by summer 2010, to inform regulatory development.
External stakeholders were responsible for supporting the governance of the NRDDI. EC participated in project selection, and both EC and AAFC coordinated with NRCan to ensure complementarities between the NRDDI and other elements of the RFS. Finally, industry associations, provincial/territorial governments, and other stakeholders supported the delivery of demonstration projects and contributed funding and expertise.
Policy, Financial, and Technical Functions Activities
NRCan’s FPPD offers support for the RFS as well as alternative transportation fuel policy. This support is provided both internally through policy, technical, financial and market advice and feedback into the design and management of programs, as well as externally through cooperation with other government stakeholders.
The Policy and Program Development Unit (PPDU) is responsible for policy and technical function activities – providing the analysis and reporting of key biofuels-related data as well as other alternative transportation fuels to various internal and external stakeholders. The Unit has provided analytical input and support to aid in the development of the “Natural Gas Use in the Canadian Transportation Sector Deployment Roadmap”. Within the PPDU, technical staff supports the management of the GHGenius, a life-cycle analysis tool that can analyze the emissions of many pollutants connected with the production and use of conventional and alternative transportation fuels. Furthermore, GHGenius can model emission levels for potential future transportation fuels scenarios, up to the year 2050. GHGenius is the only such tool in Canada, and is used by the Government of Canada and provincial governments to support policy development.
The Financial and Markets Analysis Unit is responsible for conducting comprehensive financial analysis and performing due diligence for grants and contributions payments being managed by the Fuels, Policy and Programs Division. The Unit manages the payment process for the ecoEBF Program, including payment verification and ensures compliance with financial reporting requirements, including the review of proponent semi-annual and annual reports. Finally, the Unit is the central resource for market intelligence on the biofuels sector (for example, ethanol and biodiesel production, consumption, and trade) that is used in developing policy and strategy positions. Information from both program and public sources collected and presented in regular reports providing a summary overview of the state of the biofuels markets and industry. No reports were yet produced as of December 2011 and hence none were available for the evaluation.
FPPD supports various working groups (e.g., Renewable Fuels Working Group reporting to Energy and Mines Ministers’ Conference, Inter-Departmental Working Group on Biofuels Policy). It also collaborates with other departments (e.g., through the RFS Board of Directors, the Working Group on Aviation Emissions’ Subgroup on Alternative Fuels) and international organizations (e.g., the International Energy Agency, the World Trade Organization, and the Organisation for Economic Co-operation and Development). Furthermore, it conducts analysis of key issues such as: the impact of policies and program structure; the role of renewable and alternative fuels in energy policy; the categories of renewable fuels; sustainability of alternative transportation fuels; annual review of biofuels industry profitability (including quarterly biofuels market reports); and annual analysis of environmental reporting data and trending information.
Policy, Financial, and Technical Functions Governance
The Policy and Program Development and the Financial and Market Analysis units are each headed by a unit chief who reports to the Director of the FPPD.
1.8.5 Oversight of NextGen Biofuels Funding (NGBF) Agreement
With respect to this agreement, this evaluation only examined NRCan’s oversight role of the NGBF Funding Agreement.
Objectives of the NGBF
The NGBF supports private sector efforts to construct first-of-kind demonstration-scale facilities producing next-generation renewable fuels.Footnote 30 This is expected to increase the environmental benefits resulting from renewable fuel use in Canada, and to amass expertise and innovation capacity related to the production of next-generation biofuels.Footnote 31
Accountability for the NGBF, as set out in federal legislationFootnote 32, is through parliamentary scrutiny, including audits and reporting to Parliament. NRCan’s FPPD provides oversight of the NGBF funding agreement jointly with EC, disbursing funds and monitoring compliance with the agreement. Since funds are disbursed equally from both departments, both are responsible for oversight activities.
Sustainable Development Technology Canada (SDTC) – an arm’s length foundation created by the federal government – delivers the NGBF. SDTC must provide NRCan and EC with annual cash flow statements and details of approved projects to substantiate cash flow requests. SDTC is also required to submit its annual reports to EC and NRCan for subsequent tabling in Parliament. Those annual reports must include financial statements, an auditor’s report, and a summary of activities and results achieved.
As of November 2010, no projects have received funding under the NGBF. Access to private sector financing owing largely to the downturn in the economy remains an issue for some companies trying to access the funds; a re-assessment of technology readiness is being planned.
2.0 Evaluation Approach and Methodologies
2.1 Evaluation Scope and Objectives
This evaluation assessed issues related to the:
- relevance of the ATF sub-sub-activity in terms of addressing continuing need, alignment with federal government priorities, and alignment with the role of the federal government;
- effectiveness of the ATF sub-sub-activity, that is, the degree to which it has achieved its expected results; and
- efficiency and economy of the ATF sub-sub-activity programs and activities.
The evaluation covered the period of 2005–06 to 2010–2011 (and extending back to 2004–05 for the EEP).
2.2 Evaluation Methods
- Document review (135 documents).
- Literature review (focusing on forecasted demand for biofuels; GHG emissions trends in the on-road transportation sector; the potential of biofuels to reduce GHG emissions; and strengths and weaknesses of life cycle analysis).
Key informant interviews:
Using a list of potential key informants provided by the FPPD, interviews were completed with 48 individuals from the following groups:
- Fuels, Policy and Programs Division (21);
- other divisions of NRCan (7);
- representatives of other federal government departments (4);
- provincial government representatives (5); and
- industry representatives (11).
- market review (consisting of a document review of financial state of biofuels industry (Canadian and U.S.) and factors influencing industry profitability); and
- review of funded facility files (31).
Ten case studies were conducted (six ethanol facilities and three biodiesel facilities and one case study on the use of GHGenius by the Government of British Columbia). Biofuel facility case studies were based on interviews with 13 plant representatives. The GHGenius case study involved a document review and interviews with NRCan and British Columbia provincial representatives.
2.3 Evaluation Limitations
This evaluation faced two challenges and limitations:
- While the data provided by the ecoENERGY for Biofuels proponents meets financial reporting requirements as specified in the contribution agreements, economic analysis of the cost data in its provided form would have required formulating assumptions and conducting additional analysis and modelling which were beyond the scope of this evaluation. Hence, an economic analysis could not be conducted. Note: for facilities producing near nameplate capacity, audited financial reports were used to determine gross profit.Footnote 33
- Despite assurances of confidentiality, facilities were reluctant to release information they believed to be proprietary and that was not specified in the funding agreement as a reporting requirement. Consequently, the case study methodology had to be modified to eliminate direct linkages of facility information with interview responses, weakening the ability of the case studies to examine facility efficiency, especially economies of scale.
3.0 Evaluation Findings
3.1.1 Continued Need
|Is there a continued need for the programs and activities?||
||A continued need exists for ecoEBF, the policy, financial and technical functions and NGBF oversight. EEP is in the repayment stage and NRDDI is complete and are no longer needed.|
EEP: The Program is now in the repayment stage and was a one-time capital investment program that contributed to the initial expansion of the ethanol industry, but it is no longer required given that production incentives are in place to support the industry through ecoEBF. Given cost-effectiveness issues identified through the literature review, the continued need for capital incentives for first generation ethanol as a primary means of reducing GHG emissions is unclear.
ecoEBF: The Program was designed to develop a competitive domestic biodiesel industry as a supply measure to complement the recent regulations. The fact that many funded recipients appear not yet to have achieved operations that can be sustained without the incentives, particularly with respect to biodiesel, a continued need exists for ecoEBF. Within the context of the Renewable Fuels Strategy, this Program is needed to incent the supply of domestic biofuels to support the demand generated by the renewable fuel content regulations until 2017. An assessment of the continued need for the Renewable Fuels Strategy is beyond the scope of this evaluation.
Whether there is a continuing need for federal programming to support domestic biodiesel production beyond 2017 will depend on a broader review of the Renewable Fuels Strategy and how that strategy aligns with federal energy and climate change objectives at that time.
NRDDI: This Program is complete, having met its performance targets one year early. While NRDDI achieved its objectives, there may be a need for an initiative like NRDDI, to address additional technical research into next generation biodiesel. Further analysis on how the current renewable fuel regulations and other policies could impact the availability and security of Canada’s fuel supply would be valuable.
Policy, Financial and Technical Functions: NRCan is viewed by stakeholders as a valuable source of information on the alternative fuels sectors (e.g., GHGenius). Many stakeholders would like to continue to strengthen their relationship with FPPD.
NGBF Oversight: NRCan interviewees note that federal oversight is needed as long as SDTC delivers the NGBF.
Need for EEP and ecoEBF
Within the framework of the Renewable Fuels Strategy and the fact that many funded recipients, particularly biodiesel facilities, appear not yet to have achieved operations that can be sustained without the incentives, a continued need exists for the ecoEBF until 2017. Contribution agreements for ecoEBF are in place until 2016-17.
Given that biofuels is a nascent industry, particularly with respect to biodiesel, government subsidies are viewed as important to enhancing its growth and competitiveness. Prior to EEP and ecoEBF, there were few government measures in place and low biofuel production. Since the implementation of these programs, ethanol production has grown from 185 million litres in 2003 to about 1.7 billion litres as of December 2011 while biodiesel production has grown from 99 million litres in 2008 to 123 million litres as of December 2011.
EEP, now in the repayment stage, added 942 million litres of ethanol production capacity in Canada as of 2010. The Program, which provided capital incentives, was critical to the initial development of the ethanol industry. Interviewees and EEP application forms indicated that without the Program, many facilities would not have been able to secure private financing for their projects. Interviewees explained that reluctance to invest in Canadian biofuels facilities prior to EEP was partly due to the inability of the facilities to compete with the heavily subsidized U.S. biofuels industry and partly due to the risk associated with investing in a new and little understood industry. Currently, the Program is no longer needed to incent new production as ethanol facilities receiving incentives through ecoEBF are making progress towards production targets. No need exists to increase nameplate capacity to support regulatory requirements.
EEP has a long-term expected result to reduce GHG emissions from the transportation sector. The technical literature review,Footnote 34 however, raises issues as to the cost-effectiveness of biofuels, particularly first generation ethanol in reducing GHG emissions. Therefore, the continued need for a first generation ethanol program where the primary goal is GHG emissions reduction is unclear.Footnote 35
ecoEBF, which provides production incentives, was essential to the further expansion of the ethanol industry and the development of the biodiesel industry. Many facility representatives reported that the ecoEBF was needed to secure private sector financing. Several interviewees also mentioned that ecoEBF replaced the excise tax exemption, on which existing ethanol facilities had based their business models. They said either the ecoEBF or an excise tax exemption was needed to help Canadian facilities compete with U.S. facilities, which benefitted from the then existing Volumetric Biodiesel Excise Tax Credit (VBETC) or the Volumetric Ethanol Excise Tax Credit (VEETC) for ethanol producers.Footnote 36
Interview and literature review evidence indicate that, without government incentives, the Canadian biofuels industry would not have developed rapidly enough to provide the volume of domestically-produced ethanol required to support the demand generated by the regulations. This evidence reinforces the importance of the interconnection between the regulations, to encourage demand, and the ecoEBF incentive, to support domestic supply. Further, both industry stakeholders and the available financial data indicate that production incentives are needed to sustain existing and increase future biofuels production levels in Canada.
The National Energy Board forecasts that the implementation of Canada’s Renewable Fuels Regulations, in combination with various provincial mandates, will result in the share of biofuels in the transportation sector to increase from 1.1 percent in 2009 to 3.3 percent of total transportation demand in the Reference Case by 2035.Footnote 37 By 2034-35, NRCan expects demand for ethanol and biodiesel to increase by another 800 million litres and 275 million litres, respectively. Footnote 38
Need for other Sub-Sub Activity Components
NRDDI: This Program focussed mostly on first generation biodiesel, is complete and has met its performance targets. A continued need for the Program does not exist, although the final reportFootnote 39 identified areas for further research around cold weather sedimentation formation in biodiesel blends,Footnote 40 on how the proposed regulation and other policies could impact the availability and security of Canada’s fuel supply,Footnote 41 and possibly develop a standard for more advanced renewable diesels (such as HDRD) as they become more widely available as a general automotive fuel.Footnote 42 Industry expressed interest in additional research addressing cold-weather performance of first generation biodiesel for oceangoing vessels for example, and for additional standards/specification development. Interview, recent researchFootnote 43 and documentFootnote 44 evidence suggest that HDRD, a more advanced form of renewable diesel, is an important alternative approach, but its technical and financial feasibility for production in Canada requires additional research.
Policy and Technical Support: NRCan, other government departments and industry representatives said they receive valuable information from the activities and outputs of the FPPD and indicated that it is important to continue to receive policy and technical support. For example, GHGenius is a valuable life cycle analysis tool used by various stakeholders including NRCan, other federal departments, provincial governments, and industry representatives. It is becoming an increasingly important tool for the development of regulations and policies at the federal and provincial levels. Examples of additional information interviewees would like to receive are statistics on biofuels capacity, production, and use, as well as further studies on the feasibility of biofuels under a range of Canadian conditions. Industry stakeholders expressed interest in strategic discussions about continuing to build the biodiesel industry and R&D in this area.
Need for NGBF Financial Oversight: FPPD interviewees note that, as long as SDTC is delivering the NGBF, federal oversight is needed to ensure financial accountability. Since funds are disbursed equally from both EC and NRCan, both are responsible for oversight activities.
3.1.2 Alignment with Government Priorities
|Are the programs and activities consistent with government priorities and NRCan strategic objectives?||
||The promotion of domestic ethanol and bio-diesel is consistent with current federal priorities and NRCan strategic outcomes.|
Alignment with Government Priorities
The programs and activities forming the sub-sub-activity are consistent with government priorities and NRCan strategic objectives. Together, the elements of the sub-sub-activity aim to increase the production and use of biofuels, which aligns with the objectives of the Government of Canada’s Renewable Fuels Strategy. Additionally, given the frequent mention of biofuels, clean energy, and GHG emissions reduction in speeches from the Throne and budgets, the programs and activities can be said to support government priorities. They also support NRCan’s environmental responsibility strategic outcome and have some linkages to NRCan’s strategic outcome relating to economic competitiveness given the focus of programs on the creation of a domestic biofuels industry.
Alignment with federal priorities
The ATF sub-sub-activity is aligned with the RFS and federal priorities relating to clean energy and GHG emissions.
The objective of the ATF sub-sub-activity is to increase the production and use of alternative road transportation fuels. The ATF sub-sub-activity supports three of the four elements of the RFS:
- increasing the retail availability of renewable fuels through regulation;
- supporting the expansion of Canadian production of renewable fuels; and
- accelerating the commercialization of new technologies.
The RFS has both environmental and economic drivers — it is intended to reduce GHG emissions from on-road transportation, accelerate the commercialization of new biofuel technologies, and provide new market opportunities for agricultural producers and rural communities.Footnote 45 Given that one of the RFS aims is to reduce GHG emissions and the ATF programs promote the production and use of biofuels – which according to many life-cycle analysis studies,Footnote 46 have lower GHG emissions than the petroleum fuels they replace – the ATF sub-sub-activity aligns with the environmental drivers of the RFS. The ecoEBF does not, however, have explicit GHG emissions reduction targets. While ecoEBF supports the production of fuel to meet the regulated requirements for renewable content, emission reduction targets are attributable exclusively to the regulation.
Additionally, the EEP was aligned with the former Clean Air Agenda and the Climate Change Action Plan for Canada, both of which aimed to reduce GHG emissions. Unlike ecoEBF, EEP has explicit GHG emissions reduction targets.
Since 2006, biofuels are most frequently associated with federal government priorities related to clean energy and GHG emissions reduction,Footnote 47 and secondarily to economic development in rural communitiesFootnote 48 as indicated in many speeches from the Throne and budgets. Prior to that, and in relation to the EEP, the 2002 Speech from the Throne mentioned commitments under the Kyoto Protocol and the 2003 Budget made $2 billion available to implement measures under the Climate Change Plan for Canada.
Alignment with NRCan’s environmental responsibility strategic objective and priorities
The expected result of NRCan’s environmental responsibility strategic objective is to position Canada as a world leader in environmental responsibility in the development and use of natural resources. The activities, sub-activities, and sub-sub-activities within NRCan’s Program Activity Architecture (PAA) supporting the Department’s environmental responsibility strategic objective have expected results that relate to: increased production and use of alternative transportation fuels; improved energy efficiency; and reduced environmental impact. Many FPPD representatives confirmed that the ATF sub-sub-activity addresses environmental priorities related to climate change objectives and reducing GHG emissions. They also said that it supports environmental responsibility, especially through the environmental assessments/reporting conducted for biofuels facilities funded through EEP and ecoEBF.
The priorities identified in the Department’s two recent Reports on Plans and Priorities (RPP) indicate alignment of alternative fuels with NRCan’s priority of clean energy:
- In its 2010–11 RPP, NRCan lists clean energy as one of its key priorities, asserting that “strong federal leadership is critical to ensuring that all of Canada’s energy resources can continue to contribute to the country’s economy, while meeting domestic and global expectations that energy be produced and used in cleaner and sustainable ways.”Footnote 49 To pursue this priority, the Department plans to “take action in three key themes: energy efficiency; renewables and clean electricity; and cleaner fossil fuels and alternatives.”Footnote 50 The last of these are as of activity encompass the programs administered through the ATF sub-sub-activity.
- In the 2009–10 RPP, NRCan lists “addressing climate change and air quality through clean energy” as an important priority, stating that its objective in this area is “to strengthen the sustainability of Canadian energy production and consumption.”Footnote 51 It makes specific reference to its ecoENERGY programs, adding that they, “range from support for building retrofits and vehicle initiatives, through to technology development, renewable power, and biofuels.”Footnote 52
A few representatives of FPPD and other NRCan divisions reported that the ATF sub-sub-activity also supports economic objectives such as the creation of a domestic biofuels industry, rural economic development, and job creation.
3.1.3 Role for Government
|Is there a legitimate, appropriate, and necessary role for the federal government in these programs and activities?||
||Yes, there is a legitimate and appropriate role for the federal government in ATF programs and activities.|
Role for federal government
The legitimacy of NRCan’s role in supporting the production and use of alternative fuel sources in transportation is supported by the Energy Efficiency Act. The Government’s role is appropriate given its longstanding support (since the 1980s) of the development of alternative fuels. Biofuels is a shared federal–provincial jurisdiction and both levels of government have implemented renewable fuel mandates and programs to support the sector.
Interview evidence suggests that a national program facilitates a pan-Canadian response without reducing the capacity of provinces/territories to engage in programs and policies to supplement the supply of biofuels.
While both the federal and provincial/territorial governments engage in demand side (minimum content regulations) and supply side (incentives), there is no substantive evidence of unnecessary overlap or duplication with respect to production incentive programs. The design of ecoEBF serves to minimize duplication.
Federal/NRCan’s Role and Responsibilities
Interviewees reported that the Government of Canada has supported the development of alternative fuels since the 1980s. This early support was mainly in the form of research and development. In the 1990s, the federal government demonstrated its support for the biofuels industry by exempting ethanol and biodiesel from the fuel excise tax in an effort to promote domestic production and use of biofuels. Incentives are one legitimate approach to supporting the increase in the supply of biofuels. As of April 2008, production incentives replaced the federal excise tax exemption.Footnote 53 Further, federal regulations for renewable fuel content in gasoline and diesel were implemented in 2010 and 2011, respectively.
Additionally, the federal renewable content mandate arose from federal–provincial consultations and coordination through the Council of Energy Ministers (CEM) Working Group on Renewable Fuels.
Representatives of provincial governments indicated that federal and provincial governments have a role in biofuels policy and programs; however, they said that the specific role of each order of government is not always clear and may vary depending on the particular policy/program in question (e.g., economic development, climate change, farmer support). Representatives of biofuels facilities believe federal and provincial governments have a shared role to play in supporting the biofuels industry by creating a level playing field, mandating blending rates, mandating use, and helping ensure that the industry is competitive. Some NRCan interviewees noted that provincial programs and regulations ensure local development by attracting and developing the industry within their respective provinces.
The legitimacy of NRCan’s role in supporting the production and use of alternative transportation fuels is supported by the 1992 Energy Efficiency Act, which states that to promote efficient energy use and the use of alternative energy sources, NRCan’s Minister may:
- conduct, or cooperate with persons conducting, research, development, tests, demonstrations and studies;
- publish information, research or test results;
- assist, cooperate with, consult and enter into agreements with any person, including any department or agency of the Government of Canada or of any province;
- make grants and contributions; and
- undertake such other projects, programs and activities as in the Minister’s opinion advance that purpose.Footnote 54
This section of the Act is mentioned explicitly in documentation describing the mandate for NRCan programs in the area of alternative transportation fuels, such as the RMAFs for the ecoEBF, the EEP, and the NRDDI.Footnote 55 Moreover, these programs fall within NRCan’s mandate, which is to enhance the responsible development and use of Canada’s natural resources, including fuel.
Evidence of Overlap and Duplication
Both the federal government and most provincial governments west of Ontario have implemented renewable fuel content mandates and provided financial support to the biofuels industry. This fact in itself does not mean that duplication exists between these programs and activities and their provincial/territorial counterparts. Each province/territory is free to offer both demand (fuel content regulations) and supply side incentives (production and blending incentives) in the context of its own energy and regional development agenda. As a shared jurisdiction, it is hard to conclude that unnecessary overlap and duplication among federal and provincial/territorial programs exists. While one of the rationales for the federal renewable content mandate was to avoid a patchwork of provincial and territorial regulations,Footnote 56 a discussion of potential overlap between provincial and federal renewable content mandates is not within the scope of this evaluation.
With respect to capital and production incentive programs, both orders of government have used grants and low-interest loans to stimulate the construction of biofuel plants and production incentives to encourage production to meet the mandates described above. Since 2008, the federal government had at least five programs in place to support the creation or expansion of biofuels production capacity. Three of these – ecoEBF, ecoABC and NGBF – ran under the RFS targeting different audiences (biofuels producers, farmers, and next generation biofuels producers, respectively). In addition to the federal government’s ecoEBF Program, four provinces have production incentive programs in place, each differing somewhat in their criteria. At least three provinces – British Columbia, Ontario, and Quebec – offer consumer tax credits or exemptions to promote the use of ethanol and biodiesel.
Two factors that influence any conclusion on overlap and duplication of incentive programming are:
- Need for funding: One factor in whether duplication of funding exists is the number of applications and total demand for support relative to the willingness of government to support applications. For the ecoEBF Program, there were 108 unique applications for funding over the evaluation period which was well over the original target of 30 applications. Contribution agreements were signed for 33 projects. However, the fact that denied projects did not meet the Program requirements, such as demonstrating an advanced state of readiness, suggests that the level of resources was sufficient to meet the need (i.e. as indicated by the 33 contribution agreements).
- Stacking provisions: Both the EEP and the ecoEBF contain stacking provisions limiting the overall level of government support available to individual projects. In the case of the EEP, for example, the Program’s Terms and Conditions stipulated that total funding provided by federal, provincial, and municipal governments must not exceed half of project costs.Footnote 57 Also, EEP proponents must report all government incentives (e.g., ecoEBF and provincial) in their gross income calculations. Changes to the design of the ecoEBF Program in 2008 continued to account for the provincial support applicants were receiving, but the calculation of incentive rates to account for the provincial support was altered. The designs of these programs are intended to avoid duplication across programs offered by multiple orders of government.Footnote 58
The likelihood of overlap/duplication between provincial initiatives and programs and activities managed by the ATF sub-sub-activity is further reduced by the committees with both provincial/territorial and federal representation.Footnote 59 This coordination and collaboration supports opportunities for each order of government to remain informed about active or planned initiatives in the area of alternative fuels.
3.2.1 Effectiveness – EEP and ecoEBF
|To what extent have intended EEP and ecoEBF outcomes been achieved as a result of the programs?||
||EEP and ecoEBF have made good progress on most performance targets, with the primary exception of ecoEBF biodiesel production targets. The long-term outcome of a competitive renewable fuels sector remains to be realized.|
EEP and ecoEBF:
These programs facilitated the development of approximately two billion litres of ethanol and biodiesel domestic nameplate production capacity (based on contribution agreements) as of December 2011.
EEP did not meet its short-term production target in 2007 of 600 million litres of additional ethanol production, but in 2010 has achieved 94 percent of its long-term production target of one billion litres of additional ethanol production.
As of December 2011, ecoEBF achieved 83 percent of its 2012 ethanol target, having incented about 1.7 billion litres of actual ethanol production compared to its target of two billion litres of actual ethanol production. However, ecoEBF has only achieved 25 percent of its 2012 biodiesel production target, having incented 123 million litres of actual biodiesel production compared to its target of 500 million litres actual biodiesel production.
Whether biofuels will be a profitable competitive industry without subsidy, in 2017, is uncertain given a complex set of external factors. Trends in ethanol are somewhat encouraging, but the energy market, and more specifically the alternative fuels market, in 2017, is hard to predict. The competitiveness of the industry is highly dependent on feedstock and oil prices. Examination of the EEP database indicates that ethanol production costs range from $0.56 per litre to $1.55 per litre. Large facilities tend to have a lower cost of production than smaller facilities. There is some question as to whether the biodiesel industry will be competitive by 2017 without incentives.
While life-cycle analysis indicates that EEP has met its GHG emission reduction targets, research indicates that biofuels, particularly first generation ethanol, is not a cost-effective method for obtaining GHG reduction in transportation.
Table 4 summarizes the achievements of the EEP and ecoEBF according to the outcomes and performance targets specified in the Results-Based Management and Accountability Frameworks for the programs.
|Construction of new ethanol plants||Construction of several new plants and/or plant expansions completed
(no timeline indicated in RMAF)
|Expanded ethanol production, increased consumer uptake, and more developed markets for ethanol fuel in Canada||
Short-term EEP production target
|First commercial cellulose-based plant in Canada||
Reductions in the transportation sector’s GHG emissions (as ethanol replaces conventional fuels)
Annual reductions in transportation sector’s GHG emissions in tonnes (about 1.3 Mt to 1.6 Mt based on the displacement of gasoline with one billion litres of ethanol). Target date based on the Future Fuel Initiative objective (of which EEP was part of) requiring around one billion litres of ethanol to be used in gasoline pool and the use of this volume to displace gasoline by 2010
|Immediate outcomes (1 to 4 years)|
|Increased awareness of Canadian programs for producers of renewable fuels||30 applications||
|Increased uptake of programs (i.e., use of incentives to produce renewable alternatives to gasoline and diesel by industry)||80 percent of eligible facilities receiving funds||
|Intermediate outcomes (3 to 5 years)|
|Increased domestic production of renewable alternatives to gasoline and dieselFootnote 64||ecoEBF production targets: two billion litres of domestic production of renewable alternatives to gasoline and 500 million litres of renewable alternatives to diesel by 2012||
|Contribute towards meeting federal regulations requiring renewable content||Availability of domestically produced renewable fuels for federal regulations||
|Development of a competitive domestic renewable fuels industry||
|Increased domestic production and capacity of renewable alternatives to gasoline and diesel, contributing towards Canada’s role in the development and use of natural resources||Long-term ecoEBF production targets: two billion litres of domestic production of renewable alternatives to gasoline and 500 million litres of renewable alternatives to diesel by 2017 (moved ahead to 2012 to meet regulation requirements)||
The extent of achievement of the following outcomes will be discussed in more detail in this section:
- increased domestic production of renewable alternatives;
- development of a competitive domestic renewable fuels industry;
- first commercial cellulose plant in Canada (EEP outcome); and
- reduction in the transportation sector’s GHG emissions (as ethanol displaces conventional fuels) (EEP outcome).
Increased domestic production (EEP and ecoEBF)
This section examines progress with respect to production targets and an analysis of trends in the production and use of biofuels in Canada.
Domestic production of biofuels has increased since the implementation of the EEP and the ecoEBF. Both EEP and ecoEBF have contributed to an increase in nameplate capacityFootnote 65 from 186 million litres in 2003 to a forecasted 1.86 billion litresFootnote 66 in December 2012. Signed capacity is expected to increase to a maximum of 20.3 billion litres subsequent to December 2012: 1.98 billion litres for ethanol and 538 million litres for biodiesel.
While ecoEBF is making good progress towards its ethanol production targets, it is not on track to achieve its biodiesel production targets.
|Signed Production Capacity as of December 2012||Built Production Capacity as of December 2011||Actual Production - January to December 2011|
|Ethanol||1.81 billion||1.74 billion||1.66 billion|
|Biodiesel||507 million||225 million||123 million|
EEP Production Targets
According to Program data, EEP did not meet its short-term target, but almost met its longer-term production target of one billion litres of additional ethanol production.
- In 2007, following the close of the EEP, the nine facilities participating in this Program produced 479 million litres of ethanol. In comparison to its baseline (185 million litres) in 2003, production increased by 295 million litres, which was below the Program’s short-term target of an additional 600 million litres per year.
- By 2010, these facilities produced about 1.1 billion litres of ethanol. From its baseline of 185 million litres in 2003, production increased by 942 million litres of ethanol, which is slightly below (6 percent) the Program target of an additional one billion litres per year. The remainder of the EEP facilities were completed in 2008-09, contributing to this target. However, this increase in production is likely also attributable to the ecoEBF Program (implemented as of January 2009) as all EEP facilities also receive federal production incentives.
ecoEBF Production Targets
With respect to ethanol production targets, the ecoEBF is making good progress.
- As of December 2011, ecoEBF incented the actual production of about 1.7 billion litres of ethanol, or 83 percent of its ethanol production target of two billion litres of production by 2012.
- Most ethanol facilities are producing at or near nameplate production capacity (as of December 2011):Footnote 67
- eight facilities are producing at levels exceeding their nameplate capacity (100 percent to 118 percent);
- four facilities are producing at 78 to 99 percent of their nameplate capacity; and
- Three facilities are producing at 51 to 67 percent of their nameplate capacity.
Given that domestic use of ethanol exceeded production from 2007 to 2010,Footnote 68 some of the demand for ethanol is being met by imports. The need to rely on imports to meet short-term demand was not unexpected. The Regulatory Impact Analysis Statement (RIAS)Footnote 69 anticipated that existing domestic production capacity and the capacity generated through ecoEBF would be capable of supplying most of the renewable fuels needed to meet the demand created by the renewable fuels regulations and provincial mandates.Footnote 70 However, it allowed that while domestic renewable fuels facilities are being built and increasing their production levels to nameplate capacity, Canada would need to import some renewable fuels from the United States and elsewhere.
With respect to biodiesel production targets, the ecoEBF is not on track to meet its targets. It should be noted that biodiesel is a nascent industry, even more so than ethanol, and the federal content regulations have only recently come into force.
- Production of biodiesel increased by 32 million litres (from 93 million litres in 2007Footnote 71 to 123 million litres as of December 2011, although built production capacity was 225 million litres at that time).Footnote 72
- As of December 2011, ecoEBF incented 123 million litres of biodiesel, or 25 percent of its biodiesel production target, which is 500 million litres of production by 2012. As of December 2011, based on 14 agreements in place, only three of the 14 biodiesel facilities were producing at levels near capacity:
- three facilities are producing at 85 to 105 percent of their nameplate capacity;
- three facilities are producing at 54 to 77 percent of their nameplate capacity;
- one facility is producing at 49 percent of its nameplate capacity;
- two facilities are producing at 14 to 23 percent of their nameplate capacity; and
- five facilities are producing at two percent of capacity or have yet to begin production.
- A few biodiesel facilities have closed down or temporarily reduced/ceased production apparently until they are in a better financial position to produce and sell biofuels.
There is some question as to whether biodiesel will reach its 2012 production targets considering that as of December 2011, almost 50 percent of built production capacity was idle.Footnote 73 One of the key detriments to increasing domestic production of biodiesel is refiners’ preference for the importation of a more advanced form of biodiesel (i.e., HDRD) which is not produced in Canada. Refiners prefer HDRD because it has properties similar to diesel, requires fewer infrastructure upgrades and is typically produced at large scale facilities that assure product quality and stability of supply, which refiners indicate that they have been unable to find in Canada.Footnote 74 These issues and other factors influencing the industry are discussed in more detail in the next section of the report. For ecoEBF, the process of signing contribution agreements took longer than anticipated, which delayed the commencement of production at some facilities.
Influence of EEP and ecoEBF on increased production
It is difficult to accurately estimate the extent to which increased production can be attributed to EEP and ecoEBF given other provincial incentive programs aimed to develop biofuels industries and the previous excise tax credit. However, there is no doubt that the production and use of biofuels has increased since the implementation of the EEP and the ecoEBF. Data obtained from the Canada Revenue Agency show a significant increase in the production of ethanol in 2007. Ethanol production levels increased from 258 million litres in 2006 to 786 million litres in 2007Footnote 75 (see Figure 3). This increase coincides with the construction or expansion of seven of the nine plants that occurred prior to 2007.Footnote 76 Since the introduction of the ecoEBF, domestic ethanol production increased by 841 million litres (from 820 million litres in 2008 to 1,661 million litres in 2011). While biodiesel production is not on track to meet its production targets, significant increases in production occurred from 2006 onward (46 million litres in 2006 increasing to 93 million in 2007, and then to 139 million litres in 2010)Footnote 77 (see Figure 4). Initial drivers for increases in biodiesel production beginning in 2006 were likely provincial programs and policies. However, the roll-out of ecoEBF coincides with additional increases in production and use from 2009 and to 2010.
According to interviews with facility representatives, the increases in the availability of domestically-produced ethanol and biodiesel subsequent to the launch of ecoEBF, and increases in the domestic supply of biofuels to support the federal regulations requiring renewable fuel content indicate that ecoEBF has contributed to domestic production levels, particularly with respect to ethanol.
The combined demand/supply side policy inherent in the RFS required the promulgation of a content standard and new funding to incent production (under ecoEBF). Given that as of December 2011, the vast majority of biofuels facilities operating in Canada are participating in the EEP and/or the ecoEBF, increases in Canada’s nameplate biofuels production capacity since the programs’ inception are likely largely attributable to federal as well as provincial funding.
Figure 3: Canadian Ethanol Production 2005-2011
Figure 4: Canadian Biodiesel Production 2005-2010
A number of provincial production and capital incentive programs were also rolled out between 2007 and 2011, primarily in those provinces that are large producers of corn or wheat. For example:
- The Liquid Biofuels Program, British Columbia: A grants program aimed at increasing biofuel production capacity launched in 2008. Six of the eight approved projects were for biodiesel production. The total Program budget was $10 million.Footnote 78
- Bioenergy Producer Credit Program, Alberta: The Program (2007 and 2011) assists with the production of biofuel or biogas. Commercial biofuel producers received $209 million in credits, with a minimum payout of nine cents per litre, equal to the Alberta Fuel Tax.Footnote 79
- Saskatchewan Biofuels Investment Opportunity: An $80 million program (2008-09 to 2011-12) providing repayable contributions for the construction and/or expansion of biofuel production facilities with a minimum of five percent farmer-community investment.Footnote 80
- Ethanol and biodiesel production grants, Manitoba: Offers producer incentives for ethanol and biodiesel (2010 to 2015). The grant programs provide an incentive of 20 cents per litre of ethanol for two years declining to 15 cents for the next three years and provide 14 cents per litre of biodiesel for five years.Footnote 81
- Ontario Ethanol Growth Fund: A $520 million program which include $32.5 million of capital assistance to offset the cost of constructing ethanol production facilities. Operating grants are available from 2007 to 2017.Footnote 82
All funding recipients clearly stated that private sector funding, essential for the initial plant construction, and operating lines of credit depended on the government being first in. Given the nascent stage of the biofuels industry in Canada and the scale of infrastructure needed, public sector funding was essential for the rapid development of the industry. Indeed, on a global basis, government subsidies have been a primary driver in the growth of the biofuels sector.Footnote 83
Development of a Competitive Biofuels Industry
While a competitive industry is an end outcome of ecoEBF, as of 2011 (five years prior to the end of the incentive program), the evaluation cannot accurately forecast the prospects for a competitive biofuels sector in 2017 and beyond.
The prospects for a competitive biofuels sector in 2017 are uncertain given the complex set of external factors. At the time of writing, four ethanol facilities appear sufficiently profitable (with the ecoEBF production incentive) to begin repaying the contributions provided under the EEP — many facilities continue to operate at a loss. Footnote 84 In contrast to ethanol, biodiesel plants have much less promising prospects for achieving profitability. While industry experts are cautiously optimistic that some of the large ethanol plants will be profitable without government assistance in 2017, no interviewees were prepared to predict that any of the biodiesel plants can survive beyond 2017 without ongoing public support.
Interviewees indicated that facilities integrated the ecoEBF production incentives into their business models. Facility representatives explained that the incentives help them manage fluctuations in fuel prices and feedstock costs and cover some of their costs while they increase production to nameplate capacity and form the relationships needed to secure feedstock sources and biofuels buyers. All groups of interviewees stated that ethanol facilities are more likely than biodiesel facilities to continue production without government support. However, they cautioned that not all ethanol facilities may be able to continue without subsidy after the contribution agreements conclude.
An assessment of EEP and ecoEBF financial information provided by the Program indicated the following:
- In 2009, three of the nine facilities funded under EEP were sufficiently profitable with ecoEBF incentives (i.e., earned at least $0.20 average gross margin per litre) to trigger EEP repayments. Additionally, one other facility has since triggered EEP repayments.
- All of the seven ethanol facilities with production levels at or near nameplate capacity have positive gross profits. While the gross profit can provide some indication of facility performance, it does not account for internal cross-subsidization and cost allocations that may occur between business lines/facilities within a parent company. It also includes the incentives under ecoEBF. Further, financial statements are prepared for tax and equity financing purposes and do not necessarily represent the true economic costs for any particular activity:Footnote 85
- two of the facilities, both of which participated in EEP, have a gross profit of less than $25 million; they have not triggered EEP repayments;
- three of the facilities, all of which participated in EEP, have a gross profit of between $25 and $49 million; two of them have triggered EEP repayments; and
- two facilities, one of which participated in EEP, have a gross profit of greater than $50 million; the facility participating in the EEP has triggered repayments.
- Although some ethanol facilities are beginning to earn profits, ecoEBF incentives still represents the bulk of their revenues. The cost of production for the nine EEP facilities ranges from $0.56 per litre to $1.55 per litre.Footnote 86 Generally, it appears that larger facilities have a lower cost of production than smaller facilities. According to EEP reports, the Program effectively covered between $0.05 and $0.10 of the cost of production per litre.Footnote 87
EEP facilities participating in ecoEBF derive income from the following sources: ethanol sales account for 56 to 76 percent of their income; sale of co-products account for 4 to 18 percent of their income; and ecoEBF production incentives account for 10 to 13 percent of their income.Footnote 88 Based on the likely existence of economies of scale, facilities that are large, vertically integrated,Footnote 89 and/or able to sell co-products are likely in a better position to reach viability without production incentives. Economies of scale (declining cost over larger volumes) are associated with increased profitability. Vertical integration is also well established in economics.
- The three biodiesel facilities, which have production levels of at least 60 percent of their nameplate capacity, do not have positive net profit. Industry representatives believe that most biodiesel facilities are not profitable. All groups of interviewees suggested that the biodiesel industry could not be sustained without production incentives.
Factors influencing the competitiveness of the biofuels sector
Numerous factors influence the profitability of facilities and the competitiveness of the biofuels sector. Key factors are described below.
The competitiveness of biofuels in comparison to fossil fuels is highly dependent on oil and feedstock prices. For ethanol producers, high oil prices and low feedstock costs are optimal and conversely, under conditions of low oil and high feedstock costs, ethanol becomes less competitive.Footnote 90 This highlights one of the difficulties in predicting the future sustainability of the biofuels market.
Interviewees indicated that feedstock prices are volatile and can account for a significant portion of production costs. Corn and wheat are the main feedstocks used for ethanol production in CanadaFootnote 91 and are estimated to account for approximately 50 percent of the cost of producing ethanol in the country.Footnote 92 Indeed, estimates prepared by Program representatives (based on EEP data) indicate that between 2007 to 2011, feedstock costs represented about 75 percent of the ethanol production costs. Feedstock is also the major input cost in biodiesel production. The main feedstocks used in Canadian biodiesel are animal fats and canola oil.Footnote 93 Volume discounts probably apply, driving down the costs of the larger producers or for those facilities that have integrated feedstocks.
More importantly, industry stakeholders commented that the financial environment, starting with the crisis in 2008, continues to present difficulties in securing ongoing financing. While the capacity of biofuel plants continued to grow subsequent to the crisis, it is probable that the crisis slowed the growth of the industry.Footnote 94
Type of biofuel
Interviewees reported that ethanol facilities are more likely than biodiesel facilities to be profitable for three key reasons. First, the ethanol industry is more “mature” than the biodiesel industry meaning that plant operators have been able to make incremental adjustments to increase efficiencies and exploit economies of scale. Secondly, interviewees indicated that production technology is less expensive for ethanol than it is for biodiesel, possibly because biodiesel uses a wide array of feedstock making it harder to create a uniform processing technology. Finally, ethanol production produces two main co-products — distillers grains, which are of growing importance in feeding livestock; and carbon-dioxide which is used to carbonate drinks.Footnote 95 A U.S. study found that distillers’ grains and carbon dioxide are significant contributors to reducing net feedstock costs for corn ethanol production and can reduce these costs by 35 percent.Footnote 96
There is some evidence in the literature that co-products might significantly contribute to the profitability of biofuel plants. The ethanol production process, in general, results in wet and dried distillers’ grains. Corn-based ethanol production specifically generates corn oil, which may be used for biodiesel, and corn gluten feed and meal. Corn gluten feed and meal are used for both food (human or livestock consumption) and non-food products. For example, although corn prices have doubled since the beginning of 2010, some US-based ethanol plants have been able to sustain themselves by selling distillers grain as livestock feed, which can sell at a premium to corn.Footnote 97 However, in Canada, distillers’ grain prices have generally been below the price of corn.Footnote 98 The biodiesel (ester type) production process co-produces glycerol which can be refined into glycerine; however, urined glycerol has a very limited market.Footnote 99
Interviewees said larger facilities are in a better position to earn profits because larger facilities benefit from economies of scale and larger facilities have more negotiating power (e.g., prices of fuel and feedstock). Similarly, considerable evidence suggests that the average cost of biofuel production declines as the scale of production increases,Footnote 100 which may mean small operations will face serious challenges in competing with larger facilities that can produce output more cheaply. This may mean that the production of ethanol will become more concentrated in fewer, larger operations as the incentive terminates.
In discussing the estimated costs of production for small and large corn-based ethanol plants in the US, Eidman (2007) notes that even with a $1.5 billion (US) small producer tax credit, larger plants maintained a competitive advantage in producing ethanol because they benefited by having lower capital, labour management, marketing, and transportation costs.Footnote 101 Similarly, a US-based study by Gallagher et al. found larger plants around 103 million gallons per year (390 million litres per year) should be considered for highest profitability.Footnote 102 It should be noted that more than three-quarters of Canada’s current ethanol plants are less than half this size.Footnote 103 Of the 19 ethanol plants operating in Canada in 2010, nine had a capacity of more than 100 million litres per year.Footnote 104 It is likely that the same economies of scale processes operate in Canadian plants as found by these studies.
Interviewees said facility proximity to feedstock supplies and biofuels markets influences production costs. Additionally, post-production infrastructure, such as specialized transportation facilities, will continue to affect the profitability of Canada’s biofuel industry. As biofuel consumption increases, the industry will need to support specialized transport, storage, and distribution infrastructure.Footnote 105 Profitability may be further hampered by the costs associated with transporting biofuels within Canada, where vast distances separate eastern and western markets. North–South trade with the U.S. is a logical solution to this problem, especially since the North American Free Trade Agreement (NAFTA) allows for tariff-free trade in domestically produced biofuels. As discussed in the next sub section, U.S. biofuels policy can create both opportunities and restrictions for North-South trade.
A few NRCan representatives expressed concern that the biofuels facilities are unevenly distributed across Canada, with some provinces not having any plants. Since the placement of biofuel plants rests on proximity to feedstock and other inputs, as well as proximity to markets, it is to be expected that plants would be clustered in certain regions to optimize production economies. Although ecoEBF is a national program, there is no expectation within the terms and conditions to ensure biofuels production exists in every region (province or territory).
Expanding demand beyond that created by provincial and federal content mandates is dependent, in part, on accessing other markets. Historically, U.S. biofuels policies have provided limited or uncertain market access for Canada.Footnote 106 For example, the U.S. Blender’s Tax Credit (BTC) for biodiesel, which commenced in 2004 and lapsed in December 2011, has implications for export of Canadian biodiesel. Prior to the Canadian federal regulation coming into force, the BTC provided a market for Canadian biodiesel. In 2008, a change in the U.S. policy meant that the blenders’ credit could only be claimed if blended fuel using non-U.S. biodiesel was used in the U.S. Biodiesel produced in the U.S. and exported to other countries could still benefit from the blenders’ credit. Also, the BTC lapsed for about a year (2009) resulting in a diminished export market for Canadian biodiesel at that time.
Recent changes to the U.S. Renewable Fuel StandardFootnote 107 may in some cases potentially restrict Canadian biofuel exports to the U.S. due to registration and reporting requirements. The revised standard (RFS2) stipulates that non-U.S. facilities that wish to produce eligible fuels must be registered with the Environmental Protection Agency. This requires producers to conduct a third-party engineering review.Footnote 108
Under RFS2, wheat-based ethanol does not qualify as a renewable fuel,Footnote 109 and corn-based ethanol not produced in the U.S. has rigorous reporting requirements. As of September 2011, canola based fuels qualify with less onerous reporting requirements. Footnote 110
According to Statistics Canada data, ethanol exports to the U.S. were 10.9 ML (2008); 33.7ML (2009); 25.8 ML (2010); and 19.4ML (2011). Footnote 111 The Global Agricultural Information Network (GAIN) predicts that increased trade is unlikely to develop in the short to medium term given that Canada does not have excess ethanol production capacity. GAIN also notes that transportation, distribution and infrastructure issues would have to be resolved. Canadian imports of biodiesel are forecasted to rise in 2011 and 2012 as production capacity is unlikely to grow quickly enough to reach the federal mandate.Footnote 112
Next Generation Biofuels
Currently hydrogenation-derived renewable diesel (HDRD), an advanced form of biodiesel, offers important advantages according to the technical research. As compared to ester type biodiesel currently produced in Canada, this product has benefits in terms of cold weather performance (the cloud point can go as low as -25 Celsius) and has fewer infrastructure requirements.Footnote 113 HDRD is produced in several countries such as Finland, Indonesia, Sweden, Ireland, Australia and Italy.Footnote 114
An initial study – commissioned through the National Renewable Diesel Demonstration Initiative (NRDDI) Infrastructure Project – assessed the necessary infrastructure, capital and other costs and time frame required for the implementation of a two percent national renewable diesel mandate. The study also involved an estimation of incremental renewable diesel including HDRD. The methodology employed in this study involved a literature review and consultation with petroleum producers. In this study, respondents predicted that only ten percent of renewable diesel requirements for the federal regulations would be met using HDRD and the rest would be met with ester type biodiesel produced in Canada and the U.S.Footnote 115
A more recent study (2011) commissioned by NRCan has found that, “most refiners/blenders surveyed for this project indicated that they would ideally choose to blend diesel with HDRD due to its favourable physical properties and due to the reliability and good reputation of existing suppliers, as well as the fact that most HDRD production plants built are relatively large-scale”.Footnote 116 Moreover, most respondents indicated that if there was a sufficient increase in supply and a reduction in costs of HDRD, they would likely source most of their volume biodiesel requirements from HDRD producers.
Importantly, the 2011 commissioned study forecasts that in the short and long-term, only about ten percent of the volume requirements for provincial and federal mandates for biodiesel will be produced in Canada and that the vast majority will be imported:
- 45 to 53 percent of volume requirements will come from the U.S.; and
- 48 to 54 percent will be HDRD from overseas.
Another form of next generation biofuel is ethanol made from the cellulosic portion of biomass sources such as agricultural or forestry residues, or municipal wastes. Some studies highlight the potential of this type of biofuel as being more effective in reducing GHG emissions as compared with first generation and can decrease competition with food supplies.Footnote 117 However, biofuels from cellulosic materials have still not reached the stage where they are economically feasible and no commercial-scale production exists in Canada. A number of challenges still need to be addressed such as issues related to feedstock (e.g., cost, supply, harvesting and handling), and the conversion technology (e.g., cost-effective pre-treatment technology).Footnote 118
In 2007, the U.S. Renewable Fuel Standard was revised with requirements for increased volume of cellulosic and advanced biofuels each year. By 2022, the majority of biofuels are to be cellulosic and advanced.Footnote 119 However, the requirements are reviewed each year and possibly revised based on the availability of next generation biofuels. Since 2010, the applicable volumes of cellulosic biofuels have been lowered based on an assessment of producers’ production plans and progress.Footnote 120 A U.S. study indicates that without major technological advancements, the cellulosic biofuel mandate of 16 billion gallons in 2022 is unlikely to be met given that no commercially viable facilities exist for converting cellulosic biomass to fuels.Footnote 121
In Canada, ecoEBF is funding a small demonstration project. A joint cellulosic bioethanol venture was announced by GreenField and Enerkem. In addition, a commercial waste to ethanol production facility is scheduled to begin operations in 2012.Footnote 122
Facility adjustment to incentive cessation
Facility representatives reported that they are considering or undertaking a number of measures to adjust to declining incentive rates. For example, facilities are trying to increase efficiencies through technological and process improvements such as reducing the use of water, energy, and chemicals; using better enzymes; implementing a new drying process; reusing heat; lowering overhead costs; transitioning to a 365 day/year operating schedule and increasing production volumes. Another strategy is to negotiate long-term agreements with suppliers and customers. Some also mentioned that they are considering implementing measures to increase the value of co-products.
Construction of cellulose-based ethanol facility (EEP)
Although the EEP was intended to result in the construction of the first commercial cellulose-based ethanol facility in Canada, this facility was not built. Program and industry representatives explained that at the inception of the EEP, the Canadian ethanol industry was in its infancy and cellulose-based facilities were believed to be more capital intensive and have higher operating costs than first-generation biofuels facilities. While one company expressed interest in building a facility, it was not willing to undertake the project without a federal loan guarantee. This was not granted and the project did not proceed. Nonetheless, another company subsequently constructed a small demonstration cellulosic-based ethanol facility under ecoEBF. As of September 2007, the SDTC NextGen Biofuels Fund has this mandate.
GHG emissions reductions (EEP)Footnote 123
GHG emissions from transportation
GHG emissions from transportation – the second largest sectoral contributor to Canada’s GHG emissionsFootnote 124 – grew from 1990 to 2008 and then fell slightly in 2009, probably due to the recession reducing transportation fuel use. In 2009, total GHG emissions from transportation, at 190 megatonnes,Footnote 125 were 30 percent higher than in 1990. A similar situation exists for on-road transportation which accounts for 69 percent of the GHG emissions from all transportation modes. GHG emissions from on-road transportation were 131 megatonnes in 2009, which is 36 percent more than the 1990 level. The major contributors to this overall increase in GHG emissions from on-road transportation were light-duty gasoline trucksFootnote 126 (increase of 21.0 megatonnes) and heavy-duty diesel vehicles (increase of 18.2 megatonnes). GHG emissions from gasoline automobiles decreased 4.1 megatonnes during that time. EC attributes this reduction to increases in vehicle fuel efficiency since the number of automobiles remained constant.
According to EC, Canada’s target of reducing overall GHG emissions to 17 percent below 2005 levels by 2020 requires that emissions decline to 607 megatonnes by 2020.Footnote 127 With existing government measures, including renewable fuel content regulations, EC projects that GHG emissions in 2020 will be about 785 megatonnes, indicating progress. However, this would still fall short of the target and EC indicates that further measures are required to achieve additional emission reductions.
When fully implemented, the RFS’s regulatory requirements for renewable fuel in the gasoline and distillate pool combined with provincial regulations are estimated to reduce annual GHG emissions by up to four megatonnes.Footnote 128 Over a 25-year period, the federal regulations are estimated to result in a cumulative reduction of 43.6 Mt CO2e (carbon dioxide equivalents) in GHG emissions (or an average annual incremental reduction of two megatonnes CO2e per year).Footnote 129
Estimations of EEP emission reductions
As a cautionary note, the technical literature on biofuels and their effects on GHG emissions offer a complex and varied analysis. The extent to which the use of biofuels results in reduced GHG emissions varies according to type of biofuel, type of feedstock, the efficiency of the production process, refinery operations, agricultural practices, land use, and other factors.Footnote 130 Therefore, the predictions of how much biofuel programs will contribute to GHG reductions must be weighed in light of these considerations.
Given the challenges in estimating GHG emissions from transportation fuels, modelling tools based on a lifecycle approach are used. This approach requires systematic quantification of GHG emissions from well to wheel. This includes all stages of feedstock recovery, fuel production, and use.
Different Life Cycle Analysis (LCA) models can provide inconsistent results given differing assumptions and variables considered for analysis such as timeframe, location and technology.Footnote 131 Methodological differences also influence variability across different LCA models.Footnote 132 There is also uncertainty with respect to LCA estimates because indirect land use changeFootnote 133 is not covered.Footnote 134 It is not typically possible to include these impacts due to lack of data and the fact that there is no internationally accepted quantitative methodology to deal with uncertainty and variation in input parameters, particularly with respect to land use change emissions.Footnote 135 With these caveats in mind, many life-cycle studies have found that first generation ethanol modestly reduces GHG emissions.Footnote 136
The EEP was established as a key component of the Future Fuel Initiative (FFI), part of the Climate Change Plan for Canada, whose objective was that 25 percent of gasoline sold in Canada by the year 2010 would contain ten percent fuel ethanol by volume.
The FFI objective requires around one billion litres of ethanol to be used in Canada's gasoline pool. The use of this volume of ethanol to displace gasoline by 2010 would result in a 1.3 to 1.6 megatonneFootnote 137 GHG reduction annually.Footnote 138 This represents about one percent of annual GHG emissions from transportation fuel use.Footnote 139
Based on GHGenius lifecycle estimates, EEP facilities reduced GHG emissions by approximately 4.5Mt between 2004-05 and 2009-10.Footnote 140 The target was met in 2009-10 and 2010-11 as EEP facilities were producing more than one billion litres in each of those years. However, the estimated reductions cannot be attributed solely to EEP as facilities also benefitted from the excise tax credit, and then received production incentives through ecoEBF.
Interviews conducted as part of this evaluation found that some industry stakeholders questioned the extent to which the regulations will produce an environmental benefit. A few suggested that the regulations should place greater emphasis on carbon intensity reduction. While external interviewees indicated that the primary purpose of biofuels is to reduce GHG emissions, they noted that the ability of first-generation biofuels to generate environmental benefits remains in doubt. They suggested that biofuels are not as effective in reducing GHG emissions as they originally believed.
Cost-effectiveness literature was reviewed in relation to the costs of reducing GHG emissions. This review is relevant to the EEP because GHG emission reduction is the key long-term outcome for this Program. As previously mentioned, the ecoEBF Program does not have articulated GHG reduction outcomes. A comprehensive cost-effectiveness analysis would require a review of the Renewable Fuels Strategy in relation to its multiple goals.
Cost-effectiveness studies have found that biofuels options, particularly liquid biofuels, are generally more costly GHG mitigation options as compared to non-biofuel options such as energy efficiency improvements, energy retrofitting strategies, renewable heat and power technologies, biomass pellet heating, or forest carbon sequestration.Footnote 141 Canadian studies also indicate the high costs of biofuels relative to non-biofuel options in reducing GHG emissions.Footnote 142 In addition, studies have found differences in costs for reducing GHG emissions among biofuels. For example, a number of studies indicate that sugarcane ethanol is the most cost-effective as compared to other types of biofuels in reducing GHGs.Footnote 143
3.2.2 Effectiveness – Other ATF Initiatives and Activities
|To what extent have intended outcomes with respect to NRDDI, policy and NGBF oversight been achieved?||
NRDDI and policy, financial and technical functions are meeting intended outcomes. Oversight of NGBF provides financial accountability.
NRDDI: This Program demonstrated the technical feasibility of biodiesel under Canadian conditions, garnered general market acceptance for biodiesel, and informed the development and implementation of the Renewable Fuels Regulations for biodiesel. During the term of NRDDI, infrastructure timelines and costs were of concern and concerns remain about the cold weather performance of first generation biodiesel and quality control and management of the supply chain (e.g., blending, handling and storage). Interviewees indicated that advanced forms of biodiesel require additional research to establish the financial feasibility of domestic production.
Policy and Technical Function: The Department has increased its capacity to make informed decisions through participation in working groups and use of GHGenius and the financial model, and engagement of stakeholders in various activities (e.g., Natural Gas Roadmap and Sustainability Guiding Principles). GHGenius, created by FPP, has become a widely-used planning tool by other federal departments and other provincial/territorial governments.
NGBF oversight: NRCan’s oversight of the NGBF provides financial accountability. However, outside of the scope of its oversight role, NRCan interviewees indicated that one consequence of the third-party delivery structure of this program is that FPP does not have sufficient access to the micro-level data on plant facilities which can impede the policy development process.
National Renewable Diesel Demonstration Initiative (NRDDI)
Goals of NRDDI
This Program was intended to offer scientific and technical support for design of the regulations. It also funded technology demonstration projects. In general, NRDDI met all its performance targets, but some research questions remain around cold weather sedimentation formation in biodiesel blendsFootnote 144 and on how the proposed regulation and other policies could impact the availability and security of Canada’s fuel supply.Footnote 145 There may also be a need for work to modify current diesel standards to allow the use of more advanced renewable fuels (such as HDRD) as blendstock if they become more widely available as a general automotive fuel, Footnote 146 which may involve input from FPPD’s policy support function. Some industry representatives expressed an interest in research addressing cold-weather performance of first generation biodiesel for oceangoing vessels for example, and for additional standards and specification development.
Performance of NRDDI
Table 6 summarizes the achievements of the NRDDI according to the outcomes and performance targets specified in the RMAFs for this program.
|Immediate outcomes (1 to 3 years)|
|Existence of demonstration data to inform regulatory agency on potential for and/or design of regulation||Up to six reports on projects||
|Stakeholder support of scientific credibility/feasibility of regulation||Proponents’ endorsement of results of projects||
|Favourable reception of regulation into target marketplace||Stakeholder endorsement of regulatory target and timeline||
|Intermediate outcomes (3 to 5 years)|
|Contribution towards design, development, and implementation of federal regulation requiring renewable content in the distillate pool||Report on results to regulatory agency||
NRDDI funded seven demonstration projects to address industry concerns surrounding the “use of renewable diesel blends in cold Canadian winters and over four seasons with high temperature variability.”Footnote 149 In addition, NRDDI funded one study to assess infrastructure readiness. To identify industry’s questions about the viability of biodiesel in Canada and set priorities for demonstration projects, NRDDI consulted with fuel producers and end-user organizations. Industry proponents then designed and delivered the demonstration projects with input by industry experts. Table 7 describes the issues examined through NRDDI projects.
|Canadian Pacific Railway||The project aimed to assess the use of biodiesel in locomotive operations, including cold weather operability and the impact of biodiesel on direct-to-locomotive fuelling, engine components, and heating systems.||858|
|FPInnovations||This project evaluated the feasibility of using biodiesel blends in construction and forestry and explored how to overcome fuel supply infrastructure challenges in remote locations.||810|
|Saskatchewan Research Council||Demonstrated the use of biodiesel blends of five percent in winter and ten percent in summer in the agricultural sector in Saskatchewan, assessing, in particular, the impact of off-season storage on fuel quality.||782|
|Imperial Oil||This project was intended to address concerns about cold flow performance of finished fuel and long-term storage stability of renewable diesel by conducting tests at the Sarnia Research facility.||202|
|Manitoba Hydro||This project involved investigating the viability of renewable diesel blends under extreme cold weather conditions in electric generators in northern Manitoba. It also assessed the impact of long-term storage on dispenser filter plugging and issues around impurities in the fuel.||171|
|Prairie Agricultural Machinery Institute (project implementation agreement)||Involved evaluating impact of long-term storage under real world operating conditions (storage in harvest equipment for a nine-month period and in above-ground storage tanks for two years) in agricultural sector on biodiesel quality.||71|
|Royal Military College (MOU)||The project studied saturated monoglyceride-based particle formation in biodiesel using a variety of scientific methods to provide insight into how these particles can be filtered from the fuel.||70|
|ÉcoRessources Consultants||This work involved assessing existing and required infrastructure for blending and distributing renewable diesel, and calculating the additional infrastructure needed. It also estimated costs for the downstream petroleum sector and the lead times needed to upgrade infrastructure.||33|
Source: NRDDI project reports.
Results of the NRDDI were intended to provide information on the technical feasibility of using two percent renewable diesel in Canada in advance of the proposed renewable fuels regulation. The Initiative assessed the technical feasibility based on four factors: fuel technology readiness; technology and end user readiness; infrastructure readiness; and market acceptance.
The results of the eight NRDDI supported projects together with findings from other research done outside of NRDDI demonstrated the technical feasibility of biodiesel in Canadian conditions and, “demonstrated the possibility for renewable diesel to meet industry accepted standards.”Footnote 150 Based on the results of the NRDDI, EC confirmed that it would proceed with its proposed regulations for a two percent renewable fuel content in diesel.
The NRDDI final report concludes that accelerating lead times for infrastructure development in order to meet regulation start dates can lead to significant cost increases and may not be possible in some cases.Footnote 151
In statements on the technical feasibility of the proposed regulations, most stakeholders indicated the regulations were technically feasible. However, they also offered feedbackFootnote 152 on the content of the regulations and implementation processes which fall outside of the mandate of NRCan, but would be useful to share with the regulator. For example, stakeholders suggested that: the regulations include provisions for blending rates and standards (including restrictions for extreme cold weather); there be an educational program to help stakeholders understand the regulations (including a consumer help-line); there be increased focus on quality control and management of the supply chain; and that stakeholders be offered fuel efficiency credits. One stakeholder also requested that the results of NRCan’s market analysis of the impact of not shipping biodiesel via pipeline be made available to the public.
NRCan’s final report on the NRDDI also found that the initiative contributed to market acceptance for biodiesel. Specifically, the report indicated that: Footnote 153
- stakeholders are generally satisfied that their remaining technical questions regarding an average B2 blend in their operation have been addressed; and
- for the most part, fuel producers and end-users have not identified any remaining questions regarding the technical feasibility of the use of an average B2 blend in middle distillate in their operations.
Nonetheless, in stakeholder statements included as an appendix to NRCan’s technical report on the NRDDI, a few also identified areas for additional research.Footnote 154 For example, research is needed to test the performance of biodiesel in oceangoing vessels and the marine industry. Stakeholders also cited a need for increased quality control and management of the diesel supply chain, including the development of standards and additional infrastructure.
It should be noted that as part of FPPD’s policy role, in 2011, it commissioned and completed a refiners’ preferences study regarding biodiesel options, including HDRD.Footnote 155
Interviews conducted as part of this evaluation also found that industry has some concerns about biodiesel.
- A few industry representatives suggested that delaying the implementation of the renewable fuels regulations for biodiesel until the NRDDI was completed created doubt about whether the fuel could be viable and delayed the development of biodiesel production capacity in Canada.
- Some said that although NRDDI helped remove some uncertainty about the performance of biodiesel, there are still some cold-weather issues with biodiesel. Additionally, they noted that industry has concerns about the costs associated with biodiesel.
- Industry stakeholders reported that NRDDI highlighted the need for new infrastructure to blend and distribute biodiesel. The Infrastructure Readiness Study noted that the lead time for the required upgrades to a terminal or refinery site are approximately one to three years.
Financial Oversight of the NGBF
NRCan and EC oversee the NGBF, delivered by SDTC. While SDTC selects projects for funding NRCan (and EC) is responsible for releasing funding to SDTC based on its projected cash flow requirements (for the purposes of funding projects). Footnote 156 Oversight involves reviewing annual reports to ensure administration costs are within allowance; reviewing annual cash flow requests; managing the annual budget – including any requests to re-profile unused funds; and reviewing summaries of approved projects to ensure they respect terms and conditions and substantiate cash flow requests.
SDTC has drawn $66 million or 13 percent of its funds from NRCan and EC. The bulk of this funding was transferred to SDTC by NRCan and EC in 2008-09, based on cash flow statements, to support a project for which the engineering phase had received SDTC Board approval but for which a contract was never signed and that now will not proceed. Of these funds, SDTC has spent approximately $4 million in operating costs, as of 2010.
FPPD representatives confirmed that NRCan has been receiving the information required to manage the NGBF finances. Specifically, SDTC provides cash flow statements, annual reports, and high-level information on projects selected to receive funding (for purposes of verifying project eligibility). SDTC also participates in regular update meetings with NRCan.
Policy, Financial, and Technical Functions
Goals of the Policy, Financial, and Technical Functions
The Policy, Financial and Technical Functions are expected to help inform decisions about alternative fuels policies, programs, activities, and regulations. They are also expected to support the achievement of outcomes associated with other alternative fuel programs and activities.
Activities and Performance of the Policy, Financial, and Technical Functions
The Functions have developed various tools which are used to inform decision-making processes.
GHGenius: is a Canadian lifecycle analysis (LCA) model, compliant with Industry Standards Organization (ISO) standards, capable of estimating energy use and GHG and criteria air contaminant emissions associated with the production and use of a variety of alternative and conventional transportation fuelsFootnote 157. It calculates emissions attributable to the major components of the lifecycle of a fuel, from the time the raw material is grown or extracted to the time it is used to power a vehicle – also known as a “well to wheels” approach.
As of December 2011, there have been about 3900 registered users of GHGenius including various NRCan divisions, other government departments, universities, industry associations, and fuel producers.Footnote 158 The Policy and Program Development Unit, within the FPPD, manages GHGenius with an average of about 1.4 FTEs per year.
Most industry stakeholders and many representatives of other NRCan divisions/federal departments/provincial governments spoke of using GHGenius to research potential GHG emissions reductions associated with various projects and to inform decision-making processes. Interviewed provincial representatives who use GHGenius for regulatory and policy purposes said that it was instrumental in developing regulations and that the tool is well regarded by key stakeholders such as fuel producers and international representatives. Moreover, recent literature comparing LCA models noted that GHGenius’ “transparent and extensive documentation is a useful contribution to the literature and allows for fact checking of inputs.”Footnote 159
Specifically, NRCan’s GHGenius has been used to:
- inform development of the Regulatory Impact Analysis Statement for the Renewable Fuels Regulations;
- develop British Columbia’s Greenhouse Gas Reduction Act (Renewable and Low Carbon Fuel Requirement) and Renewable and Low Carbon Fuel Requirement Regulation, starting in 2007. Since its effective date of January 2010, GHGenius has been used to update, monitor, and assess the impacts of the regulations;
- inform B.C.’s policies for renewable and alternative fuels;
- inform potential for GHG reduction from natural gas vehicles; and
- support environmental assessments undertaken prior to signing contribution agreements with facilities under ecoEBF.
- Financial model:NRCan’s financial model supports decision-making processes (e.g., tax changes, capital cost allowances, incentive rates). It is also used to assess the efficiency of biofuels facilities and forecast expected returns on investments. In addition to NRCan, the tool has also been used by other federal government departments, academia, the investor community, producers and the provinces. For example, FPPD used the financial model to provide advice to AAFC regarding capital incentives regarding ecoABC.
Guidance documents:Some industry stakeholders, representatives of other NRCan divisions, and provincial governments participated in the development of the Sustainability Guiding Principles for biofuels and/or round tables to create the Natural Gas Roadmap.
- A few representatives of provincial governments and industry stakeholders said that they had made the Sustainability Guiding Principles for biofuels publicly available.
- The Natural Gas Roadmap will be used to inform the development of future natural gas in transportation-related programs and policies. FPPD representatives indicated that programming aimed at education and outreach as well as the creation of codes and standards is being developed.
- Studies: The Policy and Program Development Unit has commissioned studies to better understand the status of the next-gen biofuels industry, the status of the HDRD industry and market uptake, and the preferences of refiners in selecting fuels to blend to fulfill regulatory requirements.
- Policy advice and support: FPPD has provided advice on international trade issues. The information and advice provided has facilitated the investigation of a trade issue with Europe. FPPD is also a regular contributor to the Economic Monitor, which covers key market developments in alternative transportation fuels.
The Policy, Financial, and Technical Functions participate in numerous working groups, which involve representatives of NRCan, other federal departments, and provincial governments. These working groups facilitate information-sharing, thereby increasing the department’s capacity to make informed decisions
Constraints to policy development
FPPD representatives noted some constraints in developing policy regarding the NGBF, most importantly in that they do not have sufficient access to the micro-level data on plant facilities needed to inform policy development. For example, they explained that one consequence of the third-party delivery structure for the NGBF is that the Department has not gained a detailed understanding of the projects being considered for funding. Although SDTC participates in meetings with EC and NRCan to provide informal updates on projects, details about individual facilities are not shared. Consequently, NRCan undertook its own study to better understand the barriers, challenges, and opportunities associated with the NGBF.
3.2.3 Unintended Outcomes
|Have there been any unintended (positive or negative) outcomes?||
||Some unintended outcomes have occurred as a result of programs/activities.|
A positive unintended outcome of the environmental assessment work done in relation to biofuel facilities is the resultant increased communication and coordination between provincial and federal players. This may have led to improved compliance with federal and provincial environmental regulations.
Another positive intended outcome was that access to the U.S. market for biodiesel exports prior to the implementation of the Canadian biodiesel regulations enabled domestic biodiesel producers to produce and sell their product in the interim.
There is considerable debate about the food versus fuel trade-off in using foods as the feedstock for biofuels. The extent to which ethanol production increases food prices has not been resolved.
Interviewees provided the following examples of positive unintended impacts of ATF activities:
- Coordination and regular communication between federal and provincial governments involved in the environmental assessment and monitoring process have provided improved access to facility level information which is shared. This may have led to improved compliance with provincial and federal environmental regulations.
- Prior to the implementation of the biodiesel regulations, biodiesel producers were able to produce biodiesel for export to the U.S. due to the U.S. Blender’s Tax Credit (they were able to find an interim market prior to implementation of the domestic regulations).
One example of a potential negative unintended impact associated with programming that supports the conversion of food into fuel is that it keeps the food versus fuel debate in the spotlight. For example, the evaluation found that:
- Interviewees reported that biofuels have received considerable media coverage, which has placed increased focus on the food versus fuel debate. Interviewees noted that the impact on food prices in Canada is likely modest given that a smaller percentage of feedstock is used for biofuel as compared to other countries such as the United States. While there is some evidence in the literature that increased production of biofuels has contributed to increased food prices,Footnote 160 globally, this remains a controversial subject. Various studies disagree as to the extent of the influence biofuels have on food prices.Footnote 161 A number of studies indicate the complexity of this subject and note that there are multiple factors, that have contributed to increases in worldwide food prices, including the following:
- oil prices;
- rapid economic growth in some developing countries leading to increased demand;
- weather and crop disease shocks in 2006–07;
- devaluation of the U.S. dollar; and
- growth in the production of biofuels.Footnote 162
3.2.4 Economy and Efficiency: Program Design and Delivery of EEP, NRDDI, and ecoEBF
|How economic and efficient are the programs and activities?||
||The ATF sub-sub-activity is economic and efficient with a relatively low cost of administration per dollar of contribution.|
Program design and delivery
The EEP has an estimated administrative and operating cost of about two cents per dollar of contribution funding. The ecoEBF costs about four cents per dollar contributed. NRDDI costs just over 50 cents per dollar issued to recipients to administer, but this reflects the fact that NRCan staff in this unit are technical supporters to the funded research projects, which are relatively low budget. Comparing the efficiency of EEP/ecoEBF with NRDDI is not valid given the very different nature of the outputs.
There were several suggestions for improvements including further strengthening ATF programming linkages with industry, improving NRCan’s understanding of the end-use component (e.g., distribution infrastructure) of the biofuels industry; and development of a more coordinated federal strategy for transportation fuels. Other suggestions to improve the RFS include increased research and development for next generation biofuels.
Leveraging - EEP and ecoEBF
Based on the partial data available, EEP and ecoEBF leveraged approximately $1 billion in private investment in the biofuels industry. Specifically, EEP leveraged $671 million (based on all nine facilities), whereas ecoEBF leveraged about $392 million (based on data for 12 of 31 facilities).
Program design and delivery
This section addresses the following issues:
- administrative costs of programs (EEP, ecoEBF, and NRDDI);
- horizontal mechanisms and coordination/governance mechanisms;
- nature and implications of changes made to programs; and
- potential improvements and alternative approaches.
Administrative and operating costs of the programs (EEP, ecoEBF and NRDDI)
Table 8 shows the administrative and operating costs per $1 of contribution funding for EEP, ecoEBF, and NRDDI. Based on these figures, EEP has the lowest administrative and operating costs per $1 issued to recipients, followed by ecoEBF. It is very important not to compare the EEP/ecoEBF to the NRDDI in terms of efficiency. As a repayable contribution, the staff time needed to design and administer the Program represents a small fraction of the very large capital costs of creating an ethanol plant (the potential reduced program costs of EEP due to repaid contributions are not considered). Similarly, the number of files (approximately 123 applications received, 33 contribution agreements managed) involved in the ecoEBF incentives is small relative to the large incentives being paid out.
In contrast, the NRDDI is a scientific and technical research function wherein staff manage contribution agreements and MOUs for research and demonstration projects, and are active partners in the investigation themselves and also undertake other research. Therefore, it is not valid to compare activities in this program with the other granting activities of the ATF sub-sub-activity.
|Program||Administrative and Operating Costs||Contributions||Administrative and operating cost per $1 Contribution|
|EEP (2004-05 to 2010-11)||2.0||97.0||0.02|
|ecoEBF (2007-08 to 2010-11)||15.7||416.3||0.04|
|NRDDI (2008-09 to 2010-11)||1.2||2.3||0.52|
The simplest measure of administrative efficiency for a grant and contribution (G&C) program is the cost to deliver a dollar of support. It is important to understand the context of G&C programs as considerable variation exists in their apparent administrative efficiency. Early in the program, when clients may need lots of support to apply for the funding, special oversight may be needed, and applications/operations may be complex. Simple grants with few eligibility criteria will be much less costly to administer than complex awards with sophisticated technical criteria, such as is the case with the EEP and ecoEBF.
The administrative and operating costs include only government costs, and not costs that may be imposed on the recipients (application and reporting). The costs for EEP and ecoEBF at two cents and four cents per dollar distributed respectively compare to other G&C programs such as the following:Footnote 163
- 16.4 cents per dollar – Arts Sustainability Fund of Canadian Heritage;
- 11.1 cents per dollar – Exchanges Canada Program of Canadian Heritage; and
- 22 cents per dollar – Northern Economic Development Program of FedNor.
Again, the apparent efficiency of the EEP and ecoEBF reflect the very high value of the contributions in relation to the number of applicants and the ongoing administration needed to manage each file.
Horizontal mechanisms and coordination/governance/oversight mechanisms
Coordination of support to the biofuels industry and information-sharing is facilitated through federal, provincial and industry participation in numerous working groups and inter-departmental relationships. Specifically, in support of the horizontal strategy for the RFS:
- the three lead federal departments have representation on the RFS Board of Directors;
- NRCan provided EC with information needed (e.g., GHGenius and NRDDI) to develop the Renewable Fuels Regulations;
- NRCan and Agriculture and Agri-Food Canada (AAFC) worked together to coordinate the ecoEBF and the ecoAGRICULTURE Biofuels Capital (ecoABC) Initiative:
- AAFC provided NRCan with input on the proposed changes to ecoEBF; some of the changes improved the alignment between ecoEBF and ecoABC (e.g., eligibility requirements);
- NRCan revised the facility construction deadline for ecoEBF to better align with ecoABC; and
- AAFC participated in the ecoEBF application review process (e.g., provided information on business capabilities).
A few FPPD interviewees noted that a Horizontal Results-Based Management and Accountability Framework (HRMAF) was not created for the RFS. While they do not believe that the lack of an HRMAF negatively influenced interdepartmental collaboration, they indicated that an HRMAF would have helped formalize relationships and ensure that the full Renewable Fuels Strategy was evaluated.
FPPD representatives noted that the processes to manage the financial side of EEP and ecoEBF are time-consuming and complex. Consequently, FPPD interviewees reported that the number of FTEs required for the financial management of the ecoEBF increased from 0.5 FTEs to 4 FTEs. FPPD representatives explained that one of the reasons for the increase in human resources is that significant resources are used to verify the accuracy of reports submitted by facilities. In an attempt to control oversight costs, NRCan has recently redesigned the databases used to monitor the facilities receiving incentives. Also, financial elements of both EEP and ecoEBF are managed by the same people for greater efficiency and consistency in reviewing financial information and decision making.
Performance is tracked using the Better Energy Efficiency Reporting System (BEERS), which aligns with the Program logic models and contains high-level performance information. Performance tracking processes for the EEP were improved based on recommendations from a 2006 audit of the Program.
Nature and implications of changes made to programs
Several changes were made to the design of the ecoEBF:
- In 2008, the incentive rate calculation was changed to eliminate the gap between the profitability and industry margins. In 2009, the incentive rate was converted from a variable rate to a fixed, declining rate, and the payment schedule was changed from quarterly to monthly. These changes increased the Program’s bankability and predictability of funding to be provided to companies for the production of biofuel.
- In 2009, incentive rates for biodiesel were increased and the cap on contributions was changed from a volume-based cap to a monetary cap. Additionally, the project selection process was changed from a “first-come, first-served” approach to a merit-based approach, and the construction deadline was extended from September 30, 2011 to September 30, 2012. This helped ensure that the most viable and environmentally-compliant facilities received funding.
A few facility representatives reported that these changes delayed ecoEBF payments by about six months. However, it was also reported that the change from a variable to a fixed incentive rate provided planning certainty for projects trying to get off the ground. FPPD representatives reported that decision-making processes for approving contribution agreements for ecoEBF are cumbersome and have taken longer than anticipated to complete, although some noted that this process is required to ensure that due diligence is exercised by the Program. They indicated that these delays prevented some facilities from receiving production incentives in a timely manner.
FPPD representatives said that changes to the ecoEBF had the following impacts:
- allowed additional facilities to qualify for the Program and improved alignment with ecoABC;
- helped ensure that the most viable projects were assessed first (by switching from a “first come, first served” approach to assessing existing producers first);
- enabled the Program to reprofile funds to better align with anticipated production volumes;
- simplified payment calculations, but also created more work since payments and environmental reports have to be prepared monthly (instead of quarterly); monthly, rather than quarterly payments were intended to improve cash flow for facilities; and
- provided the same incentive rate to facilities regardless of their profitability (under the previous variable rate, payments were calculated quarterly based on the average rate of return of all participating facilities; as a result, the financial situation of a few big companies could alter the average and thus the payment given to all facilities; facilities were unable to anticipate the changes in payment rate triggered by others’ financial situations).
While the design of NRDDI was not changed, its duration was reduced from three to two years to allow the biodiesel regulation to be introduced in 2011, rather than 2012. The shortened period did not change the scope of projects under NRDDI; however, it reduced the duration of demonstration projects from twelve months to six months. FPPD and industry stakeholders observed that some key research issues remain, notably with respect to the cold weather performance of biodiesel and second generation biofuels.
Interviewees suggested potential improvements with respect to program delivery and effectiveness.
Potential improvements to program delivery include:
- strengthened linkages between FPPD and industry to offer increased insight into costs of competitiveness;
- further coordination between FPPD and other NRCan areas to improve science and policy integration; it should be noted that the evaluation found a number of positive examples of linkages between FPPD and other parts of NRCan; interviewees noted that FPPD has good relations with some other divisions (e.g., FPPD has provided feedback on R&D proposals for CanmetENERGY; FPPD has exchanged staff with IETS resulting in cross-fertilization); however, some interviewees noted that more formal linkages are needed between OERD, FPPD and CanmetENERGY to increase science and policy integration; in particular, better alignment is needed at the senior level to complement working level communication and initiatives;
- increased awareness within NRCan of FPPD’s full suite of programs and activities provided by FPPD (e.g., FPPD’s work on natural gas); and
- improved capacity/expertise regarding the end-use component (e.g., blending, refining, distribution, and retailing) of the biofuels industry (particularly with respect to next generation biofuels) to guide investments in this technology/ better understanding of the relationship between the existing fuels and renewable fuels industries.
While not within the specific mandate of FPPD, interviewees also had the following suggestions to enhance the Renewable Fuels Strategy:
- increase research and development to establish cost-efficient production technology especially with respect to next generation biofuels;
- to move next generation biofuels forward, consider specific production mandates and production incentives;
- obtain overall strategic guidance re next generation biofuels; and
- development of a coordinated federal strategy for next generation biofuels.
Aside from production incentives, alternative approaches to ensuring a sufficient supply of biofuels include incenting capital investments (e.g., EEP), importing biofuels, and excise taxes. An assessment of alternatives also needs to consider other key policy objectives (e.g., GHG emissions reductions, rural economic development).
When comparing capital vs. production incentives, interviewees indicated that with the exception of large facilities with co-products to sell, the biofuels industry needs production incentives to remain viable. While capital incentives provide a short-term infusion of funding, production incentives involve a longer-term commitment providing stability to the industry, particularly important considering the economic recession that occurred in 2008.
Some interviewees indicated that reinstating the former excise tax exemption, a market driven approach, is a more feasible alternative than production incentives given the numerous external factors influencing the biofuels industry.
It should be noted that prior to the implementation of the Renewable Fuels Strategy, Canada had an excise tax credit of ten cents for every litre of ethanol and four cents for every litre of biodiesel. Both imported ethanol and domestically produced biofuels were eligible for the excise tax exemptions which resulted in more biofuels being imported from the United States and Brazil prior to April 2008 when the excise tax ended.Footnote 164
Interview and literature reviewFootnote 165 evidence suggests that importing biofuels (particularly sugarcane ethanol from Brazil) is currently a more efficient option as compared to building a domestic industry for supplying biofuels. A comparison of these two options, however, has to be considered in light of policy objectives and benefits to Canadians as a whole, as this alternative does not contribute to building a domestic biofuels industry.
Leveraging – EEP, ecoEBF, NRDDI and GHGenius
EEP and ecoEBF have leveraged private sector investment in the biofuels industry.
- Based on the contribution agreements for the nine EEP projects, total investment in EEP facilities was $782 million, including:
- $111 million (14 percent) in government funding ($97 million from EEP and $14 million from provinces); and
- $671 million (86 percent) in private investment.
- Based on the actual EEP contribution expenditures of $97 million and the estimates for provincial and private sector contributions provided in the contribution agreements, EEP’s average leveraging ratio is estimated at approximately $6.05 of private investment for every $1 of public investment.
- The leveraging ratio for ecoEBF was estimated based on 12 of 31 facilities (as of May 2011). The ratio could not be calculated for all facilities because the applications for 19 facilities did not contain information on private sector funding (either it was missing or was not included in the materials provided for the evaluation).
- Total investment in the 12 ecoEBF facilities was $628 million, including:
- Total public sector contributions of $236 million (38 percent). This includes a maximum total contribution under ecoEBF, based on contribution agreements to 2017, of $212 million. Additionally, it includes $22 million in funding from other government sources such as EEP, SDTC, ecoABC, Opportunities Envelope, Farm Credit Canada, and provincial governments.
- Total private sector funding of $392 million (62 percent). Note that the information on private sector investments is estimated based on firm and/or conditional investors at the time of application to the ecoEBF Program.
- The average leveraging ratio, based on 12 facilities for which this information was available, is $1.67 of private investment for every $1 of public investment.
Considerable in-kind resources went into the work undertaken for NRDDI projects through: (i) external stakeholder support of the governance of NRDDI (e.g., EC participated in project selection, and both EC and AAFC coordinated with NRCan to ensure complementarities between the NRDDI and other elements of the RFS); and (ii) through the participation of industry associations, provincial/territorial governments, and other stakeholders on advisory groups and review of reports.
NRCan manages and operates GHGenius with one dedicated full-time equivalent. In addition to contracts with the private sector to update the model, improvements are also made (e.g. adding other fuel pathways) through leveraging of expertise and resources from other stakeholders (e.g. Canadian Gas Association; Canadian Association of Petroleum Producers; Canadian Petroleum Products Institute; Environment Canada). For example, the Canadian Gas Association provided NRCan access to data to enable assessment of natural gas carbon intensity values. NRCan has also shared costs with Environment Canada to update GHGenius, and has had a Memorandum of Understanding with Agri-Foods and Agriculture Canada to transfer money to NRCan to update/use GHGenius.
3.2.5 Lessons Learned and Best Practices
|What lessons or best practices have been learned from ATF policy and programs?||
||The evaluation found evidence of lessons learned and best practices.|
Best practices: 1) use of multidisciplinary teams to work on biofuels initiatives; 2) engagement of stakeholders in program design/delivery and policy development as early as possible; and 3) stacking provisions of EEP and the ecoEBF limit the level of provincial and federal government support available to projects, thereby mitigating the risk of funding duplication.
Lessons learned: 1) the Renewable Fuels Strategy is comprised of interdependent components; there is merit in having a more formal interdepartmental governance structure for horizontal initiatives to enhance accountability, clarity of roles and responsibilities, communications, and ongoing commitment to the Strategy; and 2) recognition that the management of a large contribution program requires sufficient capacity and support from financial and legal experts.
Interviewees identified the following best practices, which are currently being used:
- Multidisciplinary teams (program officers, policy analysts, engineers, and scientists) are important for work in alternative fuels-related initiatives because of the technical complexity and facilitation of program and policy integration.
- For example, having programs and policy within one division means that lessons learned from program operations can be efficiently integrated into future planning. And furthermore, program decisions can also be guided by policy information obtained through studies and analysis. This capacity and expertise located within the ATF sub-sub-activity facilitates provision of informed advice to senior management and other government departments.
- To establish buy-in to new programs and policies, key informants indicated that stakeholders should be engaged in the initiatives as early as possible. Activities such as NRDDI and the Natural Gas Roadmap clearly benefited from close collaboration. External interviewees made the same point about the implementation of the ecoEBF.
- NRDDI and the Natural Gas Roadmap involved key stakeholders in the consultation process. For example, NRDDI’s Infrastructure Readiness Study included all the major fuel distributors. The Roadmap consultation process was comprised of key stakeholders from industry, associations, provinces, port authorities, academia and non-government organizations.
- NRDDI and the Natural Gas Roadmap highlighted the importance of consultation with stakeholders early in the process. Moreover, stakeholders were involved in every step of the process – from planning to project completion.
- With respect to NRDDI, industry and other key stakeholders were involved closely at the front end – they helped to decide what technical issues should be addressed.
- As an initial step in developing the Natural Gas Roadmap, working groups, involving key stakeholders, assessed the potential for new natural gas markets in the transportation sector.
- The stacking provisions of the EEP and ecoEBF limit the overall level of government support. This also helps ensure that companies do not become unduly dependent on government funding. For example, the EEP Terms and Conditions required that total government funding (all levels) could not make up more than 50 percent of the total project costs. In addition, changes to the design of the ecoEBF Program, in 2008, altered the calculation of incentive rates to account for the provincial support applicants were receiving.
Interviewees identified the following lessons learned:
- The Renewable Fuels Strategy, a horizontal initiative, is comprised of interdependent components. While vertical governance is noted to be effective, a more formal interdepartmental governance structure would enhance clarity of roles and responsibilities, communications, and ongoing commitment to the Strategy. NRCan interviewees noted the following:
- a formal structure would reduce the risks of unclear roles and responsibilities and ensure ongoing commitment to the RFS across all three departments continues;
- while interdepartmental working level communications were noted to be good, a more formal horizontal governance structure would ensure clearer communications at the senior management level;
- although this is a horizontal file, each department has its own separate budget for the RFS; delays in some of the funding impacted the progress of other departments; and
- without a horizontal performance measurement strategy, there is no formal commitment to evaluate the multiple outcomes of the RFS.
- The management of a large program, such as ecoEBF, requires appropriate support and training for the planning and delivery of the contributions. NRCan interviewees noted that FPPD “rose to the challenge” in managing the contributions, but that recognition is needed that this type of endeavour requires training for staff and support from financial and legal experts.
ATF programming is relevant and is consistent with federal and NRCan priorities, particularly with respect to the federal government’s Renewable Fuels Strategy and clean energy. Given that many ecoEBF-funded facilities appear not yet to have achieved operations that can be sustained without the incentives and that this program is an integral part of the Renewable Fuels Strategy, a continued need exists for this program until 2017.
ATF programming has met or has made good progress towards achieving most of its performance targets. It has contributed to substantial increases in ethanol and biodiesel production levels. However, the ecoEBF Program is not on track to achieve its biodiesel production targets. While trends for ethanol are somewhat encouraging, the prospects for a competitive biofuels sector in 2017 are uncertain due to a complex set of external factors influencing the industry. Given the challenge to the domestic biodiesel industry from HDRD, additional insight is needed as to whether this advanced form of biodiesel can be produced domestically at a profit.
The literature raises questions about first generation biofuels as a cost-effective means to reduce greenhouse gas emissions. While greenhouse gas emissions reduction is an explicit goal of the EEP, this is not the case for ecoEBF. However, the Renewable Fuels Strategy is clear that reducing greenhouse gas emissions is a priority and interviewees concur this is implicit in ecoEBF.
Both the EEP and the Renewable Fuels Strategy (i.e., NextGen Biofuels Fund) contain elements that aim to support next generation biofuels. EEP was not successful in establishing the first commercial cellulose-based ethanol plant in Canada. As of December 2011, there were no commercial next generation biofuel facilities in Canada. The potential for next generation technologies to reduce the costs of production and decrease competition with food supplies has yet to be realized given that technologies are still in the demonstration stage. A federal strategy for next generation biofuels may be required.
Whether some form of federal support for biofuels should be considered in 2017 will depend on a broader review of the Renewable Fuels Strategy and federal energy, climate change and economic objectives at that time. It is important that NRCan continue to monitor ATF programming and market conditions to inform policy and program development.
Appendix A: ATF Sub-Sub Activity Components and Results
Appendix B: Resources by Program
Ethanol Expansion Program (EEP) Resources
The EEP was allocated $100 million between 2003-2004 and 2005-2006. Of this amount, $99.3 million was set aside for contributions, with the remainder supporting program operation. Table 9 shows the EEP’s planned expenditures. With the implementation of the Climate Change Interim Strategy, $35.3 million in contribution funding was transferred from the 2005-06 to the 2006-07 fiscal year.
Source: EEP financial reports.
Note that planned expenditures for 2003-04 were $60 millions.
Table 10 shows the EEP’s actual expenditures. Comparing EEP planned expenditures with actual program spending suggests that the Program may have been rolled out more slowly than initially anticipated; for example, while the Risk-Based Management and Accountability Framework (RMAF) originally planned to disburse $60 million in funding in its first year (i.e., 2003–04), only $212,000 in contributions were paid out in 2003–04.
Source: EEP financial reports and Program.
Notes: EEP salaries have always been funded through A-base. No salary dollars were ever allocated to this program. Post 2005-06 O&M was also subsidized by A-base.
A total of 1.5 FTEs per year were used to deliver the EEP between 2004-2005 and 2006-2007. An average of about 2 FTEs per year funded through ongoing A-base were used between 2007-08 and 2010-11 to manage the Program while facilities are making repayments.
ecoENERGY for Biofuels (ecoEBF) Resources
A total of $1.48 billion in funding was originally authorized for the ecoEBF Program for the period of 2008-09 to 2016-17, of which $1.43 million (97 percent) was designated for transfer payments.Footnote 166 Some of the Program’s contribution funding was reprofiled to other fiscal years to account for changes in program delivery. As shown in Table 11, planned expenditures over the evaluation period were $515 million.
Source: ecoEBF financial reports, includes re-profiled amounts
Notes: Another $686.6 million in expenditures are planned between 2011-2012 and 2016-2017. OEE cash-managed ecoEBF in 2007-2008 (see Table 10 for actual expenditures) and repaid out of 2008-2009 budget allocations.
*Public Works and Government Services Canada
Table 12 shows the actual expenditures for ecoEBF. Salary expenditures in 2007-2008 were advanced through cash management and vote changes (O&M to salaries). Total expenditures for the evaluation period were $432.0 million. About $416.3 million of the expenditures (or 96 percent) were in the form of contributions to biofuels facilities. A total of 20 NRCan FTEs are used to manage the ecoEBF, which involves both administration of contributions as well as policy and technical work related to ecoEBF.
Source: ecoEBF financial reports.
National Renewable Diesel Demonstration Initiative (NRDDI) Resources
As shown in Table 13, NRCan was allocated $4.2 million to administer the NRDDI over the period of 2008-2009 to 2010-2011.Footnote 167
Source: NRDDI financial reports
Table 14 shows that the actual expenditures for the NRDDI were $3.6 million. Expenditures in 2009-10 were higher than anticipated; given that results were needed one year earlier, activities and expenditures were concentrated in 2009-2010 and early 2010-2011.
Source: NRDDI financial reports.
Three FTEs were involved in delivering the NRDDI, including two from FPPD and one from CanmetENERGY. One of these FTEs was engaged in policy and technical work related to NRDDI.
Policy, Financial, and Technical Function Resources
Table 15 provides the expenditures related to the policy and technical function outside of such work specifically related to EEP, ecoEBF and NRDDI. Total expenditures between 2007-2008 and 2010-2011 were about $2.8 million. These funds come from the Department’s A-base allocation.
|Policy development / support||98,171||-||22,583||20,000||140,754|
|GHGenius / lifecycle analysis||-||-||135,091||51,765||186,856|
Source: FPPD financial reports and Program.
Together, the Policy and Program Development and the Financial and Market Analysis Units have 14 FTEs (as of March 2011) comprising analytical and technical staff.