Canadian Biomass • September-October 2018 • Past, Present And Future

The story of the Canadian biofuels sector over the last decade is remarkable. Our industry has existed in Canada for about 30 years, but it was the Federal Renewable Fuels Strategy in 2006 that sparked our growth into a billion-dollar industry providing home-grown, clean-burning fuels to Canadians.

Today, the contributions of the biofuels sector are focused primarily on achieving substantial reductions in greenhouse gas (GHG) emissions in the transportation sector. However, 10 years ago, biofuels were discussed primarily in the context of agriculture. From the beginning, the industry recognized its role within Canada’s circular economy, directly supporting the agricultural sector by providing a stable market, while continually creating environmentally sustainable economic growth in rural communities right across the country.

This confidence and commitment from the agricultural community has built an industry in Canada that generates $3.5 billion worth of annual economic activity and has created over 14,000 jobs. Ethanol production for 2016 was 1.7 billion litres, with an estimated sales value of $1.1 billion.

As we enter our second decade as an established industry the future looks bright. Today’s governments are developing a suite of policy mechanisms that will directly impact the renewable fuels sector for the next decade and beyond.

In December, the Canadian federal government announced the details of its national Clean Fuel Standard (CFS), which aims to eliminate 30 megatonnes of GHG emissions annually by 2030. This targeted reduction will begin with liquid fuels, creating a significant opportunity for biofuels.

The federal CFS also comes at a time when Canada’s provinces have been demonstrating impressive leadership on driving increased use of biofuels. Canada’s five most populous provinces — Ontario, Quebec, British Columbia, Alberta and Manitoba — have embraced or are in the midst of exploring progressive approaches to promoting enhanced use of clean fuels either through increasing biofuel mandates or new low carbon fuel policies. Ontario, Canada’s largest province, will increase ethanol content in gasoline from five to 10 per cent.

There is still work to be done, but with a combination of a solid foundation, strong domestic industry and ambitious GHG reduction targets being planned across the country, Canada’s biofuels industry can expect to continue delivering good news for years to come.

It has only been about 25 years since the Canadian pellet industry started. But its early days set the foundation for today’s global leadership.

The early to mid-1990s saw the establishment of B.C.’s early wood pellet producers. They started in response to the fledging demand for residential heating pellets in the Pacific Northwest; primarily in the Seattle region. These early entrepreneurs included the wood pellet pioneering companies that still exist today: PFI Pellet Flame (now known as Pacific BioEnergy Corporation), Pinnacle Pellet (Pinnacle Renewable Energy), and Princeton Co-Gen. Soon to follow was Armstrong Pellet.

In Eastern Canada, also during the 1990s, early producers like Energex, Lauzon and Shaw Resources established and began production to meet the Northeast U.S.’s developing residential heating market.

1996 saw the formalization of the first wood pellet association in Canada, organized by the original four wood pellet producers in B.C.: PFI Pellet Flame (I was the original association director), Pinnacle Pellet (Jim and Rob Swaan), Princeton Co-Gen (Doug*, Dean, and Gary Johnston), and Armstrong Pellets (Roger Mushaluk). The BC Wood Pellet Fuel Manufactures Association became the Wood Pellet Association of Canada (WPAC) in 2006. WPAC, under the leadership of executive director Gordon Murray, has become an influential institution and a champion of for the Canadian and global wood pellet industry.

It has been an amazing 20 plus years since the Canadian pellet industry’s early days. Canada’s wood pellet producers have become world leaders in production excellence, safety, and shipping standards. Canada continues to be globally respected for the sustainable management of its forest resources. In 2018 Canada’s wood pellet exports are expected to exceed 2.5 million tonnes; and significant growth in the industry is possible as market demand grows. Growth in the Canadian pellet industry is always bound by the constraint of maintaining perpetually renewing forest resources.

Industrial wood pellet markets will continue to grow. The world is still heavily reliant on coal, but the effects of climate change are becoming increasingly “in-your-face”. As the next decade unfolds, the use of sustainably produced pellet fuel to replace coal will spread beyond the current markets. Canada started the pellet export industry and Canada will continue to be a world leader in an industry that is an important part of the solution for a low-carbon future.

The next 25 years will be an exciting time for this industry and I am proud to have been one of the pioneers that set the stage.

Many people believe that the next 10 years will bring step changes in bio-technologies. I don’t disagree, but I believe that one of the most undervalued and important developments that will take place in the next 10 years will be the creation of de-risking and credit-enhancing mechanisms for bioeconomy projects.

These advances will be accretive and immediately transferable across the full spectrum of the bio-based industries; the benefits will impact advanced biofuels, bioenergy, bio-based heat and power, pellet production and bio-products among others.

When bio-projects choose to site in Canada, the Canadian economy enjoys a wide range of benefits. Recognizing this, in the past 10 years the federal government has taken meaningful steps towards its goal of promoting the bioeconomy in Canada. However, there have been few, if any, initiatives that address the vital issue of biomass supply chain risk in a way that allows capital to flow easier, faster and less expensively to the wide range of bioprojects. This is about to change.

The next 10 years will show a more nuanced approach by governments. One of the biggest barriers that is going to be eliminated in the next 10 years is inflated perceptions of biomass supply chain risk on the part of capital markets.

A key challenge to the rate of growth of the bio-industry is that risks associated with biomass supply chains are not well understood. At present there are no established protocols, standards, or recognized industry best practices that developers, investors, commercial lenders, insurance companies and rating agencies can utilize and rely upon to empirically demonstrate biomass supply chain risk. Debt and capital markets are independently using inconsistent approaches and evaluation criteria, leading to unreliable assessments of bio-project risks. Put simply they are confused about the quanta of risk. This results in significant project financing barriers for bio-projects and in millions of dollars of “financial-drag” on the projects that are eventually built.

A solution to this problem lies in creating an established set of recognized standards that creates a validated approach when attempting to price feedstock risk. The U.S. is already moving ahead. Two years ago the U.S. Department of Energy Bioenergy Technologies Office funded the development of new U.S. National Standards for Biomass Supply Chain Risk (BSCR). Development of the BSCR is being done by Idaho National Laboratory and Ecostrat.

In the next few years there will be independent body that will issue validated, industry-accepted certifications of the risk of biomass projects’ supply chains. Bio-projects will be able to empirically demonstrate the risk of feedstock supply chains to the capital markets though an accepted rating system. These ratings will assure the capital markets that the best available practices have been used and enable more accurate pricing of biomass supply chain risk.

Ultimately, by enabling the capital markets to more accurately quantify and price supply chain risk, we can drive 150-350 basis points out of the current debt burden worn by bio-projects, accelerate existing bio-project development and give a huge boost to our bioeconomy.

Traditionally, Canada has been a leader in biomass via its traditional natural resources, but was not necessarily at the forefront of the bioeconomy. This is partly due to the country not having had a national policy framework to foster innovation and facilitate the transformation. The first major federal policy enabling a real shift toward the bioeconomy that comes to mind is the Renewable Fuels Standard in 2010, imposing a binding share of renewable energy in the transportation sector, as well as the creation of the cleantech funding agency Sustainable Development Technology Canada. At the same time, the U.S. was already well engaged in developing the bioeconomy and was putting in place national strategies, regulations and policies. A key driver of this movement was the release of the ‘1 billion tons study’ published by the U.S. Department of Energy and Department of Agriculture in 2005, which confirmed the nation’s capacity to produce a billion dry tons of biomass resources (composed of agricultural, forestry, waste, and algal materials) annually to produce enough biofuel, biopower, and bioproducts to displace 30 per cent of 2005 U.S. petroleum consumption without impacting other vital U.S. farm and forest products, such as food, feed, and fibre crops.

Until recently, most of the Canadian policies, programs and initiatives stimulating the development of a bioeconomy were led by provinces, regions and groups like the Forest Products Association of Canada. Regional bioeconomy clusters were developed, including, for example, in Sarnia, Ont., with its biobased chemistry cluster; in Quebec where several biomass and biofuels projects were being developed; and in B.C. with its forest bio-products cluster.

A major shift occurred in the last two to three years when the new federal government presented its vision to diversify the economy and address climate change where a clean environment and a strong economy go hand in hand. The objective is to build a clean growth economy in Canada. The bioeconomy is the means to achieve lower carbon growth where innovation is a key enabler. In these last few years, many federal policies and programs were developed and implemented. In the last budget alone, the federal government proposed to increase financing support by nearly $1.4 billion to help bolster and grow Canada’s clean technology firms.

Developing the bioeconomy requires that we change our attitude toward biomass production for food, bioenergy and other purposes and develop a more holistic approach as we evolve from single end-use approach to integrated production systems. Biorefineries producing biofuels, biochemicals and energy are a great example.

The Paris Agreement spurred the shift toward a bioeconomy globally by creating the commitment and building the momentum for the global transition to a low carbon economy. Over the next 10 years, the transition to a bioeconomy in Canada will enable the diversification of our exports and ensure sustainable prosperity. It will also play a role in achieving the UN Sustainable Development Goals. This will advance climate goals, sustainable energy, food security and better land use. We can all agree that such achievements will benefit not only Canada, but the world over.