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Capturing the promise of ethanol production

Barriers need to be overcome to make the most of its potential.

November 20, 2007
By Carolyn King

The combination of low grain prices, high energy prices, and the possibility
of a national requirement for biofuel content in our transportation fuels is
igniting interest in ethanol production. It offers exciting potential benefits
for rural areas, but some barriers need to be overcome to make the most of this

Ethanol is produced using a fermentation and distillation process that converts
carbohydrates – like the starch in grain or the sugar in sugar cane –
into this alcohol. Ethanol is blended with gasoline; E5 (five percent ethanol)
to E10 (10 percent ethanol) are the most common blends. The blends, sometimes
called gasohol, have advantages over straight gasoline such as: higher octane
ratings for better engine performance, lower net greenhouse gas emissions, and
reduced tail-pipe emissions. Ethanol also provides a home-grown, renewable alternative
to imported petroleum.

On the prairies, wheat is the main feedstock for ethanol, so ethanol production
provides an alternative market for wheat growers and could help to improve grain
prices. Ethanol facilities contribute to local economic growth. And ethanol
production generates a valuable byproduct called distiller's grain, which can
be used as a high protein ingredient in livestock feed.

Canada's current capacity for commercial production of ethanol for fuel is
about 545 million litres annually (see Table 1). Much of that capacity has developed
within the past year. And, if all the ethanol facilities now proposed or under
construction in Canada come on-stream, that capacity could grow by leaps and

Table 1. Current Canadian commercial production of fuel
ethanol from agricultural feedstocks.
Company Location Capacity/year Comments
Husky-Mohawk Minnedosa,
10 million
Started 1981; wheat feedstock; expansion
under construction for a 130 million litre facility.
Greenfield Ethanol (originally Commercial Alcohols) Tiverton,
20 milion
Started 1989; corn feedstock.
Pound-Maker Agventures Lanigan,
12.5 million
Started 1991; wheat feedstock; integrated
with feedlot.
Greenfield Ethanol (originally Commercial Alcohols) Chatham,
120 million
Started 1998; corn feedstock.
Permolex Red Deer,
28 million
Started 1998; wheat feedstock; integrated
with wheat fractionation; expansion to 40 million litres under construction.
NorAmera BioEnergy Corporation Weyburn,
25 million
Started 2005; wheat feedstock.
Suncor Energy Products Incorporated Sarnia,
200 million
Started 2006; corn feedstock.
Husky-Mohawk Lloydminster,
130 million
Started 2006; wheat feedstock.
Source: Adapted from Table 8-1 in Canadian Renewable Fuels
Strategy (2006), courtesy of (S&T)2 Consultants Incorporated.

Pound-Maker Agventures in Lanigan, Saskatchewan, is the only farmer-based company
currently producing ethanol, although several more such businesses are in the
works in Canada. Pound-Maker started as a feedlot in 1970 and, after making
an extensive investigation of its business options, added an ethanol plant in
1991. President Brad Wildeman says, "We have more than 200 shareholders,
and most are farmers who invest in the company for us to create market opportunity
for their feed-stocks, barley and wheat predominantly.

"The Pound-Maker feedlot has capacity for 29,000 cattle and uses about
3.5 million bushels of barley annually, while the ethanol plant uses about 1.5
million bushels of wheat. In addition to buying all that grain from local farmers,
the company provides other local benefits. For example, it buys other inputs
locally, like silage, hay and straw; it hires local people; and the feedlot
manure is spread on farmers' fields. It has created a lot of economic activity
and jobs in a rural area where a commercial ethanol producer wouldn't likely
be looking to build a plant," says Wildeman.

Buying grain directly from farmer shareholders works well for the company and
the farmers. He explains, "We are buying it at a little less cost than
buying through the elevator system and our farmer shareholders are getting a
better deal than they can get anywhere else."

Another win-win scenario comes from contracting farmer shareholders to grow
soft white spring wheat. Although the ethanol plant can use a wide range of
wheat or even rye, barley or corn, the high starch content of soft white spring
wheat makes it a very good energy wheat. Wildeman says, "With soft white
spring wheat, we get more ethanol litres per tonne of wheat, and the crop yields
are considerably higher than for hard red spring or Canada Prairie Spring wheat."
He estimates those higher crop yields have increased returns to the farmers
by roughly $30 or $40 an acre. "And they can sell it directly to us, so
we don't have other grain companies, transportation and all those things that
take a cut out of it."

Integrating ethanol production with the feedlot is also a real plus. Normally,
wet distiller's grain needs to be dried so it can be transported to buyers,
but Pound-Maker uses it right on site. Wildeman says, "All the spent water
from the ethanol plant gets piped right into the water bowls, and all the residual
fibre and protein get mixed in with our hay, silage, barley and other things
and fed to our cows. That allows our plant, which is pretty small compared to
what is being built today, to be competitive because we don't have any costs
for drying, marketing, storage or handling of the distiller's grains."

Policies and the prairies

The Saskatchewan
Ethanol Development Council (SEDC) believes Saskatchewan has several key advantages
for ethanol production. It has easy access to grain supplies and energy for
operating ethanol plants. It has access to road and rail systems that can take
the ethanol to markets in the east, west and south and it has a cattle industry
that can use the distiller's grain.

SEDC president Lionel LaBelle says, "For the first time in our history,
we are in the right geographical place." SEDC aims to have Saskatchewan
become the largest and most efficient producer of renewable fuel in Canada.
"We'd like to emulate a state like Iowa where there are 29 ethanol plants
and 15 biodiesel plants," says LaBelle.

He is passionate about the potential benefits of biofuels. "The picture
of Saskatchewan 10 years from now producing three billion litres of renewable
fuel, both ethanol and biodiesel, will absolutely have a paradigm shift in how
we look at agriculture in this province. Energy crops will consume 30 percent
of our land and will have a positive effect on all grain values. I'll argue
with you that most governments in Canada look at agriculture as a liability.
I think biofuels have the potential to completely change that."

SEDC is one of many agencies that participated in the Canadian Renewable Fuels
Association's recent consultation with the entire biofuel value chain. That
consultation provided the basis for the association's Canadian Renewable Fuels
Strategy (available at www. The strategy, which was presented
to the federal government in July 2006, describes barriers to expanding biofuel
production in Canada and policy measures to address those barriers.

The strategy is designed as a guide to help policy makers in implementing the
federal government's proposed five percent national renewable fuel mandate or
standard by 2010. ('Standard' and 'mandate' are terms that mean legislation
would dictate the percentage of biofuel in the fuel supply.) Both LaBelle and
Wildeman see a national mandate as essential to creating a strong Canadian ethanol

The US Energy Policy Act includes a renewable fuel standard. For 2006, that
standard requires a minimum of 4.0 billion gallons of renewable fuels be used
in the US. By 2012, it rises to 7.5 billion gallons. This policy and other federal
and state policies and programs have prompted rapid growth of US ethanol production,
from about 1.6 billion gallons in 2000 to about 4.0 billion gallons in 2005.
The US Department of Agriculture predicts that ethanol production capacity could
exceed the amount required by the standard, possibly reaching 7.5 billion gallons
by 2008/09 and more than 10 billion gallons by 2012.

LaBelle notes that the Canadian Renewable Fuels Strategy emphasizes the need
for parity with the US. He adds, "What we and the Canadian Renewable Fuels
Association have promoted as Canadian programming requirements have been utilized
in the US with great success."

Saskatchewan was the first province to create its own renewable fuel mandate,
rather than waiting for a Canadian one. Fuel distributors in the province are
currently required to blend one percent ethanol into their gasoline sales, on
average. That standard will increase to a 7.5 percent blend when there is sufficient
ethanol production capacity in Saskatchewan to fulfill that requirement. As
well, the legislation encourages smaller scale ethanol producers by reserving
30 percent of the province's expected consumption for plants that produce 25
million litres a year or less.

As for the other prairie provinces, Manitoba has an E10 mandate and a tax reduction
on ethanol blended gasoline for an eight year period, while Alberta has not
set a provincial mandate because it would prefer a national one. However, Alberta
has announced $239 million in programs to encourage bio-energy production in
the province.

One consequence of individual provinces encouraging ethanol production within
their own borders is the creation of inter-provincial trade barriers. Such barriers
could reduce the movement of ethanol from the prairies to larger consumer markets.

Wildeman notes, "The big benefit of ethanol production is that it's helping
to create a market for this grain that governments have been subsidizing with
billions of dollars a year. Ethanol is probably the best opportunity to change
that paradigm in the last 40 or 50 years. A lot of people are pinning their
hopes on the fact that, if we make energy out of wheat, we can break the reliance
of grain farmers on subsidies. I have a grain farm too, so I see that opportunity.
But so does everybody else, including the US and other provinces. For ethanol
production to grow on the prairies, we need a national strategy to produce ethanol
where the grain is grown and sell it into high population areas."

Helping farmers take part

No matter who owns an ethanol plant, it will likely benefit farmers in the surrounding
area by providing an alternative market for grain. However, farmer-based companies
often have a special emphasis on increasing benefits to the local area.

SEDC is interested in having all types of ethanol plants in Saskatchewan, no
matter what the corporate structure; however, it would like see to some farmer
ownership. LaBelle says, "Of the 106 plants that are operational in the
US today, 48 are owned by farmer groups, and another 25 have farmer groups as
a minority position. We think that those are reasonable goals."

A key barrier to farmer-based ownership is start-up capital. "Very few
rural communities can raise the millions of dollars needed to construct an ethanol
plant. For example, to build a 100 million litre ethanol plant today, it will
cost you $85 million," explains La Belle.

The Canadian Renewable Fuels Strategy recommends several specific financial
tools that could help farmers to participate in the ethanol production sector.
A key one is a matching grants program that would match contributions made by
farmers to develop ethanol production facilities.

The strategy also identifies some regulatory obstacles for farmer owned facilities.
For example, the Canadian Grain Commission has reversed a long-standing exemption
by requiring ethanol plants to become licensed elevators, even though feedlots
and other large confined feeding operations are not required to be licensed

Wildeman explains how this regulation affects small, farmer owned ethanol plants.
"First, being a licensed elevator requires a lot of reporting. Second,
you have to post a financial bond, which is an ongoing expense. And third, who
are you protecting yourself against when you are buying grain from your own
shareholders?" He adds, "Big ethanol plants are probably not buying
grain directly from farmers anyway – they're going through a broker or
some other company – so they don't even need to be licensed."

Looking ahead

Some of the risks that could lie ahead for the ethanol industry include: changing
government policies and programs related to conventional fuels and biofuels,
changing demand and supply for petroleum, changing biofuel technologies (see
Changing technology and ethanol), changing prices for ethanol feedstocks
and byproducts, and changing demand and supply for ethanol.

At present, ethanol has higher production, handling and distribution costs
than gasoline, so its competitiveness with gasoline depends in part on world
demand and supply for crude oil. LaBelle sees a strong and growing demand for
transportation fuels, including biofuels, in the future. "The economies
of countries like India and China are booming. They want what we want. As they
get more cars on the road, their economies will be sucking up oil. Even if the
world stays stable, the price of oil is going to rise because of the demand
on it by those countries."

LaBelle also believes that energy security will become more important in Canada,
just as it has in the US, causing a further increase in demand for home-grown

Wildeman sounds a note of caution. "I think there is still more opportunity
for growth in ethanol production, but I don't think the opportunity is limitless."
He explains, "One of the things that I'm concerned about is that we've
had this very, very rapid growth in ethanol production in the US. In fact, one
day a couple of weeks ago there was an announcement of three new ethanol plants
in the US. Those three plants alone would produce enough ethanol to supply the
entire Canadian mandate."

He adds, "They are growing their industry at a rapid pace and probably
over-growing it. I wonder what happens when all this supply comes on-stream,
whether the market can take all that, and the fact that we're building plants
in Canada that are going to be coming on-stream about the time that all this
overcapacity is already working in the US. If the ethanol industry in the US
continues to be subsidized at the rate they are now and if our governments aren't
prepared to do the same thing, then it will be no different than in the grain
industry. We're going to have a very, very difficult time competing with them."

LaBelle sees the situation differently. "The American's long-term strategy
endorsed by 20 governors and congress is the 25 by 25 initiative. This represents
25 percent renewable content in all energy consumption by 2025 (50 billion gallons
of renewable fuel). The best the US can attain using corn ethanol is 15 billon
gallons, with the balance coming from cellulose, wind, solar and so on. So from
my perspective, the Americans can never fill their requirements, so export opportunities
for Canadians are by far a more likely scenario than Canadians importing renewable

Ethanol basics    

Vehicles built in the last 20 years can use up to E10 without major engine modifications, and E10 fuel is available at more than 1000 retail stations in Canada.

E85 blends can be used in flexible fuel vehicles, which can operate using straight gasoline or gasoline blended with up to 85 percent ethanol. Although these vehicles are available, E85 fuel is not widely available in Canada.

Ethanol is attracted to water, so it can separate from an ethanol/ gasoline blend if there is water in the pipelines used to distribute gasoline. Therefore, rather than using the less expensive pipeline distribution system, ethanol is usually blended with gasoline at distribution terminals.

Over the years, researchers have debated ethanol's 'energy balance'. A few decades ago, ethanol probably had a negative energy balance – it required more energy to produce it than is contained in the fuel. However, with today's more efficient agricultural and ethanol production practices, most researchers have determined that ethanol's energy balance is positive. Depending on the specific production practices, the energy available in ethanol is calculated to be about 1.3 to 1.9 times greater than the energy required to grow, harvest, transport and convert the feedstock to ethanol and to distribute the ethanol.

According to SEDC, no fossil fuel has a positive energy balance.

Changing technology and ethanol

While technological progress might further improve ethanol production efficiency, emerging technologies like cellulose based ethanol and biobutanol production could potentially pose a risk to grain based ethanol production.

Cellulosic ethanol production uses feedstocks like straw and wood waste. The feedstock is pretreated with enzymes to release the sugars bound in the cellulose and hemicellulose, allowing the sugars to go through a fermentation/ distillation process. Cellulosic ethanol has the potential for greater reductions of greenhouse gas emissions than grain based ethanol, and it offers a way to use waste materials.

There is no commercial production of cellulosic ethanol in the world at present, although there is a demonstration plant in Ottawa and a handful of plants are under construction around the world. LaBelle and Wildeman see significant barriers to cellulosic ethanol. For example, although straw is cheaper than grain, transporting and storing large quantities of straw would likely not be cheap. Cellulosic ethanol facilities have higher capital costs. The enzymes used to release the sugars are expensive and the cellulosic feedstock would not have the distiller's grain byproduct.

Biobutanol is another emerging biofuel. Like ethanol, it can be added to gasoline, it offers environmental benefits, it uses the same feedstocks (like wheat, corn, sugar cane) and it requires a fermentation/distillation process. But biobutanol has some advantages over ethanol such as better fuel economy and a greater tolerance of moisture, so it can be carried in gasoline pipeline distribution systems.

In a partnership effort, DuPont and BP (British Petroleum) are converting an existing ethanol plant in the United Kingdom to biobutanol production. They hope to be producing biobutanol by the end of 2007. They expect to eventually produce biobutanol in a way that will make it competitively priced with ethanol and gasoline.

LaBelle says, "One of the issues that is always on the table: 'Is there a potential that newer technology coming forward will somehow make these ethanol facilities obsolete?' I think that's unlikely, and the biggest reason is that existing grain based ethanol technology is getting better every hour of every day. They are lowering costs, they are improving yield characteristics, they are reducing energy costs."

He adds, "Biobutanol and cellulose ethanol production are for the most part not commercially viable today. So, do you wait for them to become viable, or do you begin an industry today that we know is profitable, that will grow and that will be sustainable? Our position is, you build the industry today."

Wildeman agrees. "I think that, as the technology becomes closer to reality, we'll get more serious about considering how the plant might adapt. When we built our plant in 1990, we were told that by 1995, we would have to have our plant paid down enough so that we could convert it to cellulosic ethanol because it was four years away. Now we're in 2006 and they are still saying it's four or five years away."

If these technologies do become cost effective, it is possible that existing ethanol plants could possibly be adapted. LaBelle says a Nebraska corn based ethanol plant is adding a cellulosic pretreatment system so it can process both corn and corn stover. According to DuPont's web site, 'existing ethanol capacity can be cost-effectively retrofitted to biobutanol production'.