1. Ministry of Energy 1June 9, 2011Bill Greenizan (Senior Advisor, Oil) Energy Markets Section Biofuels Policy: An Ontario Perspective Designing Law & Policy for the Transition to Sustainable Energy: The Case for Biofuels IUCN Academy for Environmental Law (Ottawa, ON,) Conference

2. Ministry of Energy 2 Presentation Overview 1.Context for Biofuels 2.Ontario Biofuel Policies oMandates oDomestic production incentives oResearch & development support 3.Moving Beyond Biofuels 4.Life Cycle Analysis 5.Policy Challenges oPricing oConsumer adoption 6.Bioenergy policies & trade

3. Ministry of Energy 3 Section 1: Context for Biofuels

4. Ministry of Energy 4 Working Definitions ♦ Biofuels - TRANSPORTATION SECTOR (primarily) ♦ Renewable alternatives for gasoline & diesel produced from biomass ♦ Bioenergy - ELECTRICITY SECTOR (primarily) ♦ Electricity for the grid produced from biomass ♦ Generation of heat & power for industrial / commercial / residential applications ♦ Biomaterials / Bioproducts – MANUFACTURING & CHEMISTRY SECTOR ♦ Green polyethylene, car parts, fertilizers, etc. ♦ Biomass - Ontario Electricity Act Definition: ♦ Organic matter, other than source separated organics, derived from a plant or animal and is available on a natural renewable basis. ♦ Examples include agricultural crops, pulp and paper biosolids, agricultural waste, woodwaste, and certain forest resources ♦ Exclusions from this definition include municipal solid waste and peat

5. Ministry of Energy 5 Why Consider Biofuels? Energy Environment Economy Green Jobs & Investment Rural economic development First Nations / N. Ontario Support for farmers Environment Climate Change / GHGs Other emissions Transport & power sectors Energy Security Local Supply Utilize domestic feedstock Reduce “foreign” imports

6. Ministry of Energy 6 Demand Management Fuels Vehicles MoveOntario 2020 Greenbelt Act Dedicated gas tax for public transit Electric Vehicle Consumer Rebate Tax for Fuel Conservation Tax Rebate for Alternatively-Fuelled Vehicles Green Commercial Vehicle Program Federal Vehicle Emission Standards Penetration of Hybrid Electric Vehicles 5% Ethanol in Gasoline Low Carbon Fuel Standard Penetration of plug-in electric vehicles Places to Grow Act Tax Rebate for Bicycles Transportation Demand Management Program Energy Use and Emissions in the Transportation Sector: The Three Elements with Representative Policies

7. Ministry of Energy 7 Section 2: Ontario Biofuel Policies

8. Ministry of Energy 8 Mandate: Ethanol in Gasoline Regulation ♦ Regulation 535/05 passed under the Environmental Protection Act (Ministry of the Environment) in October 2005 ♦ Effective January 1, 2007 ♦ Requires fuel suppliers to have 5% ethanol content in gasoline ♦ Regulatory considerations: ♦ Flexibility: yearly pool average, Northern Ontario exemption for first 3 years, allowing notional transfers, no domestic content provisions, and end-use exemptions ♦ Point of compliance: wholesale level to capture every litre of gasoline once with fewest compliance points ♦ Regulated parties: manufacturers, blenders, and importers of gasoline for sale at wholesale or retail in Ontario ♦ Advanced biofuel credit: cellulosic ethanol equivalent to 2.5 litres of ethanol ♦ Fuel quality: ethanol blended gasoline is to meet Canadian General Standards Board (CGSB) or American Society for Testing and Materials (ASTM) standards and specifications

9. Ministry of Energy 9 Support: Ontario Ethanol Growth Fund ♦ 12 year, $520 million fund launched in 2005 to support the development of Ontario’s ethanol manufacturing sector (administered by Ministry of Agriculture, Food, and Rural Affairs) ♦ Provides capital ($32.5 million) and market-contingent operating support (capped at 11 cents per litre) for Ontario producers. Fully subscribed ♦ Goal is to support rural economic development, allow projects to gain financing, and provide additional local markets for crop farmers ♦ This program replaced the previous government incentive for ethanol ♦ The 14.7 cent per litre exemption for ethanol under the gasoline tax was removed with the introduction of the 5% provincial ethanol mandate in 2007 ♦ Six corn ethanol facilities, with a capacity of over 1 billion litres/year, have received funding under the Ontario Ethanol Growth Fund ♦ A billion litres per year represents about 6% of Ontario gasoline demand

10. Ministry of Energy 10 Other Ontario Biofuel Initiatives ♦ Tax Incentives: FAME (fatty-acid methyl ester) biodiesel is exempt from the 14.3 cents per litre on-road diesel tax ♦ Significant resources exist targeting basic/applied research: ♦ Ontario Ministry of Agriculture, Food and Rural Affair’s New Directions Research Fund; ♦ $3M – Premier’s Research Chair for Biomaterials and Transportation (University of Guelph); ♦ $10M – Bioindustrial Innovation Centre in Sarnia (University of Western Ontario (UWO)); & ♦ $5M – Institute for Chemicals and Fuels from Alternative Resources (UWO). ♦ $25M - Centre for Research and Innovation in the Bio-economy (CRIBE) ♦ Resources targeting pre-commercialization (e.g. pilot / demonstration): ♦ $1M - Centre for Agricultural Renewable Energy and Sustainability (Ridgetown Campus). ♦ $50M – Ontario Innovation Demonstration Fund - Bioenergy related funding recipients include Woodland Biofuels & GreenField Ethanol; each awarded $4 million for cellulosic ethanol initiatives

11. Ministry of Energy 11 Section 3: Moving Beyond Biofuels

12. Ministry of Energy 12 Building Bio “Beyond Transportation” Rentech Inc. Bio-refinery ♦ Proposed facility in White River would produce renewable jet fuel, petrochemical feedstock (renewable naphtha), and electricity from wood fibre ♦ Wood fibre supply obtained through the provincial wood supply competition; putting unused Ontario wood to work a key component of forestry sector renewal. Announced May 2011 Sarnia: “Chemical Valley” ♦ Government support to develop alternative energy technologies and industrial bio-products ♦ Leverage existing chemistry sector capabilities infrastructure, and knowledge base Ontario Bio-Auto Council ♦ Vision is to make Ontario an global leader in the use of bio-based materials ♦ Examples include: award-winning seat cover materials made from non-toxic vegetable oils, light weight flooring for SUVs from forest biomass, and range of other products like bedding, mattresses and garden tools made from renewable biomass

13. Ministry of Energy 13 Section 4: Life Cycle Analysis

14. Ministry of Energy 14 Example Lifecycle Emissions – Gasoline and Corn Ethanol Corn Ethanol Gasoline

15. Ministry of Energy 15 Life Cycle Analysis and Related Issues ♦ What are the lifecycle GHG emissions of fuels? ♦ Lifecycle analysis requires the use of complex models, multiple assumptions, and uncertain data ♦ Biofuel emissions relative to what? Life cycle analysis for fossil fuels also complex ♦ U.S. Environmental Protection Agency & California have different life-cycle values for corn ethanol. Wide range of carbon intensity values across multiple approved ethanol pathways under California’s Low Carbon Fuel Standard ♦ Direct and indirect land-use change: ♦ Increases the carbon intensity of crop-based biofuels, resulting in fewer GHG savings versus petroleum fuels ♦ “Food versus fuel” emerged as a contentious issue among the public and media in 2008 ♦ Sustainable production of both petroleum and biofuels gaining importance ♦ Issues included respect for the environment (soil, air, water, and biodiversity), appropriate consultation, labour laws, human rights, etc.

16. Ministry of Energy 16 Section 5: Policy Challenges

17. Ministry of Energy 17 A Telling Quote “ We’re not opposed to renewable fuel as long as it works in our engines and doesn’t cost us more than diesel” David Bradley, president and chief executive officer of the 4,500 member Canadian Trucking Alliance (quoted in the Toronto Star, May 30, 2011)

18. Ministry of Energy 18 Soybean Oil & Diesel: Price Comparison

19. Ministry of Energy 19 Ethanol & Gasoline: Financial Comparison

20. Ministry of Energy 20 Ethanol & Gasoline: Economic Comparison

21. Ministry of Energy 21 Consumer Adoption & Market Penetration ♦ A successful transportation fuel requires consumers, distributors, refiners, and vehicle manufacturers to be all in the same page. Easier said than done ♦ Transportation fuel retailing is an intensely competitive, low-margin business [retail gross margins under 10%]. High capacity utilization critical in fuel retailing ♦ Drivers of flex-fuel vehicles (E85) can use high ethanol blends but limited fuelling options in Canada. ♦ “Chicken & Egg” conundrum ♦ Prospective retailers must be persuaded demand will materialize ♦ Consumers are sensitive to fuel and vehicle costs ♦ Higher up front costs of gasoline-electric hybrids has limited market penetration in Canada ♦ Alternatives must not only be price competitive with gasoline-diesel vehicles on a per kilometre basis. Consumer expectations regarding range, convenience, and driving experience must also be met for alternative transportation fuels to gain widespread adoption.

22. Ministry of Energy 22 Canadian Experience: Natural Gas Vehicles (NGVs) ♦ Shell announced 1n 2011 that it will no longer sell compressed natural gas in Ontario. Low returns highlighted for exit ♦ Now fewer than 55 public stations in Canada in 2011 compared with 134 in 1997 ♦ Industry support includes exemption from federal & provincial fuel taxes (in Ontario, 18.3 cents per litre for diesel and 24.7 cents per litre for gasoline) ♦ Previous support included sales tax exemptions for vehicle purchases / conversions as well as government funding for NGV fuelling stations ♦ Consumer adoption of NGVs hampered by: less access to fuelling sites; reduced vehicle range and storage space; and reliance on after-market retrofits compared to gasoline/diesel ♦ Vicious circle Lower Consumer Interest in NGVs Fewer NGVs Supplied by OEMs Limited # of Refuelling Stations

23. Ministry of Energy 23 Section 6: Bioenergy & Trade

24. Ministry of Energy 24 Bioenergy Policies & Trade: Media Coverage ♦ National Treatment concept: ♦ Potentially has implications for the use of life cycle analysis to differentiate fuels ♦ National treatment concept requires the same treatment of foreign and domestic “like products” at the point of use ♦ “Under both the [North American Free Trade Agreement] and [the World Trade Organization], the U.S. does not have the right to interfere with the sale of energy and petrochemical products from Canada on the basis of where they came from or how dirty or clean they think that origin is” [Brenda Swick, McCarthy Tetrault quoted in “Don’t Stall Enbridge, Alberta warns U.S”, National Post, September 21, 2010] ♦ Domestic Content ♦ Policies that favour domestic suppliers are susceptible to trade challenges ♦ Japanese officials have launched a trade challenge due to domestic content requirements under Ontario’s Green Energy and Green Economy Act. [“Japan takes Canada to WTO on green-buy local rules”, Reuters, June 1, 2011]

25. Ministry of Energy 25 THANK YOU