It is difficult to project the annual demand for canola as a biofuel feedstock under the new Canadian Clean Fuel Standard, but modelling suggests that CFS could be a significant demand pull for canola oil.

Biofuel Standard Could Increase Domestic Canola Demand

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Biofuel is an important global market for Canadian canola, using approximately three million tonnes of seed – or about 10 per cent of Canada’s total production – in 2020. In the shadow of the major market disruptions faced in 2019-20, a working group struck by the federal minister of agriculture identified biofuels as the top prospect for near-term domestic market diversification.

With biofuel demand expected to grow in Canada and elsewhere, the Canadian canola industry is working diligently to ensure that canola continues to be a preferred feedstock for this growing demand. A concerted effort is already underway to advocate for a regulatory environment that supports biofuel demand growth while meeting the needs of canola farmers and the broader canola industry.

Demand for canola as a biofuel feedstock could increase significantly with (1) new clean fuel regulations on the horizon and (2) growing North American interest and investment in advanced biofuels processing techniques that make inclusion into the diesel pool more efficient. Let’s dig deeper into what the future holds for canola-based biofuels and canola demand as a feedstock.

Canada’s Clean Fuel Standard

Since fall 2016, the Government of Canada has been developing a Clean Fuel Standard (CFS). This is a complicated regulation, which seeks to lower the average carbon intensity* of liquid fuels used in Canada. As a policy, it is very different in structure and outcome than the volume-based biofuel mandate which Canada currently employs and, as a result, will impact how biofuels and their feedstocks are consumed in Canada and how much will be utilized.

Modelling suggests that the CFS could be a significant demand pull as diesel fuel in Canada could approach eight to nine per cent renewable content by 2030. Increasing renewable content could potentially require an additional one to four million tonnes of canola seed annually.

When the CFS is implemented, the current federal Renewable Fuel Standard (RFS), which mandates a national average blend of two per cent bio-content in diesel, will be repealed. In its place, the primary suppliers – the manufacturers and importers of liquid fuel in Canada – will need to demonstrate that they are placing increasingly “cleaner” fuel into the Canadian marketplace. The fuel must have a lower carbon intensity score than typical Canadian diesel and the stringency increases incrementally over the years. Using biofuels is a primary way for fuel suppliers to comply with this new CFS regulation.

Despite the CFS not including a clear biofuel mandate or demand signal, the CFS could still provide a major domestic opportunity for sustained growth in the use of canola-based biofuels, namely in diesel fuel. If done right, the CFS regulation provides benefits on three fronts, particularly in Canada’s post-pandemic recovery:

  1. Economic growth through value-added agricultural processing. Investment in clean, low-carbon biofuels will spur investment in canola processing.
  2. Market diversification. New sustainable demand creation for canola in Canada reduces reliance on unpredictable global markets.
  3. Reduction of greenhouse gas emissions. Canola-based biofuels have excellent life-cycle carbon intensity characteristics.

Canadian canola has several strategic advantages that make it a high-quality biofuel feedstock of choice, well-positioned for increased use. Canola has readily accessible supply both in quality and quantity. It has excellent low carbon intensity properties (on a lifecyle basis) and technical specifications to satisfy the regulation. And the existing supply chain and industry already understands, supports and currently manufactures biofuel.

Why biofuels matters to farmers?

Historically, 1.5 million tonnes of canola seed has been used annually in the production of biofuels in Canada, the U.S. and the EU. In 2020, increased EU demand elevated total demand to approximately three million tonnes, representing approximately 10 per cent of annual Canadian production. Every year, approximately 500,000 tonnes of canola seed is used in the production of Canadian biodiesel – representing approximately 40 per cent of the total Canadian feedstock requirements.

It is difficult to project the annual demand for canola as a biofuel feedstock under the CFS since there are multiple ways for primary suppliers to achieve regulatory compliance beyond using biofuels. However, modelling suggests that the CFS could be a significant demand pull as diesel fuel in Canada could approach eight to nine per cent renewable content by 2030. Increasing renewable content could potentially require an additional one to four million tonnes of canola seed annually, as the regulation requires continually cleaner fuel to be placed in the Canadian market. Environmentally, canola currently contributes approximately 1.5 million tonnes of greenhouse gas reduction under the current two per cent RFS mandate. It could potentially increase to six million tonnes under a mature CFS.

The CFS is in its final stages of development prior to the draft regulation being published in late 2020. However, there remains much uncertainty about the direct effect of the CFS on canola demand. Currently there is no similar biofuel policy without an accompanying mandate in any other jurisdiction around the world. This makes modelling or predicting the demand implications for biofuels and canola as a feedstock much more difficult.

Canadian Canola Growers Association and the Canola Council of Canada are working to ensure that the final regulation, slated for implementation in 2022, creates a platform for long-term increased use of canola as a biofuel feedstock in Canada. In addition, work continues to ensure that elements, such as the CFS Land Use Biodiversity criteria, recognize the sustainability of today’s modern farming practices and maintain the global competitiveness of Canada’s canola farmers.

Biodiesel, Renewable Diesel and Co-Processing

Currently in North America, diesel-based biofuels are typically produced by one of two methods: traditional biodiesel or renewable diesel. The finished biofuels have different carbon intensity profiles as the energy required in both processes differs, as do the by-products. Regardless of manufacturing process used, all finished fuels must adhere to specific quality standards before being placed into the marketplace.

Biodiesel (FAME) is typically produced by blending of bio-mass feedstock (e.g. canola, used vegetable oil and fats) into diesel fuel to achieve a desired blend level (e.g. two per cent biodiesel). The fuel will have specific chemical properties, such as cloud point, based on the feedstock.

Renewable diesel (HDRD), often referred to as a drop-in fuel, is produced through a different chemical reaction than biodiesel. The finished biofuel is chemically indistinguishable, regardless of the feedstock used. Compared to biodiesel, it has higher carbon intensity because it requires more energy to produce, but the quality and properties are the same regardless of the feedstock.

Currently, all diesel biofuel production in Canada is biodiesel, while there is significant renewable diesel capacity in the U.S. Both these processes typically occur in standalone facilities, often operated by a biodiesel or renewable diesel manufacturer.

Co-processing is fundamentally different from both FAME and HDRD in two ways. First, the bio-mass feedstock is introduced at the same time as the crude petroleum product enters the refining process, rather than being blended at the end stage. Second, co-processing is done in a traditional petroleum refinery at large volumes.

As low-carbon fuel regulations mature and intensify in both the U.S. and Canada, conventional petroleum companies are more seriously looking at co-processing in order to meet local and federal regulations, while integrating the manufacturing of renewable fuel products into their core operations. In the last year, several major U.S. companies have made announcements regarding planned investments within their facilities. Testing of co-processing in Canadian refineries has occurred as well. The opportunity for Canadian canola is significant, as it is one of only a handful of feedstocks in North America readily available to provide the large scale, consistent quality required to serve these large refineries.

Read more about CCGA’s work on the CFS and Land Use Biodiversity criteria, as well as submissions to Environment
and Climate
Change Canada:
ccga.ca/policy/Pages/Biofuels.aspx