4/1/2020 Canada's Biofuels Future

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May 10, 2006
Canada's Biofuels Future
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Vancouver, Canada (GLOBE-Net) - The United Nations says biofuels could provide 25% of the world's energy needs within two
Business Planning decades; US President George W. Bush points to ethanol as one way to cure his nation's 'addiction to oil'; even multi-billionaire Bill
Gates has thrown a large chunk of cash towards the financing of biofuels development. In what could be one of the next great
Brochures & Videos developments in the energy sector, what will be Canada's role?
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Soaring oil prices and concerns over the climate change impacts of fossil fuel energy are the main factors behind worldwide
Market News interest in biofuels. Not only could biofuels play a major role in climate change mitigation and adaptation strategies, much of the
technology needed to make them economically viable is currently available.

With its large agricultural resource industry and home to some of the world's leading biofuels firms, Canada could leverage this
opportunity into new areas of economic growth and improved environmental performance. However, Canada currently lags behind
the world leaders in biofuel production and consumption, according to a recent study released by the Canadian Renewable Fuels
Association.

The study by international commodities research firm F.O. Licht notes that biofuels consumption in Canada has been "quite low." In
2004, (the latest available comparative figures) total ethanol production and consumption in Canada amounted to approximately
250 million litres, or just "0.7% of the country's total gasoline consumption." Limited industrial biodiesel production in Canada began
in late 2005.

The potential of the biofuels market for Canada is significant. Not only do renewable fuels such as ethanol and biodiesel lower
emissions and reduce greenhouse gases, they also provide a hedge against rising fuel prices and create sustainable jobs in rural
Canada, notes the Association.

Canada's current biofuel market

Currently, both biodiesel and ethanol are used in Canada, mainly in transport and specialty
industrial applications. Ethanol in Canada is almost entirely grain-based, made from cereals
produced in the Prairie agricultural region.

Industrial-scale biodiesel production takes place at Rothsay Biodiesel plant in Montreal with an
estimated capacity of 30 million litres per year; a BIOX facility in Hamilton is expected to come
online at the end of May, producing 66 million litres annually.

Suncor recently agreed to supply the Toronto Transit Commission with over 120 million litres of
biodiesel for its bus fleet, but the fuel must be sourced from producers in Texas and Florida, as
there are no Canadian facilities that are certified for quality according to ISO standards.

Currently, the main incentive for fuel ethanol is a federal excise tax exemption of 10 cents per litre
of ethanol blended with gas. Support is also provided through programs such as the Ethanol
Expansion Program and the Future Fuels Initiative, making $118 million available to support the
construction or expansion of 11 grain based ethanol plants.

The federal government has stated that Canada will enact a 5% Renewable Fuels Standard for
gasoline and on-road diesel by 2010, representing 3.1 billion litres of biofuels per year, or more
than twelve times what the country currently produces. Several provinces maintain road tax
exemptions for ethanol fuels, and some have mandatory blending requirements.

Even with these policies, Canada still falls far behind world leaders Brazil, the United States, and
the European Union. Through a combination of tax credits, production incentives and subsidies for
energy crop production these areas have developed leadership that has increased their production
of bio-ethanol in particular. Brazil recently declared oil-independence, largely as a result of a burgeoning sugar cane ethanol
industry that began in the 1970s. In Brazil, a barrel of ethanol costs half as much as a barrel of oil.

The Future of Biofuels

A recent report by the Ernst & Young Renewable Energy Group notes a trend emerging across a number of markets reflecting
increased equality between the three main drivers of renewable energy: environmental, economic and security of supply. The

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4/1/2020 Canada's Biofuels Future
industry has historically been driven by 'top down' incentives such as subsidies and fiscal measures that are designed to achieve
macro-economic and environmental objectives, notes the report.

"However, green power demand is becoming an increasingly important 'bottom up' driver for the industry. Rocketing power prices
are forcing consumers to consider more sophisticated power procurement strategies. Renewable energy can provide a hedge
against power market volatility and consumers can achieve significant value through green power procurement," the report states.

The Ernst & Young report is available for review, Click Here.

With strong growth predicted in Europe, biodiesel production should rise in Canada and around the world, as an economic,
environmentally-friendly option for many transport fleets. Because it requires little or no adaptation of existing vehicles, biodiesel
can be quickly deployed once the production scale is large enough to make it economical.

Ethanol production will also continue to rise, as economic incentives and agricultural interests make it a viable addition to regular
gasoline. Recent statements from US President George Bush, the United Nations and other organizations have also drawn
attention to an emerging biofuels technology: cellulose ethanol. Significant because it can be produced from waste agricultural
products such as straw instead of food crops like sugar beets and corn, cellulose ethanol represents an improvement in efficiency
and life-cycle greenhouse gas emissions over grain based ethanol.

Canada's Iogen Corporation is a world leader in cellulose ethanol production, with a proprietary enzyme technology used to convert
wheat straw into ethanol at its demonstration facility in Ottawa. With support from the Government of Canada, Petro Canada and
Royal Dutch/Shell, Iogen has improved its production process and now hopes to build a $400 million commercial facility. Buoyed by
a recent $30 million investment from Goldman Sachs, the company is scouting locations, with Canada, the United States and
Germany as the prime candidates.

Although feedstocks are plentiful in both Canada and the United States, and the necessary infrastructure is in place in both
countries, the C$400 million (US$344 million) cost of a single plant is proving difficult to finance, Iogen's Executive Vice President
Jeff Passmore told conference delegates at GLOBE 2006.

Investors and industry analysts are optimistic about the future of cellulose ethanol however, encouraged by demonstration results
and policy announcements by many governments.

The European Union will rely heavily on biomass to meet its renewable energy targets, giving increased preference to 'second-
generation' biofuels that include cellulose ethanol, and will need to import a portion of its biofuel needs at least until 2030. The
United States, with a huge agricultural lobby promoting corn-fed ethanol, will also look to develop to cellulose-based fuels. China
has also announced they will move away from grain and corn feedstocks, and search for non-food inputs to support their goal of
increasing ethanol production tenfold by 2020.

With this worldwide interest, how can Canada take advantage of extensive agricultural, forestry and technology assets to create a
strong domestic biofuels industry?

It starts with strong technology development and government support, say analysts. The Renewable Fuels Standard is a positive
step, and other funding could even be expanded to take advantage of the growing North American and European markets. Canada
has extensive agricultural and forest lands which could be used for feedstocks without damaging food exports.

At present, Canada imports corn from the United States to produce ethanol, but as biofuel production in the U.S. increases, this
supply may become choked unless other biofuel sources are found. Switchgrass, a perennial tall grass found in abundance in
southern Manitoba and Ontario, as well as throughout the United States, may be the answer.

"We really think switchgrass has got a great future," said Maurice Hladik, marketing director for Iogen Corporation. "It has a very
high ethanol yield."

Iogen's proprietary enzyme technology makes it a home-grown world leader in the exploitation of switchgrass as an ethanol source
and fostering growth in the Canadian biofuels sector. Many other new technologies and companies are likely to come forward as
the market develops, each bringing economic and environmental benefits. Taking advantage of these opportunities will require
consistent legislative and regulatory encouragement by both federal and provincial governments.

Overall, biofuels have gathered such momentum they will be sure to form a large part of the energy supply mix in the future. Ideally
suited to existing infrastructure, and more cost effective than other renewable energy technologies, bioethanol and biodiesel are
here to stay. Canada has significant promise in this area, and entrepreneurial spirit mixed with government support may enable the
development of a strong domestic industry.

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