Report Template

Report to/Rapport au :

Corporate Services and Economic Development Committee

Comité des services organisationnels et du développement économique

and Council / et au Conseil

6 January 2004 / le 6 janvier 2004

Submitted by/Soumis par : Kent Kirkpatrick, General Manager/Directeur général,

Corporate Services/Services généraux

Contact Person/Personne ressource : Ron A. Gillespie, Director

Fleet Services/Services du parc automobile

(613) 842-3636 x2201, Ron.Gillespie@ottawa.ca

Ref N°: ACS2004-CRS-FLT-0001

SUBJECT:	UPDATE ON THE ETHANOL BLENDED DIESEL PROJECT

OBJET :	MISE À JOUR DU PROJET DE CARBURANT ETHANOL DIESEL

REPORT RECOMMENDATIONS

That the Corporate Services and Economic Development Committee recommend Council:

1. Receive this report for information.

2. Approve the withdrawal of City participation in the Canadian Renewable Fuels Association ethanol-blended diesel fuel project.

3. Approve City continued monitoring of bio-diesel fuel affordability.

RECOMMANDATIONS DU RAPPORT

Que le Comité des services organisationnels et du développement économique recommande au Conseil municipal de :

1. recevoir ce rapport comme information.

2. approuver la cessation des activités de la Ville au projet de carburant éthanol-diesel de l'Association canadienne des carburants renouvelables.

3. approuver le suivie continuel du prix des carburants bio-diesel.

BACKGROUND

Under the Fleet Emissions Reduction Strategy approved by Council on March 27, 2002, City staff committed to support the Canadian Renewable Fuels Association (CRFA) lead ethanol blended diesel (E-diesel) fuel project in Ottawa and monitor the Montréal bio-diesel project. This update to the E-diesel project is submitted to inform Council of the delay experienced in executing the CRFA E-diesel fuel project and their inability to secure the required funds. Additionally, in light of the success of the bio-diesel fuel demonstration in Montréal, an opportunity exists to re-align City effort toward the implementation of bio-diesel.

ANALYSIS

The enclosed Annex A provides the detailed analysis that drives the report's recommendation and disposition. In summary, the aim of the Ottawa participation in the CRFA E-diesel trial was to assist the pre-commercialization of E-diesel through performance monitoring of a large-scale trial in winter to serve as a benchmark for other Canadian communities. The estimated total project cost exceeds $3.0 million of which $1.2 million remains not funded. CRFA has been unsuccessful twice in obtaining federal sponsorship to bridge this funding gap.

Meanwhile, the Société de transport de Montréal (STM) finished its bio-diesel winter trial in March 2003 with a final report (www.greenfuels.org/a-biobus.htm) issued last May. The project demonstrated that bio-diesel is a viable environmental fuel in areas where temperatures can reach -30 Celcius. The STM concluded that it is feasible to obtain a continuous supply for a transit garage.

The successes in Montréal and the delays of the CRFA E-diesel project have created an opportunity to re-consider the City's efforts for the two "green" diesel fuel options for the transit bus fleet and possibly other on-road diesel-operated vehicles. From the comparative analysis of bio-diesel and ethanol-diesel in Annex A, the following conclusions and recommendations were reached:

a. Bio-diesel provides the better immediate opportunity to improve Ottawa's air quality but its implementation remains cost prohibitive. City staff will continue to monitor the cost situation for possible future implementation.

b. The E-diesel project lacks financial support and its initial emission results indicate increases of some regulated and unregulated emissions. CRFA has suspended the current trial due to the lack of funds. A smaller fleet trial could be initiated when new laboratory results prove to be more positive. Meanwhile, City staff will withdraw from the CRFA E-diesel fuel project.

ENVIRONMENTAL IMPLICATIONS

The environmental benefits of using bio-diesel fuel have been demonstrated to be significant in the Montréal trial, particularly with a reduction of carbon dioxide CO2 gases, (a greenhouse gas monitored under the Kyoto Accord), and a total reduction of 8% of the regulated criteria air contaminants (CO, NOx, THC and PM). This translates to a potential reduction of CO2 gas emissions of 9,560 tons per year for the City's transit bus fleet, based on the Montréal results.

The CRFA E-diesel trial was initiated to develop fuel options that would reduce the City's diesel-operated fleet emissions, in particular from the transit bus fleet. When the City embarked on this project, it was understood that the E-diesel and bio-diesel trials were to be conducted simultaneously in 2002/2003, so that results would be comparable and a selection of a preferred fuel would be done rather quickly.

CONSULTATION

There has been no public consultation.

FINANCIAL IMPLICATIONS

This report has no financial implications unless Council directs immediate implementation of bio-diesel. The additional annual operating cost for bio-diesel fuel is estimated to be between $1.74 and $8.7 million, based on annual Transit diesel fuel consumption of 34.8 million litres and premiums of 5 to 25 cents per litre. A combination of measures, such as service reduction, increased fares, or increased property taxes, would be required to support the initiative. Due to the City's current budget constraints, it would be difficult to defend bio-diesel implementation without a price reduction through federal and provincial de-taxation. De-taxation is expected to promote bio-diesel fuel commercialization to further reduce its production cost.

SUPPORTING DOCUMENTATION

The enclosed Annex A provides the detailed analysis that drives the report's recommendation and disposition.

DISPOSITION

Fleet Services will cease its participation in the CRFA E-diesel project until new emission data demonstrates improved reductions of contaminants and greenhouse gases. They will also monitor bio-diesel fuel affordability for the potential of being introduced as the City's preferred environmental diesel fuel.

ANNEX A

CRFA ETHANOL BLENDED DIESEL FUEL PROJECT STATUS

INTRODUCTION

Under the Fleet Emissions Reduction Strategy approved by Council on March 27, 2002, City staff was to support the Ottawa ethanol blended diesel (E-diesel) fuel project and monitor the Montréal bio-diesel project. The E-diesel project, led by the Canadian Renewable Fuels Association (CRFA), has experienced delays due to the lack of federal sponsorship. In light of the success of the bio-diesel fuel demonstration in Montréal, an opportunity exists to re-align City effort toward the implementation of bio-diesel.

BACKGROUND

The Fleet Emission Reduction Strategy approved by Council on March 27, 2002 directs Fleet Services to continue participating in the Ottawa E-diesel trial and to monitor demonstration programs for bio-diesel fuels. The City staff at Fleet Services has proceeded with these activities over the last year and have arrived at a juncture where efforts could be directed toward the use of bio-diesel fuel. This report relates this opportunity to the E-diesel project’s current status.

In Canada, the lead agency that promotes the use of environment-friendly fuels, also “green” diesel, is the CRFA. They are the project managers in most trials and demonstrations being conducted in support of the Kyoto Accord, including the Montreal bio-diesel and the Ottawa E-diesel projects, with several private and other government partners assisting them. It is through the CRFA and its partners that the information was gathered to write this report.

ANALYSIS

The CRFA E-Diesel Project

City of Ottawa’s participation in the E-diesel project is justified for two reasons. First is to demonstrate leadership in the national effort to reduce greenhouse gas (GHG) and criteria air contaminant (CAC) emissions. Second is to gather real operational data on ethanol blended diesel fuel, so that the many unknowns and myths that surround it can be clarified to assist City staff in developing options for introduction of a “green” diesel fuel.

The aim of the CRFA E-diesel trial is to assist the pre-commercialization of E-diesel through performance monitoring of a large-scale trial in winter to serve as a benchmark for other Canadian communities. It involves a consortium of private partners including TWD Technologies, AAE Technologies, Sunoco, the City of Ottawa and governmental agencies such as Natural Resources Canada (NRCan). The trial is being conducted in three phases:

· Phase I, Laboratory Testing

· Phase II, Fuelling of 20 buses (four months)

· Phase III, Complete Garage Fuelling (six months)

Project Finance

The estimated total project cost exceeds $3.0 million. Although each partner’s contribution to the trial is either in cash, goods or services, a balance of $1.2 million remains not funded. Once the project begins, the City’s current commitment is for $25,000, to support project management, which will be complemented with in-kind contributions for fuel (value $1,350,870) and the use of a bus (value $30,000). The project funds are covering all necessary expenses related to its execution including the rental and installation of an external fuel storage tank and any infrastructure modifications required to conduct the test at the Pinecrest transit garage.

The CRFA E-diesel trial’s greatest hurdle has been to secure a federal sponsor to fund the $1.2 million budget gap. CRFA has been unsuccessful in 2002 in obtaining federal funds through the Global Climate Change – Technology Early Action Measures program thereby delaying project start. This was repeated in 2003 for financial support through the NRCan’s Sustainable Development Technology Canada (SDTC) program. The bottom line is that, until the financial gap is bridged, the E-diesel trial in Ottawa remains on hold.

Related Projects

Meanwhile other similar trials on “green” diesel are either underway across North America or have been completed.

· The City of Winnipeg, for example, completed a 10-bus trial in 2002 where it successfully demonstrated the winter use of E-diesel fuel at various blend levels in a transit application.

· The Montréal bio-diesel winter trial came to end in March of 2003 with a published report in May.

· AAE Technologies, (one of the E-diesel project partners), is participating in an American project that is validating safety procedures for storage, transportation and handling of E-diesel fuels as well as confirming training requirements for a transit application in Nevada.

Project Current Status

The E-diesel and bio-diesel trials were launched simultaneously by the CRFA in the spring of 2002. However, the bio-diesel trial, which was conducted with the Société de transport de Montréal (STM), had a quick start due largely to the simplicity of using and handling the bio-diesel fuel, the readiness of the Québec government to financially support the effort, and the willingness of the private partners to participate in the trial. The E-diesel trial was left behind while most of CRFA resources were committed to support the bio-diesel trial at the STM. The end result is that the CRFA E-diesel trial in Ottawa is more than a year late in implementation with no visible progress made.

Nevertheless, CRFA has taken the opportunity to prepare for Phase I of the CRFA E-diesel trial in Ottawa, Laboratory Testing, by participating in a New York State emission evaluation test of multiple fuel types, including E-diesel and bio-diesel, on a school bus engine at the NRCan Energy Technology Centre (ETC). The preliminary test results show both promise and deception, and have indicated that E-diesel can benefit the environment and public health. For example, these laboratory results showed that E-diesel outperformed bio-diesel in emission reduction of particulate matter (PM).

Bio-Diesel Project in Montréal

Meanwhile, the STM finished its bio-diesel trial in March 2003 with a final report (www.greenfuels.org/a-biobus.htm) issued last May. The project demonstrated that bio-diesel is a viable environmental fuel in areas where temperatures can reach –30 Celcius. The STM concluded that it is feasible to obtain a continuous supply for a transit operation garage. Emission of GHGs and CACs, regulated and unregulated, were measured and proven to be less than regular low-sulphur diesel fuels thereby help reducing urban smog. In fact, the STM is sufficiently convinced of the benefits of bio-diesel that it is considering a full conversion of its urban transit bus operations once the price per litre becomes affordable in that province.

The successes in Montréal and the delays of the Ottawa based E-diesel project have created an opportunity to consider two options for the City’s urban transit bus fleet and other on-road diesel-operated vehicles. These options are:

· Option 1 - Implement use of bio-diesel

· Option 2 - Continue participation in the E-diesel project

Bio-Diesel and E-diesel Comparison

Information gathered from the Montréal bio-diesel report, the New York State E-diesel laboratory tests and other sources on the World Wide Web were used to compile the following table presenting the known facts associated with full implementation of either diesel fuel types in the City’s urban transit service. These facts are laid out in categories that are then analyzed against each of the tow options above.

CATEGORY	BIO-DIESEL	ETHANOL-DIESEL
Latest trial or test	STM (urban transit) in Montreal, 155 buses, (both mechanically and electronically injected engines), using three bio-diesel fuels (vegetable oil, cooking oil and animal fats). Duration was one year.	NY State laboratory test in NRCan ETC, one school bus engine (electronically injected), comparing performance and emission of multiple fuels including bio-diesel and E-diesel.
Equipment Operation	· Driver sees no difference. · Improves engine life through increased lubrication. · No changes required to bus (old or new) at implementation. · Daily servicing and other maintenance tasks, no difference. · Storage and handling, no different. · Bus can be switched between fuels, if needed. · Proven cold weather operation (-30C in Montreal). · Indoors parking and refuelling. · Fuel economy is reduced by 1%.	· Driver sees no difference. · With proper fuel additives, no decrease in engine life. · May require re-programming electronically injected engines at implementation. · All maintenance procedures will be reviewed for safety awareness. · Storage and handling will require added safety measures to be implemented and increase safety awareness is required continuously. · Bus can be switched between fuels temporarily, if needed. · Proven cold weather operation (-30C in Winnipeg) · Indoor parking, but indoor refuelling requires enhanced safety. · Fuel economy is reduced by 2%.
Environmental Benefits	· Overall, regulated CAC and CO₂ are reduced by 8% compared to Diesel #1 in Montreal. · Best reductions are with CO (-32%), a poisonous gas, and THC (-24%), a regulated CAC. · PM is reduced by 13% and NOx is reduced by 5%. · CO₂ is reduced by 1%.	· Overall, regulated CAC and CO₂ are reduced by 2% compared to Diesel #1 in NY State. · Best reductions are with PM (-35%), a carcinogenic, while THC are increased by 320%, (albeit still much lower than its legislated level) · NOx is reduced by 5%. · CO₂ is increased by 2% and CO increase by 5%.

Implementation Cost (Capital) and Impacts	$ 217,630.00 (extrapolated)	$ 1,899,880.00 (estimated)
Implementation Cost (Capital) and Impacts	During introductory phase (3 months), filters on vehicles, storage tanks and dispensing equipment are changed frequently as bio-diesel cleans the fuel systems.	During introductory phase (3 months), filters on vehicles, storage tanks and dispensing equipment are changed frequently as bio-diesel cleans the fuel systems. Also, infrastructure upgrades are required to handle this class I (flammable) fuel, (storage, vehicle tank, maintenance bays, indoor parking areas and fuelling stations).
Additional Annual Operating Cost	$ 1.7 to 8.7 million (estimated)	$ 1.3 million (estimated)
Additional Annual Operating Cost	Fuel cost increase range $0.05-0.25/L Federal government has approved de-taxation.	Fuel cost increase to about $0.025/L. Federal government has approved de-taxation.
Implementation Time	Can be implemented now.	A minimum of two years is required to answer many questions and to conduct the Ottawa trial (and produce reports).
Risks	· Engine OEM support introduction of bio-fuels, no risk to warranty. · Storage and handling are unchanged no risk. · Supply – not commercially available, although STM proved that it is feasible – Medium.	· Engine OEM will NOT honour warranty – High. · Storage and handling risks are mitigated through continuous training and supervision – Medium. · Supply - Ethanol-gasoline is commercially available, hence E-diesel is also expected to be available – Low.

Option 1 – Implement Use of Bio-Diesel

Technology - Bio-diesel is by far the easiest to implement of the two fuels being considered. It offers operational advantages over E-diesel such as additional engine lubrication, no implementation-related changes for any of the bus models in inventory, and no need to review or change servicing and maintenance procedures. Its implementation could be immediate if a local supplier could guarantee uninterrupted delivery to the City. This is the only risk and it is considered medium even though Montréal proved that a supplier could be equipped to sustain transit operations.

Benefits - The environmental benefits are significant, with a reduction of carbon dioxide CO₂ gases, (an unregulated GHG monitored under the Kyoto Accord), for a total reduction of 8% of the regulated CAC (CO, NOx, THC and PM). Although estimated implementation costs are very low, these emission reductions come at a high price in the day-to-day operations of the transit service.

Cost - The premium to be paid for the fuel combined with the decrease in fuel economy represents an estimated additional annual operating cost of up to $8.7 million. How long before bio-diesel fuels become affordable is unknown. The provincial government has not followed the federal lead to eliminate taxes on the biological or ethanol elements of the fuels and there is no commitment that they will. Until then, the added operational cost to use bio-diesel would be passed on to either the transit users, taxpayers or absorbed through a service reduction at a time when transit ridership is increasing.

Outcome - Option 1 is considered cost prohibitive but provides the best opportunity to improve Ottawa’s air quality. Until fuel costs are lowered through de-taxation or mass production, City staff does not recommend implementing bio-diesel but will continue to monitor the cost situation for possible future implementation.

Option 2 – Continue Participation the E-diesel Project

Technology - E-diesel implementation is complicated by the fact that the diesel’s properties change from a class II (non-flammable) to a class I (flammable). The City would need to implement risk reduction measures prior to its introduction and thereafter on a continuous basis. Operationally, its full implementation in transit would impact the bus fleet, the infrastructure and the personnel, as well as increasing safety awareness in the every day operations of the transit services. The highest risk to the City for this option is the fact that engine manufacturers would void warranties if E-diesel fuels were used in newly acquired buses.

Benefits - The measured emission reductions of regulated CAC are not substantial, totalling only 2% in the NY State laboratory tests. The unregulated CO₂ gas, which is the bulk of a bus exhaust gases, measured an increase along with carbon monoxide CO and total hydrocarbons THC. These results are not favourable to warranting continued City participation in the E-diesel project until new data clearly demonstrates reductions rather than increases in CAC and GHG emissions.

Cost - Excluding the E-diesel project implementation at the Pinecrest garage, full introduction across all other transit facilities would require a capital costs estimated at about $2.0 million. In addition, an estimated annual incremental operational cost of over $1.0 million would be required to compensate for the measured lower fuel economy of E-diesel and premium on this fuel.

Outcome - The E-diesel project is not financially supported and its initial emission results indicate increases of regulated and unregulated emissions. City staff cannot recommend option 2 and is discontinuing its participation in the present E-diesel trial. A smaller fleet trial could be considered when new laboratory results prove to be more positive.