Everywhere you look, the headlines all seem to say that it’s inevitable. Electric motors are the future. The internal combustion engine is heading the same way as the horse and buggy.
Make no mistake. Change is definitely on the horizon. In August, President Joe Biden signed an executive order requiring half of all new vehicles sold in the U.S. in 2030 to be zero-emission. They can be battery electric, plug-in hybrid electric, fuel-cell electric vehicles, just not ethanol-blended gasoline.
There’s a long way to go to get there, of course. The U.S. registered 295,000 new electric cars in 2020, It’s an impressive number, especially since 78 per cent were electric-only, yet it’s still only two per cent of the country’s new-car market, according to the International Energy Agency (IEA).
Read Also
Why do farmers hate paying taxes?
It didn’t take long in my accounting career to learn that farmers don’t like paying income tax. No one does…
But then, when you look at who’s supporting the move to electric, it can seem like the world is mobilizing for war. Can electric fail?
The same day as Biden’s announcement, General Motors, Ford, and Chrysler’s parent company, Stellantis, jointly announced their goals of reaching 40 to 50 per cent electric sales by 2030.
For good measure, BMW, Honda, Volkswagen and Volvo also jointly threw in their support.
GM has been the most aggressive, claiming it “aspires to eliminate tailpipe emissions from new light-duty vehicles by 2035,” the firm said.
In Canada, prior to the federal election, the Liberal-led government revealed its own ambitious goals, announcing it was setting a mandatory target for all new light-duty car and passenger truck sales to be zero-emission by 2035, accelerating its previous goal of 2040.
“Achieving this target will require all Canadians, and businesses big and small, to embrace the change and go electric,” Natural Resources Minister Seamus O’Regan said at the time.
Electric hurdles
Not everyone is convinced. Al Mussell, research lead and founder of Agri-Food Economic Systems, is skeptical that the world can simply walk away from gasoline and diesel technology.
“I’m a little cautious in taking for granted that in the future, everybody’s going to have electric cars, and internal combustion engines are going the same way as the steam engine,” he says.
Others agree. The political support for electric sounds impressive, says Don O’Connor, president of S&T Squared Consultants. But what carries more weight than an executive order like Biden’s is the customer who buys the cars.
“It’s not a slam dunk by any means that electric vehicles’ uptake by the public is going to be as fast and strong as what politicians would like to see,” O’Connor says.
O’Connor has 40 years of experience with alternative transportation fuels, working the past two decades as a consultant. “Electric vehicles have a certain niche at the current time, and whether or not they can move beyond that niche and solve some of the other challenges that have to be met if we have this big transition is yet to be seen,” he says.
Tractors and big rigs
Even more of a niche are electric tractors and heavy-duty vehicles like Class 8 trucks, whose tech lags behind the advancements in passenger vehicles.
The development of electric-powered tractors is well underway at AGCO and John Deere, while a 40-horsepower tractor from California-based Monarch Tractor is expected to be available late this year.
Tesla, meanwhile, has introduced the Semi, an all-electric battery-powered Class 8 semi-truck, which the company offers in 475- or 800-kilometre versions. Kenworth has produced the T680E, which has a 240-kilometre operating range.
Mussell anticipates resistance from farmers, who’ve grown accustomed to working on and fixing their own vehicles for generations.
“We had 100 years of learning with internal combustion engines, and the whole infrastructure to get parts and knowledge to fix our own,” he says.
Mussell wonders how much time will be needed for farmers to adjust and learn to service their own electric models.
O’Connor also has his doubts, particularly about the suitability of these vehicles to more demanding work. “I don’t know that a truck that travels 20 hours a day with a couple drivers at 60 miles an hour is a great candidate for electrification,” he says.
Hidden costs
It’s easy for politicians to announce their intentions, but realizing concrete plans is another thing entirely, says Danny Le Roy, an associate professor of economics at the University of Lethbridge.
Le Roy adds that one thing that’s always certain is that there will be huge hidden costs to the policy initiatives forwarded by politicians.
“Every government intervention in the marketplace to solve perceived problems unavoidably creates a host of new unintended problems and costs,” says Le Roy. “Some of these are foreseeable. In hindsight, some should have been foreseen. And there are consequences that are simply unforeseeable.”
And perhaps the biggest of them all is the question of where all the new electricity will come from to power all these vehicles. Will the new electric plants be held to a zero-emissions standard too?
And where will all the raw materials come from to build all the electric vehicle batteries?
A recent IEA report stressed the critical importance of minerals like copper, lithium, nickel, cobalt, and rare earth elements to meet strengthened climate ambitions.
A typical electric car requires six times more of such minerals than a conventional car, and the energy sector’s overall needs for crucial minerals could increase by that kind of factor or even more by 2040, IEA reported.
Mineral demand for use in batteries for electric vehicles and grid storage could grow at least 30 times to 2040, the report said.
IEA also noted production and processing of many minerals such as lithium, cobalt and some rare earth elements were highly concentrated in a handful of countries, with China, the Democratic Republic of Congo, and Australia accounting for more than 75 per cent of supplies.
Another major, but untapped, source of minerals vital for electric vehicles? Afghanistan.
Energy demands
This may be the biggest challenge. How can we power a tsunami of new electric vehicles?
“A lot of people think that’s a piece of cake, but building new hydro dams is not an easy undertaking,” says O’Connor. “And there seems to be pretty widespread consensus that there needs to be serious upgrades of power distribution systems in most places in North America, because they’re getting to the end of their design life.”
Mussell questions if the power grid and electrical infrastructure are adequate in rural areas to power electric vehicles too, but also asks how the power will be produced in general. Fossil fuels are currently the main electric sources in Alberta and Saskatchewan, he points out.
“Parts of the country don’t have that infrastructure to generate nuclear or hydroelectric sources,” Mussell says. “Surely there is still a benefit from electrical vehicles, but not to the same degree. And your electrical rates are going to go up in consideration of that.”
Ethanol
The worry for the ethanol sector — and grain growers — will be how quickly electric-powered vehicles cause demand for internal combustion engine vehicles to fall off.
“With electric vehicles, will we see significant reductions? We may. That’s really where you would have the most negative impact,” says Steve Duff, chief economist with the Ontario Ministry of Agriculture, Food and Rural Affairs.
However, Duff isn’t predicting change will be as rapid as some suggest or hope.
Unless the U.S. significantly reduces its Renewable Fuel Standard (RFS), then ethanol will remain a part of gas and diesel, whatever that industry looks like, Duff says.
“That in itself is a strong piece of the demand equation, which helps keep and buoy the demand for ethanol and the demand for corn,” says Duff.
In August the U.S. Environmental Protection Agency sent its proposed Renewable Volume Obligations under RFS to the White House’s Office of Management and Budget, recommending retroactively lowering biofuel blending mandates for 2020, reducing mandates for 2021, but increasing mandates for 2022 above the previous two years.
About 40 per cent of corn grown in the U.S. goes to ethanol production. The U.S. produced over half the globe’s ethanol in 2020 with a COVID-reduced 13.9 billion gallons, according to the Renewable Fuels Association.
Canada’s ethanol regulations
Regulation changes across the border could influence Ottawa. Canada’s limits on greenhouse gas emissions from automobiles and light trucks have been aligned with those of the U.S. since the 2011 model year.
Now, Ottawa is finalizing a new set of Clean Fuel Standard (CFS) regulations likely to be released near the end of the year, and come into force in December 2022.
Environment and Climate Change Canada has previously stated that biofuel blends under the CFS could reach 15 per cent ethanol by 2030.
That would align with the provincial government in Ontario, Canada’s main producer of ethanol, which promised to boost renewable content requirements in gasoline from the existing 10 per cent requirement to 11 per cent in 2025, 13 per cent in 2028, and 15 in 2030.
Corn demand
About one-third of Ontario’s corn is used for ethanol, and the province produces approximately 1.2 billion litres of ethanol a year.
Renewable Industries Canada (RIC) reports Eastern Canada produces a total of about 1.3 billion litres of ethanol a year, while Western Canada’s yearly output is over 800 million litres.
To the west, Manitoba also produces ethanol from corn, but the other western provinces rely much more on feed grade wheat, as well as barley, rye and triticale.
Duff says ethanol has become a fixed piece of corn’s supply disposition in the U.S. and Canada, and that lowering ethanol demand would require systemic adjustments.
“You’re either going to import less, produce less, or absorb a lower price,” says Duff.
Livestock sector
Lower corn prices would be music to the ears of the beef and poultry industries, which have expressed their concerns over the years about the rising cost of feedstocks due to diversion of corn to ethanol.
In 2018, Beef Farmers of Ontario (BFO) predicted Ontario’s ethanol content mandate increases would cause “additional feed costs that could be catastrophic to Ontario’s beef finishing sector.”
BFO estimated feed costs accounted for 55 to 65 per cent of the total cost of livestock production, and added that the price of corn was the most significant factor in determining feeding costs.
As corn is the main feed source, it’s the reference price for replacement feeds, giving producers few if any economic substitute options, BFO said.
Mussell even co-wrote a study that found Canadian ethanol production resulted in a reduction in livestock feeding margins, and increased annual losses for Canadian producers to the tune of about $130 million.
But what’s changed since that 2012 report? What nobody envisioned were the remarkable gains in corn yields in Ontario, Mussell says.
“We’ve gotten to a point where our corn basis can be competitive on the feed side and supplied ethanol sector,” he says.
Another change is corn becoming a bigger part of animals’ diets, Duff says.
“Corn is in high demand in all the feeding industries as more and more farms are moving toward feeding pre-mixed feed,” Duff says. “A lot of chicken farms that grow corn, they’re selling their corn to the elevators, and buying processed feed back.”
He notes Ontario corn prices have even traded at a premium to Chicago: “And that’s not just because of ethanol. It’s because the province’s feeding industry is almost as insatiable.”
Transition
Still, the ethanol sector’s corn demand has become vital to supporting the feed grain complex, Mussell says.
Perhaps increasing ethanol blend mandates will forestall some of the potential structural changes to come, he says. So, even if electric vehicles take off in a big way and ethanol demand declines, an increase in the blend percentage may sustain demand up, at least for a period of time.
Besides, ethanol is also used in numerous chemical products, and the technology is being developed to include ethanol in aviation fuel.
Not to be forgotten too is that technological developments at ethanol facilities have also expanded feed and byproduct markets.
In fact, Duff predicts the transition period could actually see even higher, technologically induced demand for corn.
Besides, he adds, if feed costs go down, that could ricochet too. “I think in the U.S., cheaper corn would likely translate into fairly significant increases in livestock production — not enough to fully offset what’s used for ethanol — but it would go a long way to dealing with that.”
O’Connor agrees with this whole line of thinking. “Corn ethanol plants extract corn oil from the DDG before it’s sold as a protein. And that makes it more valuable in the dairy industry, because the oil content was a limiting factor in terms of how much you could feed,” O’Connor says.
He adds that corn oil is not only going back into some feed rations as pure oil, but it’s also finding its way into the biofuel industry for biodiesel or renewable diesel.
In other words, there are a lot of cycles that will interact in new, potentially unpredictable ways, and Duff says he draws one big conclusion about finding a new balance. “It isn’t going to be rapid,” he says. “It wasn’t an overnight thing going the other way either.”
