Glacier Farmmedia – Canada’s biodiesel and renewable diesel sectors will be obliterated by a new subsidy program in the United States unless the Canadian government responds in kind, say two lobby groups.
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The industry suffered a huge blow last year when U.S. president Joe Biden signed into law the Inflation Reduction Act of 2022 (IRA).
One of the titles of the act switches the existing blender’s credit for biodiesel and renewable diesel into a producer’s credit as of Dec. 31, 2024. The credit will range from 20 U.S. cents to $1 per gallon, depending on carbon intensity measures.
Why it matters: Canadian biodiesel and renewable diesel production will not be able to compete with U.S. production due to a new U.S. subsidy program.
Canadian producers who could access the blender’s credit when selling their fuels into the U.S. market will not be eligible for the new producer’s credit. It will only apply to U.S.-based production.
U.S. producers will be able to collect the credit even on fuel destined for export, which is not the case under the existing blender’s credit program. That means heavily subsidized U.S. biodiesel and renewable diesel will flow across the border into Canada.
“It’s going to make any biomass-based diesel production in Canada unviable,” said Ian Thomson, president of Advanced Biofuels Canada.
Canadian biodiesel and renewable diesel plants will not be able to compete.
“They will be undercut in their own backyard by American producers,” he said.
The IRA is already exacting a toll, though it is not yet in place.
Parkland Corporation announced March 2 that it will not proceed with its renewable diesel facility planned for Burnaby, B.C.
The proposed refinery would have been capable of producing 6,500 barrels of renewable diesel per day.
“Several factors have impacted the competitiveness of the renewable diesel complex, including rising project costs, a lack of market certainty around emerging renewable fuels and the U.S. Inflation Reduction Act of 2022, which advantages U.S. producers,” the fuel distributor and retailer said in a press release.
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Company president Bob Espy later told investment analysts during a conference call that the biggest factor was the IRA.
The Canadian Fuels Association calls the IRA a “game changer” for Canada’s energy sector.
It says $8 billion worth of proposed Canadian renewable diesel, sustainable aviation fuel, hydrogen and ethanol projects awaiting final investment decisions are now re-evaluating their plans.
“Parkland’s decision reinforces the need for an urgent response by the Government of Canada, and that is why we are calling for the introduction of a Clean Fuel Production Tax Credit in Budget 2023,” the organization said in a news release.
“We must respond to the IRA or be left behind at the expense of our economy, energy and climate security.”
In western Canada, Richardson International, Viterra, Cargill and Federated Co-operatives Limited/AGT Food & Ingredients are all expanding existing canola crush facilities or building new ones largely in response to looming demand from the renewable diesel sector.
Chris Vervaet, executive director of the Canadian Oilseed Processors Association, said Canada’s crush plants will meet the looming demand for canola oil regardless of what side of the border the refineries are located.
“There are options for the feedstock to go elsewhere, but we strongly support options closer to home,” he said.
Vervaet said the canola industry has done a great job of increasing value-added processing in Canada and the proposed new renewable diesel plants would be one more step down that road.
“Definitely, we support what the (Canadian) biofuel producers are asking for. We’re behind them on this one for sure,” he said.
“We have made our comments clear to the government in terms of the need to address this competitive imbalance that the IRA has created.”
Thomson said Canadian finance minister Chrystia Freeland needs to indicate in Budget 2023 that her government understands the magnitude of the problem IRA poses to Canada’s clean energy sector and that it will respond with a comparable incentive.
There is plenty of time for Canada to devise a new subsidy program because the U.S. producer’s credit does not come into effect until the end of 2024.
But project developers need assurance in Budget 2023 that help is on the way or more will be following Parkland’s lead and mothballing projects.
“That is going to happen across the board,” said Thomson.
So far, there is no indication that other companies are giving up on their plans to build renewable diesel plants in Canada.
Imperial Oil Canada recently confirmed its intention to build a $720 million facility at its Strathcona, Alta., refinery.
That plant will by capable of producing 20,000 barrels per day or more than one billion litres of renewable diesel per year.
Federated Co-operatives Limited and AGT Food and Ingredients still intend to construct a $2 billion canola crushing plant and renewable diesel refinery in Regina. The renewable diesel plant will be able to produce 15,000 barrels of the fuel per day.
“FCL continues to advance our renewable diesel project as a key element of our overall emission reduction plans as we support the transition to the low carbon economy,” company spokesperson Andrew Swenson said in an email.
“Our renewable diesel project is currently proceeding through the front-end engineering and design phase.”
Thomson hopes that if Canada responds to the competitive threat, the new subsidy program will be as easy and straightforward as the U.S. subsidy.
Existing incentive programs in Canada are far more complicated and drawn out than those south of the border. It can take a year for a company to find out if its grant application was approved.
There is also a cap on Canadian programs, while the U.S. producer’s credit will be unlimited.
The other policy response option available for Canada is to launch a formal trade dispute because the U.S. subsidy is trade-distorting.
Thomson believes the European Union is contemplating that route, but he doesn’t believe that is in Canada’s best interest.
– This article was originally published at The Western Producer.