Canada's Renewable Fuel Sector Could Be Devastated by U.S. Subsidies: Lobby Groups

March 17, 2023

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by Sean Pratt (The Western Producer/Richmond News) 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 US 20 cents to $1 per gallon, depending on carbon intensity measures.

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 simply will not be able to compete.

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Parkland Corporation announced on March 2 that it is no longer proceeding with its renewable diesel facility planned for Burnaby, B.C.

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“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 (Canadian Fuels Association) said in a news release.

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So, what does all this mean for Canada’s canola industry?

Richardson International, Viterra, Cargill and Federated Co-operatives Limited/AGT Food & Ingredients are all expanding existing 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.

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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. READ MORE

The Inflation Reduction Act (IRA) is a Game Changer for Canada’s Climate and Energy Security (Canadian Fuels Association)

Ethanol Blog: Canadian Biofuels Producers Feeling Heat From New Producer's Tax Credit in US (DTN Progressive Farmer)

Canadian industry singing praises of Inflation Reduction Act as federal budget nears (Canadian Press/Yahoo!)

Excerpt from Canadian Fuels Association: Canada has everything it takes to be a global leader in low-carbon transportation fuels – energy infrastructure, sustainable feedstocks and expertise – everything except for a competitive investment climate with the U.S.

The North American fuels market is highly integrated and Canada competes with the U.S. for investment. For over two decades, the U.S. has been implementing robust programs, such as tax credits, to attract investment in clean fuels. This has resulted in strong, clean fuels production capacity in the U.S., and Canada becoming more reliant on clean fuel imports.

Canadian Fuels Association (CFA) members are some of the largest producers of clean fuels today and, since 2020, members have been steadfast in their commitment to produce more clean fuels in Canada. Then came the U.S. Inflation Reduction Act (IRA) last summer, doubling down with a suite of new clean fuel production measures; including new, generous Production Tax Credits (PTC) for low-carbon road transportation fuels and sustainable aviation fuel.

This PTC is a complete game changer, dramatically tipping project economics in favour of clean fuel projects in the U.S. The PTC will also result in more Canadian-grown feedstocks being exported to the U.S., translating into significant, lost economic benefits to Canada and undermining our energy self-sufficiency.

And the timing could not be worse. CFA members have plans to implement large-scale renewable diesel, sustainable aviation fuel (SAF), hydrogen and ethanol projects – highlighting their commitment to clean fuels and support for Canada’s climate goals as we continue Driving to 2050. These projects, worth $8B and with the potential to deliver 10 MT of GHG reductions from coast-to-coast, are awaiting final investment decisions; but companies are re-evaluating the business case for building in Canada. Just last Friday, Parkland discontinued plans for a stand-alone renewable diesel facility in Burnaby, B.C., citing the IRA as a key factor. This means that without investment parity, there is a growing concern that more of these projects are at risk of being delayed or being built in the U.S.

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. This would apply to all clean fuels produced in Canada, including ethanol, renewable diesel, sustainable aviation fuel and hydrogen and provide the required investment certainty. Like the U.S., the credit rate would vary according to carbon intensity, meaning the higher the GHG reductions achieved, the higher the credit value.

The economic and climate benefits of clean fuel production in Canada would extend throughout the value chain, from agricultural and forestry feedstock providers to distribution, while decreasing our reliance on imports and creating thousands of direct and indirect jobs for Canadians. We cannot risk losing these added economic and climate benefits for Canada.

In a recent speech, Environment and Climate Change Minister Stephen Guilbeault said “The Inflation Reduction Act removes any doubt that we can stick with the status quo. It has made the rush for innovation in clean tech more competitive than ever”. Our transportation energy sector has been pivotal to Canada’s economic success for over a century. We have an opportunity to be a world leader in terms of clean fuel production while meeting Canadians’ evolving energy needs and climate goals.

Budget 2023 is a critical juncture. We must respond to the IRA or be left behind at the expense of our economy, energy and climate security.

About the Canadian Fuels Association

The Canadian Fuels Association (CFA) represents Canada’s transportation fuels industry and our members supply 95% of Canada’s transportation fuels. Contributing over $10 billion to Canada’s GDP annually, the sector also provides employment for more than 117,000 Canadians at 15 refineries, 75 fuel distribution terminals and 12,000 retail and commercial sites across the country. READ MORE

Excerpt from Canadian Press: Canadian oil and gas companies are singing from the same songbook in the lead-up to the 2023 federal budget, and its title is the Inflation Reduction Act.

The U.S. legislation, signed into law by U.S. President Joe Biden in August of last year, has been brought up again and again in recent weeks by industry leaders jockeying for support for emissions reductions projects.

Whether folks like it or not, you’re really competing against the IRA," said Enbridge Inc. CEO Greg Ebel during his company's annual investor day last week. He noted that his company has operations on both sides of the border and can choose whether to invest its capital in the U.S. or Canada.

"And they (the Americans) have really put a lot of carrots on the table in terms of promoting people to invest there.”

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The IRA has been widely praised for kick-starting the global clean energy investment race. But here in Canada, some companies have said the U.S. incentives are so attractive that it's impossible to compete.

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The Pathways Alliance, an oilsands industry group, has also argued that its proposed $16.5-billion carbon capture and storage transportation line project is currently at a competitive disadvantage to U.S. carbon capture projects.

While Prime Minister Justin Trudeau's government has already announced the creation of an investment tax credit for carbon capture projects, the IRA offers a much stronger incentive for companies in the form of a guaranteed US$85 price for each tonne of injected carbon.

That difference will mean a much faster deployment of carbon capture technology in the U.S., said Mike Belenkie, CEO of Calgary-based Advantage Energy Ltd, which — through its subsidiary Entropy Inc. — already has a commercial-scale carbon capture project up and running at its Glacier gas plant in northwest Alberta.

"An investment tax credit subsidizes upfront capital spending," Belenkie said, adding that because of the IRA, Entropy Inc. recently made the decision to focus all of its future carbon capture growth plans in the U.S.

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Dan Woynillowicz, a B.C.-based climate and energy policy consultant, said companies have a point when they say the U.S. is right now offering more "carrots" for emissions reduction projects.

But he added Canada has a national price on carbon, which the U.S. does not, as well as a federal clean fuel regulation and an expected mandated cap on emissions from the oil and gas sector.

“We have a lot more on the pollution pricing and regulatory side here," Woynillowicz said, adding he believes a combination of carrots and sticks is the best approach when it comes to reaching Canada's climate goals.

"I understand why companies would prefer to only have carrots, but governments are not responsible for the shareholder’s interest, they’re responsible for the public interest." READ MORE