Demand for Biofuels Sparks Canadian Boom. But Will U.S. Subsidies Pull Investment South?

by Paula Duhatschek (CBC News) Canada's biofuel industry is seeing a major uptick in investment spurred on by growing global demand for biofuel and, in particular, the implementation of the country's new Clean Fuel Regulations.

In recent years, much of the investment in Canada's biofuel sector has targeted the production of renewable diesel, a biomass-based fuel that is chemically equivalent to petroleum diesel and can either be blended with it or used as a replacement fuel.

As that industry grows, so does Canada's canola processing sector. Canola is a popular low-carbon feedstock for renewable diesel that can be grown in large quantities, often near the refineries where it's being processed.

But the boom times could end as quickly as they began thanks to a new tax credit coming through the U.S. Inflation Reduction Act (IRA). A manufacturing vacuum that's already sucking investment in clean tech down south could claim Canadian biofuel production as its next victim.

"If [the credit] goes ahead as proposed, it's a full-on wrench [in the Canadian industry]," said Ian Thomson, president of Advanced Biofuels Canada, a lobby group.

Investment has been driven in part by provincial policies, like B.C.'s low-carbon fuel standards, and by Canada's Clean Fuel Regulations. The federal regulations came into effect this month and require liquid fossil fuel suppliers to gradually reduce the carbon emissions from the fuels they produce and sell over time.

Since 2021, there have been five major canola crushing announcements in the Prairies. Together, they're expected to increase the country's canola crush capacity by seven million metric tonnes — about 60 per cent above current levels, according to the Canola Council of Canada.

The looming threat on the horizon is a new U.S. tax credit that could pull investment down south.

Starting in 2025, the Clean Fuel Production Credit, part of the IRA, will offer a significant tax incentive to U.S. producers of clean transportation fuels, even those bound for export.

At the same time, the U.S. will phase out a blenders' tax credit that Canadian producers could previously access, Thomson said.

"It's a double hit," said Thomson. "Not only do Canadians lose access to the American market because they can't compete, Canadian producers are highly likely to not be able to compete in our own backyard because, essentially, subsidized American product will be coming into our market and undercutting Canadian producers."

Already, Calgary-based Parkland Corporation has scrapped plans to build a standalone renewable diesel complex at its refinery in Burnaby, B.C., and blamed the decision, in part, on the IRA and the way it "advantages U.S. producers ."

The industry is hoping Canada's next federal budget, or, ideally, the fall economic statement will include incentives to keep biofuel production north of the border.

Growers and processors will continue to produce canola and canola oil whether it's being used domestically or exported south of the border.

But that industry also hopes to keep biofuel production in Canada as much as possible. The domestic market is more certain, less subject to the instability that comes from selling to the export market and better for the overall economy to have the entire production cycle take place in Canada. READ MORE