Biofuel sector hopes for sign from feds
January 4, 2024
By Canadian Biomass staff
Canada’s biofuel and oilseed sectors will be closely scrutinizing the federal government’s 2023 Fall Economic Statement.
They hope the Nov. 21 statement provides some indication how Ottawa is going to respond to biofuel incentives contained in the U.S. Inflation Reduction Act (IRA), which was signed into law in August 2022.
“We’re pretty confident there’s going to be something in the Fall Economic Statement, but we’ll see next week,” said Ian Thomson, president of Advanced Biofuels Canada (ABFC).
Earlier this month, his organization released a policy brief outlining its fiscal recommendations for how Canada can attract $10 to $15 billion of new clean fuel capital investments by 2030.
Topping the wish list is a federal government response to the IRA, which will provide American manufacturers with a production tax credit of up to US$1 per gallon for renewable diesel and $1.75 for sustainable aviation fuel.
That credit comes into force Jan. 1, 2025.
Canadian producers will not be eligible for the credit, so it eliminates the U.S. as a viable export market for Canadian clean fuel.
Meanwhile, U.S. manufacturers will still be eligible for the credit even if they export the product, which would make Canadian clean fuel less competitive than U.S. fuel in the domestic market.
That double whammy would severely undermine clean fuel production in Canada.
“It’s pretty likely that some pure play biofuel plants would be really challenged to stay open,” said Thomson.
That has already happened. Parkland Corp. announced in March it was no longer proceeding with plans to build a renewable diesel plant in Burnaby, B.C., due in part to the IRA.
Thomson is hoping for a clear signal from the federal government of how it intends to respond to the IRA in the Fall Economic Statement.
Details of any announced program would likely be contained in the next federal budget in February 2024.
The federal government has already telegraphed that it will not be matching the U.S. production tax credit on a dollar-for-dollar basis.
“We and others have had a pretty clear indication from Ottawa that is not in the cards,” said Thomson.
“It was put to us that we just don’t have the buckets of cash that the Americans are pouring into the IRA.”
However, the government recognizes the IRA poses a serious threat to Canada’s clean fuel sector and is exploring other fiscal measures and instruments to help level the playing field.
The Canadian Oilseed Processors Association (COPA) fully supports Canada’s biofuel sector in its lobby effort to get a Canadian response to the IRA.
“It’s an important priority for us,” said executive director Chris Vervaet.
“We definitely support more biofuel production in Canada for a myriad of reasons.”
For one thing, it is more logistically efficient to supply Canadian plants with Canadian grown and processed canola and soybean oil.
COPA would like Canadian biofuel plants to receive the same kinds of tax breaks as their American counterparts.
“They’ve had these types of incentives in the U.S. for a long time,” said Vervaet.
“We haven’t had these types of incentives in Canada.”
Thomson said the American subsidy is open-ended and simple.
“If you’re eligible you don’t have to apply. You file it in your taxes,” he said.
He noted that Canada does not tend to offer those types of straightforward incentives. Canadian programs are often more complicated, exclusive and loaded with eligibility criteria.
He speculated that the government may decide to implement an investment tax credit or something along those lines.
Thomson said the IRA isn’t the only thing keeping Canadian clean fuel proponents awake at night.
They are also worried about what might happen if a Conservative government is elected in 2025.
Is there a possibility that they would reverse course on the recently implemented Clean Fuel Regulations (CFR)?
“That is obviously a real concern to obligated parties who are building billion-dollar plants,” he said.
Vervaet agrees with that assessment.
“That is precisely what our concern is as well,” he said.
“There has been some messaging out there that the Clean Fuel Regulation is the second coming of a carbon tax, and it is not that.”
He said the program enables investment in clean fuels and crush facilities and that is good for Canadians.
Vervaet said the CFR needs certainty and predictability to ensure those value-added announcements turn into shovels in the ground.
Thomson said the industry remains hopeful that any future government would recognize the value of the program and would not reverse course.
ABFC believes it would cost the federal government $4.77 to $6.46 billion to directly address the IRA subsidies over the 2025-30 period.
Another $1.55 to $2.88 billion should be spent over the 2024-30 period to expand eligibility to the federal Clean Technology Manufacturing Investment Tax Credit.
Those investments would increase Canada’s clean fuel production capacity to 9.0 to 11.4 billion litres per year from 4.0 billion litres per year today.
“Essentially, with $8 to $10 billion in focused fiscal policies, Canada’s clean fuel sector will more than double current capacity, add 20,000 clean energy jobs and return $5 billion every year in economic activity,” said Thomson.
Canada is finally starting to get some renewable diesel production. Tidewater Renewables began producing commercial volumes of the fuel at its plant in Prince George, B.C., Nov. 7.
Other proposed projects appear to be gaining traction. Federated Co-operatives Ltd. recently hosted an open house to showcase its plans for a 15,000 barrel-per-day renewable diesel plant in Regina.
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