Canada: Canola not eligible for U.S. biofuel program

Canada’s canola industry is reeling from a series of devastating body blows.
The latest gut punch came on March 8 when China’s Ministry of Commerce announced it is imposing a 100 per cent tariff on Canadian canola oil and meal effective March 20. Other targets include peas, pork and aquatic products.
The duties are in response to Canada’s tariffs on Chinese electric vehicles, steel and aluminum.
“New tariffs from China on Canadian canola oil and meal will have a devastating impact on canola farmers and the broader value chain at a time of increased trade and geopolitical uncertainty,” Chris Davison, chair of the Canola Council of Canada, said in a press release.
“We urge the federal government to immediately engage with China, with a view to resolving this issue.”
Canada exported two million tonnes of canola meal, valued at $921 million, and 644 tonnes of canola oil, valued at $1.5 million, to China in 2024.
The tariffs are separate from China’s ongoing anti-dumping investigation into imports of Canadian canola seed, which could also result in trade action.
“With this announcement, Canadian canola farmers are facing an unprecedented situation of trade uncertainty from our two largest export markets only weeks before planting begins,” Rick White, president of the Canadian Canola Growers Association, said in the press release.
He is referring to the 25 per cent tariff U.S. President Donald Trump plans on applying to a broad spectrum of Canadian commodities April 2.
However, canola’s woes don’t stop there. In January, the U.S. Department of the Treasury revealed that canola-based biofuel will not qualify for the critical Clean Fuels Production Credit.
The department released its guidance on what is known as the 45Z tax credit, and canola did not make the cut, much to the dismay of Canada’s crushers.
Canola’s carbon intensity scores are above the threshold value of 50 kilograms of carbon dioxide emissions per million British thermal units.
“Canola is on the outside looking in,” said Chris Vervaet, executive director of the Canadian Oilseed Processors Association.
He called that a “huge” blow to the sector because the U.S. consumes 70 per cent of all the canola oil produced in Canada.
Sales have really taken off the last couple of years with 3.3 million tonnes shipped to that market in 2024, up from 2.9 million tonnes the previous year and two million tonnes in 2022.
Vervaet said an extra million tonnes have been exported to the U.S. in each of the last two years to help meet the country’s exploding biofuel demand.
That represents about $1 billion in additional revenue for each of 2023 and 2024.
“That was just the beginning,” he said.
“It was a very important part of the growth trajectory that we thought we were going to be experiencing as a canola industry.”
Fred Ghatala, president of Advanced Biofuels Canada, said the U.S. is using the GREET lifecycle analysis model developed by the U.S. Department of Energy to determine the carbon intensity rating of various fuels.
The ratings it gives for canola-based biodiesel, renewable diesel and sustainable aviation fuel are disappointing.
“There is no economic rationale for canola oil to go into U.S. renewable fuel production plants based on the amount of 45Z credit it receives,” he said.
Meanwhile, biofuels made with soybean oil, used cooking oil and tallow receive favourable scores.
“Lifecycle analysis is now fully weaponized to advantage domestic feedstocks,” said Ghatala.
The technical reason canola scored poorly is due to the crop’s nitrous oxide omissions, but the model fails to offset that with the soil organic carbon sequestration associated with canola production.
Canada’s canola sector is working with the U.S. Canola Association to try to improve canola’s carbon intensity score before the final guidelines are released, which could be later this year.
Vervaet said the canola industry has better data on nitrous oxide omissions that should be incorporated into the lifecycle analysis.
He also noted that it is far from a certainty that the 45Z credit will continue to exist under U.S. president Donald Trump’s administration, considering it was created by former president Joe Biden’s administration.
“There’s so many different balls in the air with regards to what the future of this tax credit is in the United States,” said Vervaet.
That regulatory uncertainty is disconcerting for all the new canola crush plants that have been built or are under construction in Canada.
Some companies have already decided to put their projects on hold.
Federated Co-operatives Ltd. recently announced it has paused its Integrated Agriculture Complex, which included plans to build a canola crush facility and renewable diesel plant in Regina.
That follows the 2022 announcement by Ceres Global Ag Corp. that it was suspending its canola crush project planned for Northgate, Sask.
With serious issues threatening its top two export markets, Ghatala believes it is time for Canada to refocus its market development efforts on the domestic biofuel sector.
“This is the realignment we are in,” he said.
British Columbia is setting a good example with recently announced changes to its Low Carbon Fuels Act.
It is doubling the renewable fuel requirement for diesel to eight per cent, and starting on April 1, 2025, the renewable content of that fuel must be produced in Canada.
B.C.’s increased mandate will create a market for 320 million litres of domestically produced biodiesel and renewable diesel.
However, Canada will have the capacity to produce 1.6 billion litres of those fuels once the Imperial Oil plant in Strathcona, Alta., opens for business.
“Even with this change in B.C., we’re still long in supply for biomass-based diesel in Western Canada,” said Ghatala.
That is why he would like to see other provinces follow suit.
And then there is Ottawa. Ghatala said there was a lot of talk by the Canadian government that it was going to take steps to help offset the U.S. 45Z tax credit, but that hasn’t happened.
Vervaet said the industry is worried about the fate of federal biofuel policy given there will be an election this year.
COPA would like to see either a continuation of the Clean Fuel Regulations or a new program with similar objectives.
“We’re not super prescriptive on what that needs to be, except that we need some type of a continued demand signal for biofuels in Canada, especially in today’s environment,” he said.
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