Feds give financial boost to biofuel sector amid growing U.S. competition

Canada's biofuel industry is welcoming a proposed multi-billion dollar package of financial support from the federal government, although concerns remain about whether it will be enough to compete with lucrative subsidies south of the border and reverse the growing dependence on U.S. imports to meet clean fuel regulations.

The federal government is committing $1.27 billion toward building new biofuel facilities through funding from the Canada Infrastructure Bank and a change to the Clean Fuels Fund.

This month's federal budget also included the creation of a biofuel production fund, worth up to $500 million annually, which would be similar to a production tax credit and subsidize the ongoing operations of a facility. 

"We were pleased to see something in the budget," said David Schick, a vice-president with the Canadian Fuels Association.

Biofuels can be produced from a variety of materials like corn, animals fats and vegetable oils to produce ethanol, renewable diesel and sustainable aviation fuel. Biofuels vary in greenhouse gas emissions, but generally produce lower emissions than traditional gasoline and diesel because they burn cleaner. 

As government regulations in Canada are increasing the need for biofuels, imports from the U.S. have also climbed. In 2023, Canadian imports of U.S. fuel ethanol jumped 40 per cent compared to 2022, to 1.76 billion litres.

There are about $10-billion worth of proposed facilities to make biofuels from Canadian raw materials in the country, said Schick, and the new federal support will help support those projects, while helping the economy and environment.

"It's really as simple as make versus buy," said Schick.

"The U.S. programs are going to create a lot of product to come onto the market. We don't want to be in a situation in Canada where we lose all of that tremendous construction and operational capacity on feedstocks and operating these facilities to make these low-carbon products, where the alternative is just bringing them in from the States."

For several years the sector has lobbied Ottawa to take action in response to the U.S. government's Inflation Reduction Act (IRA), a massive clean energy program. With its lavish subsidies toward many types of low carbon energy, the IRA has attracted investment from around the world to the U.S.

A clean fuel production tax credit included in the IRA that aims to boost the biofuel industry begins January 1, 2025.

In this month's budget, the federal government states, "Not only do [biofuels] generate fewer greenhouse gas emissions compared to fossil fuels, they also represent a unique opportunity for the Canadian economy. The industry supports agriculture and forestry jobs and can help decarbonize key sectors like marine, aviation, rail, and heavy industry."

The new federal government subsidies will help level the playing field compared to the IRA, said Schick, although a gap still remains.

"It's somewhere in between a wide margin and comparable. We're trying to understand how the details are going to play out," he said.