Focus: Rich US subsidies may hobble Canada's clean-fuel efforts
12/06/2023 11:00
By Rod Nickel
WINNIPEG, Manitoba, June 12 (Reuters) - Canadian
biofuels producers are threatening to build their next projects
in the United States to cash in on rich subsidies for clean fuel
and stay competitive, a move that could cost Canada C$10 billion
($7.5 billion) of investment and undermine Prime Minister Justin
Trudeau's efforts to build a greener economy.
Reducing fuel's carbon intensity is critical to Canada's
efforts to curb greenhouse gas emissions by at least 40% from
2005 levels by 2030. Biofuels are alternatives to
petroleum-based fuels made from low-carbon sources such as crops
and wood waste.
Fuel retailer Parkland's PKI.TO move in March to cancel a
planned renewable diesel plant in British Columbia due partly to
competition concerns about the U.S. Inflation Reduction Act
(IRA) underscores the seriousness of the companies' concerns.
The $430 billion IRA, signed into law by U.S. President Joe
Biden last year, aims to cut carbon emissions across the U.S.
economy.
European countries are also worrying about how to compete
with U.S. subsidies. But Canada's location bordering the United
States makes it especially vulnerable to a possible future flood
of cheaper U.S. biofuels, said Ian Thomson, president of
Advanced Biofuels Canada.
"There is already a lot of angst in the sector about this.
The size of the U.S. package is daunting," Thomson said.
The lobby group estimates there are some C$10 billion worth
of Canadian projects at early stages of development, not
counting more advanced ones by Imperial Oil IMO.TO and others.
The IRA provides a tax credit for U.S. biofuels production
starting in 2025. Canada offers nothing similar, but unlike the
United States, has negative incentives such as a carbon tax.
The companies considering investment in the United States
include Arbios Biotech, a joint venture of forestry company
Canfor CFP.TO and Licella Holdings.
Arbios, which is building a demonstration bio-oil plant in
British Columbia, will consider a U.S. location for its planned
commercial plant unless Ottawa narrows the gap in financial
support, said chairperson Don Roberts.
"We're looking at a large pipeline of projects in the
future," Roberts said in an interview. "If we're looking at our
next big investment, chances are that will be south of the
border."
Roberts, who also works as an industry consultant, said he
is aware of at least three other Canadian developers actively
considering a U.S. site.
Canadian companies collecting lower subsidies may have to
charge more for their fuel than U.S. producers to make similar
profits, and may be outbid for feedstocks used in production,
such as canola and restaurant grease, Thomson said.
PRESSURE ON OTTAWA
Biofuels companies are pressing Ottawa to increase supports
in the next fiscal update, expected late this year. Options
include an investment tax credit to offset some capital costs
and a contract for differences, a means of de-risking possible
changes to carbon pricing and regulatory policies, Thomson said.
The federal government will solicit feedback in summer on
possible new supports, said Keean Nembhard, a government
spokesperson.
Braya Renewable Fuels is converting a Newfoundland and
Labrador refinery to produce 18,000 barrels per day (bpd) of
renewable diesel and sustainable aviation fuel this year.
New supports will be key to sanctioning a possible expansion
to up to 30,000 bpd, said CEO Frank Almaraz.
"The sooner we have certainty of what the supportive
regulatory environment is going to look like, the sooner we will
be able to make those expansion decisions," Almaraz told
Reuters.
Enbridge ENB.TO , a Canadian utility and pipeline company,
has also asked Ottawa to narrow the gap with the United States,
said Pete Sheffield, its chief sustainability officer. Enbridge
is developing renewable natural gas (RNG) projects in the United
States and Canada.
While Canada offers some advantages, executives say Ottawa
can do better. Tidewater Renewables LCFS.TO , which looks to
open Canada's first renewable diesel plant this summer, plans to
produce RNG in Alberta from cattle manure and has secured
utility Fortis FTS.TO as a buyer for 20 years, said CEO Rob
Colcleugh.
It plans two more RNG plants, including one in the U.S.
"It's hard to compare exactly apples to apples," Colcleugh
said. "Nonetheless, there is definitely room for more government
support in Canada."
($1 = 1.3356 Canadian dollars)
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(Reporting by Rod Nickel in Winnipeg, Manitoba
Additional reporting by Steve Scherer in Ottawa
Editing by Denny Thomas and Matthew Lewis)
((rod.nickel@tr.com; Twitter: @RodNickel_Rtrs;))