Canada's canola farmers stand to gain from U.S. tax breaks for clean fuel

Globe and Mail

22-05-2025

Embattled Canadian canola farmers are poised to gain from a revised tax credit for clean fuels approved by the U.S. House of Representatives Thursday morning as part of President Donald Trump's 'big, beautiful bill.'
The 45Z Clean Fuel Production Credit incentivizes the production of low-carbon transportation fuels in the United States.
The tax credit came into force in January as part of former president Joe Biden's Inflation Reduction Act. But certain stipulations made feedstock from Canadian canola ineligible. The Republican bill slashes those requirements.
Should the expansion pass through the Senate, it could drive increased demand for Canadian canola – a boost much needed by a sector that recently faced a steep decrease in U.S. sales and tariffs from its second-largest market, China. Political uncertainty north and south of the border has also depressed investment in what was once a booming domestic processing sector.
'We're keeping our fingers and toes crossed that we will see some good news here,' said Chris Vervaet, executive director of the Canadian Oilseed Processors Association.
The U.S. tax credit will subsidize the production of transportation fuels with low-life-cycle greenhouse-gas emissions, such as ethanol and biodiesel or renewable diesel. These fuels are sourced from renewable biomass such as corn, soybeans, canola or used cooking oil.
It is a win for red farm states, which have been slammed by a trade war with their largest market for corn and soybeans, China.
The tax credit is one of the few clean-energy policies from Mr. Biden's 2022 Inflation Reduction Act to survive. (A tax break for buyers of electric vehicles and credits for low-emissions electricity such as wind, solar, battery and geothermal power will be rapidly phased out.)
The clean-fuel incentives would be a top-up on requirements under the U.S. Renewable Fuel Standard Program – a federal initiative that requires transportation fuel sold in the United States to contain a minimum volume of renewable fuels.
It will help farmers capitalize on growing demand for clean fuel, said John Fuher, vice-president of government affairs at Growth Energy, a U.S. biofuel trade association.
According to the group, the credit could add US$21.2-billion to the American economy, and provide farmers with a 10-per-cent price premium on low-carbon corn used at a bioethanol plant.
The Biden administration's version of the tax credit represented a loss, rather than a gain, for Canadian canola farmers and processors.
To qualify for the tax credit under the previous administration, feedstock had to fall below an emissions threshold. This threshold included emissions caused by switching land to crop production.
The indirect land use change (ILUC) policy put Canadian canola above the emissions threshold, making it ineligible for the credits.
This had ramifications for trade. There was a 66-per-cent drop between December and March for Canadian crude canola oil exports to the U.S., said Mehr Imran, senior analyst of carbon markets at ClearBlue Markets.
The Republican bill eliminates the ILUC policy and stipulates that Canadian and Mexican feedstock would be eligible. Feedstock from other countries – for example, used cooking oil from China – would not.
'We think it is really important that we have open two-way trade between our two countries,' said Geoff Cooper, president and chief executive officer of the U.S.-based Renewable Fuels Association.
It is much-needed good news for Canadian canola farmers who have also faced 100-per-cent tariffs on canola oil and meal from China. Beijing's move to introduce the levies in March was in retaliation for Ottawa's tariffs on Chinese-made electric vehicles.
Ambitious plans to expand canola crush capacity have also lost momentum. In Canada's largest canola-producing province, Saskatchewan, five new plants were announced starting in 2021. Only one has come online. Others are in progress, behind schedule, indefinitely on pause or have not broken ground. Reasons for delays include trade uncertainty with the U.S. and concerns about a potential new conservative government in Ottawa killing Canada's Clean Fuel Regulations.
'It's always good to have more competition for your product,' said Roger Chevraux, an Albertan canola farmer who serves on the board of the Canadian Canola Growers Association. 'It means we're less vulnerable.'
However, the tax credit could have other implications for Canada's refineries, Ms. Imran said.
Canada has 10 clean-fuel facilities. While the country is a net exporter of refined petroleum products and crude oil products, it is a net importer of biofuels.
There is some investment in clean-fuel processing. For example, on May 2, Imperial Oil Ltd. announced that its highly anticipated renewable diesel facility located near Edmonton will commence operations in mid-2025.
U.S. subsidies give refineries south of the border an edge over Canadian plants in provinces without competitive subsidies, Ms. Imran said.
'Canada may want to take a look at the competitiveness of domestic refineries in light of the U.S. incentives.'