Farm Credit Canada says US tax changes from Jan. could hinder Canadian biodiesel production growth

In Canada, Farm Credit Canada says starting January 1, 2025, tax credit changes in the U.S. regarding biofuel production will take effect which could hinder the growth of Canadian biodiesel production. This raises the question: with potentially limited demand for refined canola and soy oil from domestic fuel companies, does that mean Canadian production of canola and soy oil will face headwinds in finding buyers at a time when additional crush capacity is coming online?  

At present, the U.S. offers a tax credit ($1 per gallon) to blenders for mixing biodiesel or renewable diesel with conventional diesel. This tax credit is vital for supporting profitability, given that biodiesel and renewable diesel prices significantly exceed those of conventional diesel. Other government policies like the federally administered Renewable Fuel Standard or California’s Low Carbon Fuel Standard have credits that also contribute to biofuel plant profitability. Historically, nearly all Canadian biodiesel has been exported to the U.S. to take advantage of some or all these credits. 

However, under the Inflation Reduction Act, this tax credit has shifted from a blender to a producer credit, making only U.S. produced biodiesel or renewable diesel eligible for the credit starting next year – the inputs however can still come from abroad. This leaves Canadian refiners at a disadvantage. Canadian biofuel experts argue that without a similar credit in Canada, new domestic biofuel facilities will face difficulties getting built. 

Canadian crushers continue to export canola oil to U.S. facilities, and they’ve been very active in 2024, setting a record already only eight months into the year. Even as some U.S. farm groups push to exclude foreign feedstocks from receiving credit in the future, for now Canadian oilseed crushers maintain strong profitability, driving demand for canola, amid increasing oil exports to the U.S.