25/02/04
Tariffs not only US threat to Canada canola oil
New York, 4 February (Argus) — Canadian canola farmers have reason to celebrate
a last-minute deal to at least delay US tariffs. Changing US biofuel policies,
however, could dim their excitement. The two countries agreed Monday to pause
for a month 25pc tariffs on most Canadian imports, including agricultural
products like canola oil. While best known for its use in food, canola oil has
become an increasingly important ingredient in US biofuel production. Canada
exported 800,000 lbs of crude canola oil to the US in 2021, before US regulators
allowed more canola-based fuels to qualify for a biofuel mandate, but more than
three times that total over just 11 months in 2024 according to customs data.
Canola oil from all origins made up around 12pc of the US biomass-based diesel
feedstock mix last year. The challenge for Canada is that policies in the US
that helped cement canola oil's role in biofuel production are increasingly
encouraging producers to use other feedstocks. The mere threat of tariffs could
speed that trend along. A long-running US tax credit for blenders of
biomass-based diesel expired last year and was replaced by the Inflation
Reduction Act's "45Z" credit, which requires fuels to meet an initial carbon
intensity threshold and then ups the subsidy as emissions fall. This shift was
always expected to benefit waste feedstocks over crops, which incur a carbon
penalty for land changes and fertilizer use. The clear message to refiners —
both from the US government and from California regulators that run the state's
influential low-carbon fuel standard — has been to diversify beyond vegetable
oils. But an updated emissions model released by the Department of Energy last
month surprised some in the industry by assessing the default carbon intensity
of canola-based fuels as too high to automatically qualify for 45Z. Although
fuels from soybean oil generally earn some credit, diesels made from canola oil
could go from earning $1/USG last year to nothing this year. Before even
factoring in potential tariffs, Canadian canola oil appears less attractive for
refiners than even competing crops. Guidance on 45Z is preliminary , meaning
canola crushers can push for final rules that are less restrictive. But energy
lobbyists say privately that they do not expect the new administration to act
with urgency to implement an incentive created by Democratic lawmakers and
oriented around climate change. And many Republicans' concern with the credit is
not that it is too harsh on canola — but that it is too permissive of foreign
feedstocks they see as hurting US crop demand. The introduction of 45Z could
simultaneously leave Canadian biofuel producers less able to backfill canola oil
demand if US buyers look elsewhere. The credit can only be claimed by US
producers, cutting off subsidies for imported fuels. At the same time, 45Z does
not require fuel to be consumed stateside — meaning that US biorefineries can
send subsidized fuel abroad to chase additional incentives Canada offers for
biofuel usage. "The on-again off-again status of US tariffs and Canada's
counter-tariff response do not alter the bare economics of biofuel production
between jurisdictions when one has an exportable tax credit and the other does
not," said Fred Ghatala, president of Advanced Biofuels Canada. The future of
renewable diesel production in Canada, previously expected to grow significantly
to the benefit of farmers, is in doubt. ExxonMobil's Canadian subsidiary is on
track to open a 20,000 b/d renewable diesel plant this year, but other companies
collectively representing more production capacity are wavering. Plans for an
integrated canola crush and 15,000 b/d renewable diesel facility in Saskatchewan
were paused last month. And it is unclear if Braya Renewable Fuels' 18,000 b/d
biorefinery in Newfoundland is running now or if Tidewater Renewables' 3,000 b/d
British Columbia plant will run after March. If demand from Canadian
biorefineries remains limited, some traders expect that Trump's tariff threats
could divert more canola oil previously bound for the US to Europe . But there
is no perfect alternative to the US market, which accounted for 91pc of all
Canadian canola oil exports in 2023 according to the US Department of
Agriculture. "There is logistics capacity to sell canola oil, seed, or meal
abroad. That's certainly an option," said Chris Vervaet, executive director of
the Canadian Oilseed Processors Association. "The best option though is to
continue to maintain and grow our trade relationship with our most important
trade partner, which is the United States." By Cole Martin Send comments and
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