Canola sector gets biofuel shock

A Canadian canola industry executive is worried about a new proposal to keep foreign feedstocks out of the U.S. biofuel industry.
Four major farm groups sent a letter to U.S. treasury secretary Janet Yellen and Office of Management and Budget director Shalanda Young urging them to consider restricting imports of biofuel feedstocks.
That would be a massive blow to Canada’s grain and oilseed sector, which has been gearing up to service that market.
“At first glance, it’s a pretty big concern for us in the canola industry,” said Tracy Broughton, executive director of the Saskatchewan Canola Development Commission.
“The U.S. biofuel market is a tremendous new pathway for the canola sector.”
The Canola Council of Canada was unavailable to comment on the story.
Broughton said the U.S. farm group proposal will be a “big topic of conversation” in Canada’s canola sector in the coming weeks and months.
“It will be something we need to respond to as an industry,” she said.
The letter was written by the American Soybean Association, the American Farm Bureau Federation, the National Corn Growers Association and the National Farmers Union.
They are pushing for changes to the 45Z Clean Fuel Production Credit that was created in the Inflation Reduction Act.
The credit, which starts Jan. 1, 2025, replaces the 40B and 40A blender’s credits.
The new program runs through 2027 and provides tax credits for all U.S. biofuel.
The four U.S. farm groups say they have “deep concerns” about the new tax credit.
“Currently, the guidance does not mandate the use of domestically sourced feedstocks for eligibility, opening the door for imported materials to be used in biofuel production,” the organizations stated in their letter.
They said that undermines the economic stability of American farmers and the broader goal of supporting rural communities.
“The absence of domestic feedstock requirements can lead to increased reliance on imports, benefiting foreign countries, thereby reducing the demand for homegrown agricultural products and threatening the livelihood of American farmers,” said the farm groups.
They also said that there is a compelling environmental argument to be made for restricting feedstock imports and focusing on domestically produced crops.
They contend that U.S. crops typically have a lower carbon footprint compared to imported feedstocks due to reduced transportation emissions.
Broughton wonders if a domestic feedstock requirement would violate international trade rules, something that would likely take a long time to sort out.
In the meantime, she imagines that the proposal will “cause a little pause” in Canada’s canola crushing sector, which is undergoing a major expansion in response to the exploding demand from the biofuel sector.
The Canadian Oilseed Processors Association was contacted for this story but did not respond in time to meet publication deadlines.
Canada’s canola sector is expected to add three million tonnes of crush capacity by the end of 2025.
Broughton said part of that extra capacity will be used to service a new market created by Canada’s new Clean Fuel Regulations.
But a lot of it was earmarked for the exploding U.S. biofuel market.
The U.S. Energy Information Administration is forecasting there will be 5.9 billion gallons of renewable diesel capacity by 2025, up from 2.6 billion gallons at the end of 2022.
U.S. President Joe Biden’s administration has set a target of three billion gallons of annual sustainable aviation fuel production by 2030, up from hardly anything today.
The U.S. farm groups who wrote the letter also expressed concern about other aspects of the 45Z production tax credit.
They don’t like that they are being forced to bundle climate-smart agriculture practices to qualify for the credit.
The farm groups contend that many farmers will refuse to bundle no-till farming, cover crops and enhanced efficiency fertilizers without greater incentives.
“We urge the administration to reconsider these bundled requirements and instead provide more tailored and accessible guidelines that account for the varying capabilities and conditions of farmers across the country,” the organizations stated in the letter.

Source: Producer