U.S. January 2025 Tax Changes Could Hinder Biodiesel Production Growth in Canada

Farm Credit Canada says changes to U.S. tax credits for biofuel production starting Jan. 1, 2025, could hamper the growth of biodiesel production in Canada.

Currently, the U.S. provides a tax credit ($1 per gallon) to blenders of biodiesel or renewable diesel with conventional diesel. Given that biodiesel and renewable diesel are significantly more expensive than conventional diesel, this tax credit is critical to support profitability. Other government policies, such as the federally-administered Renewable Fuel Standard or California’s Low Carbon Fuel Standard, also provide tax credits that can help improve the profitability of biofuel plants. Historically, almost all Canadian biodiesel has been exported to the United States to take advantage of some or all of these tax credits.

However, under the Inflation Reduction Act, this tax credit has shifted from a blender’s credit to a producer’s credit, and starting next year, only U.S.-produced biodiesel or renewable diesel will qualify for the credit – but inputs can still come from abroad. That puts Canadian refiners at a disadvantage. Canadian biofuel experts argue that new domestic biofuel facilities will face construction difficulties if Canada doesn’t have similar credits.