Renewable diesel may be the rage south of the border as a low-carbon replacement for conventional diesel, but due to a quirk in the blending tax credit system in the U.S. both renewable diesel and biodiesel have potential for significant growth in Canada in coming years assuming the North American playing field is leveled.

This is reflected in plans for renewable diesel production by several companies in Canada, and potential expansion plans by companies such as Alberta-based biodiesel producer Canary Biofuels Inc. A potential fly in the ointment for producers of both types of biomass-based diesel comes back to the food versus fuel debate.

Biodiesel versus renewable diesel

That is not to say that renewable diesel, which is generally produced at converted oil refineries using units such as fluid catalytic crackers and the such does not have inherent advantages over biodiesel, especially as the world strives for net-zero emissions in coming decades.

Biomass-based diesel fuels are all made from animal fats, food wastes and plant oils. But renewable diesel is chemically indistinguishable from petroleum diesel, and hence a so-called drop-in diesel fuel not subject to any blending limitations even in colder climates, as it meets and, in some cases, exceeds specifications for use in diesel engines. In contrast, biodiesel is a mixture of chemical compounds known as alkyl esters and tend to be blended with petroleum diesel at between two per cent and 20 per cent to maintain spec fuel.

“Biodiesel is an excellent option for blending and reducing the carbon intensity of diesel and we will likely continue to blend some biodiesel in our products for the foreseeable future,” Gilbert Le Dressay, vice-president of manufacturing at Federated Co-op Ltd. (FCL) — with a renewable diesel project planned for its Regina oil refinery — tells the Bulletin.

“However, renewable diesel can serve as a complete replacement for traditional diesel. We believe that having the option to manufacture a product that can be both blended with, or serve as a replacement for, traditional diesel gives us the most flexibility for our business in the future.”

Blending tax credit disadvantage

Rather bizarrely, Canada exports almost all its biodiesel production to the U.S. while importing back a similar amount from U.S.-based producers, despite the additional cost of shipping it long distances by train.

For example, in 2021, the latest year in which data is available, Canada exported 435 million litres of the 460 million litres of the biodiesel produced in the country, while importing 497 million litres. Canadian biodiesel consumption was 482 million litres in 2021 and renewable diesel consumption was 480 million litres, with all the latter imported from the U.S. The 962 million litre total for biomass-based diesel in that year represented 2.8 per cent of total Canadian diesel fuel usage.

The reason for the market anomaly for biodiesel in our country is because U.S. producers receive Blenders Tax Credit, commonly referred to as BTC, for sales into their home market as well as exports to Canada, whereas Canadian producers only receive this credit if they export to the U.S. The value of the BTC presently is about US$1 per gallon plus a potential incremental $0.10 to $0.30 per gallon of income tax credit benefits.

“All of our biodiesel production is moved by tanker car to either the U.S. Midwest or western U.S. states,” Rob Skilnick, CFO of Canary Biofuels, tells DOB. “Sales into California and Oregon are supported by credits from low carbon fuels standards in those states as well. However, over time, as the federal government’s clean fuel standard (CFS) levels the playing field, we are likely to redirect sales to the western Canadian market, especially given our transportation cost advantage.”

Renewable diesel

“Renewable diesel is key to transitioning our fuel-producing assets to the low carbon economy,” says FCL’s Le Dressay. “It allows us to blend renewable content into traditional diesel to lower our carbon footprint and can serve as a complete replacement for traditional diesel in the future. We believe the market for low carbon intensity diesel fuel will exist for a long time. This has advantages as we can reduce our carbon footprint while still utilizing the existing infrastructure our co-op system has in place.”

The renewable diesel project at FCL’s 130,000 bbl/d Regina oil refinery, which is presently undergoing front-end engineering and design (FEED) and could come online as soon as 2027, is to produce 809 million litres annually.

Other renewable diesel projects in Canada include: Imperial Oil’s plan to produce one billion litres annually at its refinery near Edmonton; Braya Renewable Fuels’ plan to produce 900 million litres per year (including sustainable aviation fuel) at the Come By Chance refinery in Newfoundland and Labrador; Covenant Energy’s plan to build a 300-million-litre facility in Saskatchewan; Parkland Corporation’s plan to expand renewable diesel production at its Burnaby, B.C. refinery; and Tidewater Renewables soon-to-be-completed 150,000 litres per year facility at its Prince George refinery.

Canary Biofuels

Despite this, market opportunities remain for Canadian producers of biodiesel, with aggressive low-cost companies such as Canary Biofuels leading the pack. In early 2021, newly formed Canary Biofuels announced the acquisition of Invigor Bioenergy Corporation and its Lethbridge-based biodiesel plant. After a retrofit and expansion, the plant became the first second generation biodiesel facility in Alberta with capacity to produce about 73 million litres annually.

And in December, Canary Biofuels completed the acquisition of a biodiesel plant with half as much capacity and associated facilities in Stockton, California from Community Fuels. Canary currently is evaluating engineering and retrofit options to increase efficiency, throughput and capacity, with plans to bring the plant back online in the second half of this year.

“We could double capacity at our Lethbridge plant to better serve the Canadian biodiesel market,” says Canary’s Skilnick. “But for us to decide to employ the financial and human capital to do so, we would like to have the playing field between Canadian and U.S. producers leveled with respect to the BTC. We believe the federal government could do so in one of two ways. The federal government could make U.S. recipients of the BTC ineligible for CFS, which wouldn’t cost them a dime, or they could provide Canadian producers with a BTC equivalent to the U.S. program.”

Food versus fuel debate

As of now, most renewable diesel and biodiesel projects in Western Canada are planning to rely heavily on canola oil as a feedstock for their facilities, given its availability due to trade issues with China in recent years and its highly attractive attributes for making biomass-based diesel, including its emission reduction capability — over 80 per cent compared to petroleum diesel. For example, FCL is planning to build a canola crushing plant adjacent to its Regina refinery along with minority partner AGT Foods and Ingredients to provide about half the required feedstock for its renewable diesel project.

However, FCL and other biomass-based diesel producers are keeping their technological options open to utilize non-food feedstocks as well. “We will be able to process other plant-based oils like soya beans or used vegetable oil, as well as animal tallows from processing plants,” says Le Dressay. “While Canola is our primary feedstock, we will have other options to utilize when those opportunities present themselves.”

“We have run virtually every possible feedstock through our Lethbridge plant to produce biodiesel as we are highly cognizant of the food versus fuel issue,” says Skilnick. “This includes animal fats and used cooking oil, as well as off-spec canola that can’t be sold as food.”

“In addition, our oil seed processing plant, to be commissioned in the next 60 days, will be able to process camelina, a non-food grade feedstock that does well under dry growing conditions, on poor quality land, and with the potential for intercropping and/or an additional crop within the same growing year. This would provide farms with the potential for incremental production and profits.”