Measures to facilitate biofuel production and use
DecarbonizationKey maritime and clean fuel stakeholders are calling for clarity on measures to help level the playing field for the Canadian industry as its American counterparts receive unprecedented funding to shift to a low-carbon and ultimately net-zero greenhouse gas (GHG) emissions economy.
“We realize Canada doesn’t have the amounts of money the U.S. has been granting under initiatives such as the U.S. Inflation Reduction Act, but the Canadian industry needs commensurate funds to keep up or it risks losing its competitiveness,” warns Bruce Burrows, the Chamber of Marine Commerce (CMC) president and CEO.
The $369 billion stemming from U.S. Inflation Reduction Act of 2022 over the next decade is the single largest investment in clean energy and climate mitigation in American history. The U.S. maritime industry has received almost $3 billion to date from the Environmental Protection Agency (EPA) Clean Ports Program. The sector is also benefitting from the greater availability of lower emission fuels, which are expected to become more plentiful and affordable when domestic producers receive a tax credit (under 26 U.S. Code § 45Z) for it starting in January.
In Canada, $165 million was announced as part of the Green Shipping Corridor Program (GSCP) in December 2023 to fund emissions-reducing initiatives over seven years. Under the CSCP’s Clean Ports Stream, $127.2 million is designated as contribution funding for projects targeting onshore equipment at ports and terminals. For example, $22.5 million was awarded to upgrade a Nova Scotia terminal to store and distribute green ammonia.
Canada’s funding is a good start, but additional money is needed – especially since only 20% of the funding to date has gone to ship owners who face the biggest dilemma of how to power their vessels to achieve lower and eventually net zero or zero GHG emissions.
The GSCP’s Clean Vessel Demonstration Stream is providing $22.5 million in grant and contribution funding to March 31, 2030. Transport Canada designated $14.7 million to fund 14 projects with all but one of them awarded to Green Marine participants. The grants are primarily funding research into cleaner energy sources ranging from shore power to wind to fuel cell/battery potential, but also future vessel designs.
Representing both Canadian and U.S. maritime interests along the border, the CMC is also concerned that the EPA is requiring 100% of the $3 billion in infrastructure improvement funding to be dispersed this year.
Only the largest ports can afford the multi-million-dollar proposals necessary to obtain some of that funding within that timeline,” Burrows notes. “Potentially very little would go to smaller and medium-sized ports that actually have the greatest growth potential.
As for ship owners, the CMC is among the organizations closely following the International Maritime Organization (IMO) efforts to have an emissions pricing mechanism in place by next spring.
“Various approaches are still being discussed, but the IMO is set to create a fund in which vessel owners and operators must pay for their emissions according to an established scale,” says Paul Topping, the CMC’s director of Regulatory and Environmental Affairs, who attended the latest IMO meetings.
Rates are being debated. Developing nations are seeking a higher rate to compensate for the greater harm done to their countries by industrial development, whereas nations heavily dependent on maritime trade want a price that doesn’t jeopardize their economies. Still others want an open market, but some fear it would be too unpredictable. While some want the fees to go into a global climate change fund, the maritime industry prefers to have the money funneled back into supporting its progressive decarbonization.
“The International Chamber of Shipping (ICS) is advocating for a ‘fee-bate’ system that would reward early adopters of a new cleaner fuel or emission-reducing technology with a rebate on the carbon fees,” Topping says.
Under the ICS proposal, the ‘fee-bate’ system doesn’t favour one fuel or technology over another, but instead would be determined according to the amount of emissions reduced based on both on a fuel’s established lifecycle assessment, as well as its emissions intensity while in vessel use.
This aims to bridge some of the financial gap for the early adopters of cleaner fuels or technologies. It’s not about covering the whole cost.
A R&D fund might also be created so that the overall shipping industry would have the resources to develop or test new options. “Otherwise, only the world’s largest shipping lines have the resources for large R&D budgets,” Topping says. “The maritime industry is also dealing with the fact that every sector of the economy is competing for resources to make this energy transition, with other sectors having a greater demand and, therefore, more attention from innovators and suppliers.”
Burrows emphasizes the need to identify potential opportunities. “For instance, tankers belonging to our members could be used to deliver new fuels between their refineries and customers, with ship owners receiving a stable price for providing transport services,” he says.
However, other policy differences between Canada and the U.S. could also have an impact. For instance, the U.S. Coast Guard in September 2022 exempted the domestic fleet from all IMO requirements under Chapter 4 of the MARPOL Convention, which sets out the convention’s current emission reduction measures, including energy efficiency targets. Canada has pledged to meet the IMO targets but is developing a Canadian Carbon Intensity Indicator (CCII) that makes sense for the shorter routes and frequent stops of inland waterways. The IMO developed its Carbon Intensity Indicator (CII) primarily for ships on transoceanic voyages. Canadian ships undertaking ocean travel must meet the IMO’s requirements.
On October 29, the U.S. Department of Agriculture (USDA) announced that it will award $39 million in grants to American business owners to increase the availability of domestic biofuels in 18 states. The USDA is making another $200 million available through the new Biobased Market Access and Development Grants previously made possible by the Commodity Corporation Credit funds to support innovative biobased technologies and bridge the gap between pilot-scale demonstrations and commercial viability.
Since the start of the Biden-Harris Administration, the USDA has invested more than $253 million nationwide through more than 300 awards to increase access to biofuels for all sectors across the U.S. Almost $192 million has been invested in 267 projects from the Inflation Reduction Act.
U.S. biofuel funding is why Canadian ship owners have found it more economical at this point to purchase biofuel from a U.S. subsidiary with a Canadian distribution service. The production support, along with economies of scale, make the U.S. biofuel more affordable, even though it’s still much costlier than fossil fuels.
To achieve commercial buy-in for the more expensive cleaner energy, the CMC says it’s essential for ship owners to earn emissions credits that they can provide to their customers.
The CMC is hoping that the Canada Clean Growth Fund will become more accessible to small and medium-sized enterprises seeking to provide biofuel and other cleaner energy sources to marine and other transportation modes with programs that are robust but also as straightforward and simple as possible. “Otherwise, it becomes too time-consuming to apply,” Topping says.
Advanced Biofuels Canada (ABFC) is the Canadian national trade association for advanced biofuels and renewable synthetic fuels. ABFC members operate more than 38 billion litres (10 billion gallons) of low-carbon fuel production capacity globally and are significant suppliers of renewable and low-carbon fuel in Canada, the United States, and elsewhere.
ABFC acknowledges that positive progress has been made for clean fuel production in Canada with the measures announced in this year’s federal budget. However, the organization says the Canadian government must also respond to the U.S. tax credit that will be given to U.S. biofuel producers as of January 1st.
“Otherwise, the competitive landscape for renewable fuel production in North American will be thrown off balance with Canada missing out on a huge economic and environmental opportunity,” states Fred Ghatala, ABFC’s director for Carbon and Sustainability.
Ghatala says Canada’s maritime industry can figure prominently in global decarbonization in tandem with domestic biofuel producers because of how marine engines are able to use high levels of biofuel. Biofuels have been demonstrated to perform well through extensive trials done by Canadian Steamship Lines and by the Algoma Central Corporation – both Green Marine participants – as well as by the Canadian Coast Guard.
The International Energy Agency states that liquid biofuels need to triple in use by 2030 to get us firmly on the path of reduced emissions.
“Canada is a huge producer of plant oils that are so chemically close already to being distillate and residual fuel molecules, and our country has an abundance of other agricultural and forest byproducts that could be used.”
Ghatala notes that without a timely response to the US 45Z production incentives, Canada risks falling further behind the renewable fuels sector expansion happening elsewhere.
The appetite for biofuel use in the marine sector is vast. In the Netherlands, the double counting of advanced biofuel credits to stimulate marine biofuel use resulted in the market share involving repurposed cooking oil and animal fat reaching 40% in 2011. The Dutch government has also significantly increased production and use with a bio-ticket system that gives companies the opportunity trade biofuels administratively as an alternative to supplying their own.
Renewable fuels already represent 4% of total liquid fuel demand globally. In North America, more than six billion gallons (22.7 billion litres) is becoming available because of supportive U.S. policies.
There’s a lot of potential for worldwide markets to expand, but a limited window of opportunity for Canada in terms of establishing both energy security and emissions reduction.
“We need a clear 45Z response that will attract investment and encourage project completion to produce the biofuels already being sought by the marine sector and other transportation modes.”
Ghatala says a per-litre production incentive linked to a fuel’s eligibility under the Clean Fuels Regulations is a useful structure, with third-party verification of the fuel’s emissions-intensity as well as its compliance with land use and biodiversity criteria to ensure its responsible production.
The position is similar to the ICS proposal for ‘fee-bates’ globally, and the CMC’s call for an independent third-party to initially consult, and then establish and monitor progress of emissions reduction within the bi-national Green Shipping Corridor Network that the Canadian and U.S. governments have initiated for the Great Lakes–St. Lawrence corridor.
Ghatala acknowledges that fuel and other energy purchases already flow back and forth across the Canada-U.S. border, but he notes that both quantity and price will be less in Canada’s control if it doesn’t establish its own supplies. “It’s difficult to maintain Canadian policies that encourage renewable fuel use for addressing climate change if most of the dollars related to biofuels flow out of the country,” Ghatala explains. “Canada also risks not benefitting from the 35,000 jobs expected from expanded clean fuel production domestically by 2030.”