Biodiesel more cost competitive under Canada’s new carbon tax

Canada’s federal government implemented a carbon pollution tax on fuels this month, and while the tax means consumers and truckers will pay more for fossil fuels at the pump, it also means higher blends of biodiesel are becoming more cost competitive.

The carbon tax on fuels went into effect April 1 in provinces that have yet to apply their own carbon price on fuels—Ontario, New Brunswick, Manitoba and Saskatchewan. Referred to as a federal backstop, the tax is authorized under the Greenhouse Gas Pollution Pricing Act, one of many climate change mitigation measures to develop from the Pan-Canadian Framework on Clean Growth and Climate Change.

The federal carbon tax on fuels will be implemented in the Yukon and Nunavut territories July 1. The Department of Finance Canada says the Northwest Territories will have its own carbon pollution pricing scheme in place by that time.

The fuel charge rates reflect a carbon pollution price of $20 per metric ton of carbon dioxide equivalent (CO2e) in 2019, rising by $10 annually to $50 a ton in 2022.

“The rates are based on global warming potential factors and emission factors used by Environment and Climate Change Canada to report Canada’s emissions to the United Nations Framework Convention on Climate Change,” the DFC states. “Applying the fuel charge at higher rates over time will help to reduce greenhouse gas emissions and support clean growth, while keeping costs low for Canadians and Canadian businesses. It will send a signal to markets and provide an incentive to reduce energy use through conservation and efficiency measures.”

DFC says the rates for gasoline and light fuel oil, or diesel fuel, also take into account the average renewable content of these fuels.

In 2019, the new tax on diesel fuel is 5.37 cents per liter (cpl), or 20.33 cents per gallon (cpg). This will increase to 8.05 cpl (30.47 cpg) in 2020, 10.73 cpl (40.62 cpg) in 2021, and 13.41 cpl (50.76 cpg) in 2022.

“The biodiesel or renewable diesel portion of a blend is exempt when the [portion] is above 5 percent,” said Ian Thomson, president of Advanced Biofuels Canada. For B20 blends, only 80 percent of the fuel—the petroleum portion—would be subject to the new carbon tax. This means that today a B20 blend in Ontario, for example, is taxed 4 cents less per gallon than straight petroleum diesel fuel. In 2022, the carbon tax savings for B20 jumps to about 10 cents per gallon. Higher blends of biodiesel would enjoy even steeper carbon tax cuts. 

“The charge applies at the rack,” Thomson told Biodiesel Magazine, “so I would expect to see a price spread there.”

According to Thomson, “farm fuel” is exempt from the carbon tax when used in tractors, trucks and other farm machinery. “The relief is provided upfront through the use of exemption certificates,” he said. “Recently, the feds expanded this exemption such that a registered distributor can deliver, without the fuel charge applying, gasoline and [diesel] to a farmer at a cardlock facility.”

Thomson added that proceeds of the fuel charge will be returned by the federal government to residents in the backstop jurisdictions in the form of climate action incentive payments.

The provincial government of Ontario is not happy about the new carbon tax.

“The people of Ontario deserve to know the full truth about how the federal carbon tax will make their lives more unaffordable,” said Greg Rickford, minister of Energy, Northern Development and Mines. “This job-killing tax will make everything more expensive, but it will hit our wallets hardest when it comes to gas prices and home-heating costs.”

The province plans to bring forward legislation that would require stickers to be placed on fuel pumps that will advise consumers of the hidden federal carbon tax.

“We promised to use every tool at our disposal to protect Ontario workers, seniors and families from the federal government’s regressive carbon tax,” said Rod Phillips, minister of the Environment, Conservation and Parks. “The people of Ontario know that a carbon tax is not the only way to fight climate change and that this tax is as unnecessary as it is unfair. Instead of punishing low- and middle-income families, we encourage the federal government to follow the approach we took with our Made-in-Ontario Environment Plan that will reduce emissions without imposing a job-killing carbon tax on the people of our province.”

According to the Ontario Ministry of Energy, Northern Development and Mines, Ontario currently leads all of Canada when it comes to greenhouse gas reduction, lowering emissions by 22 percent from 2005 levels.

Despite Ontario having made notable progress in fighting climate change, Thomson said since the province pulled out of cap and trade soon after the new government came in, which covered fuels and is what the federal backstop addressed, Ontario is now considered noncompliant and, hence, this is why the new federal carbon tax is being applied in the province.

Ontario is part of a coalition of provinces pledged to fight the federal government’s “unconstitutional” carbon tax, according to the Ontario Ministry of Energy, Northern Development and Mines. “Manitoba, Saskatchewan and New Brunswick have joined Ontario’s challenge to the federal government’s Greenhouse Gas Pollution Pricing Act, which is an unconstitutional, disguised tax,” the ministry stated.

Ontario’s case challenging the constitutionality of the federal carbon tax is being heard by the Court of Appeal April 15-18.