Ethanol Blog: Biodiesel Producers Expect Industry Shutdown Without 45Z Guidance From Treasury

September 23, 2024

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by Todd Neeley (DTN Progressive Farmer) Biodiesel producers need to know the rules for the 45Z clean fuel production tax credit now or there will be risk of industry shutdown, biodiesel industry members of the Iowa Renewable Fuels Association told the Biden administration on Friday.

In particular, the producers said biodiesel companies cannot wait until Jan. 1, 2025, when 45Z takes effect and asked the administration for at least some temporary tax guidance on the credit and a safe harbor from prosecution in following such rules.

"While we appreciate the desire to finalize the 45Z rules, lack of guidance today is already impacting biodiesel production," the producers said in the letter to Treasury Secretary Janet Yellen.

"A safe harbor would bridge the gap between now and the final rules, providing farmers, feedstock suppliers, biofuels producers and fuel retailers a transparent and stable market."

The biodiesel industry is transitioning from the blenders tax credit to 45Z. The blenders credit has well-established rules and the "entire supply chain -- from feedstocks to production to blending to retailing -- factored it into pricing," the letter said.

"That means biodiesel producers not only need to know the rules of the new tax credit on January 1, 2025, we need to know the rules right now," the letter said.

"This is the timeframe in which we would normally be contracting for biodiesel feedstock used in January. We have to contract for the feedstocks. The supplier has to produce and ship the feedstock to us. Finally, we have to pretreat the feedstocks to ready them for biodiesel production. All this must happen before Jan. 1 when the new credit kicks in. Without knowing the value of the new credit, feedstock suppliers don't know how to price their products. Biodiesel producers don't know how much to pay for feedstock or how to price their biodiesel. And retailers don't know how much to pay for biodiesel or how to set the price for consumers."

In particular, biodiesel producers need to know their carbon-intensity scores through 45Z in order to claim the credit.

Monte Shaw, executive director of the Iowa Renewable Fuels Association, told DTN that the Treasury Department could in the interim provide CI scores to producers using the Greenhouse Gases, Regulated Emissions and Energy use in Technologies, or GREET, model. Treasury already announced it would be using the model in final rules.

The producers said the agency should use GREET model to establish the carbon intensity for various feedstocks, which would allow them to determine their 45Z generation.

"Simply put, without immediate safe harbor guidance, the entire biodiesel supply chain could grind to a halt, resulting in lost farm income, laid off workers, unrealized carbon reductions, higher prices for consumers, and greater energy imports," the letter said.

They said temporary CI scores "may differ slightly from the final rules, but the advantages of ensuring ongoing biodiesel production until there is a final rule heavily outweighs any uncertainty around the safe harbor CI and credit values."

The letter is signed by representatives from Archer Daniels Midland, Iowa Renewable Energy, LLC, Lake Erie Biofuels, Western Dubuque Biodiesel, LLC, Western Iowa Energy, LLC, and W2Fuel, LLC. READ MORE

Related articles

Clean Fuels Urges Treasury to Immediately Issue §45Z Guidance and Safe Harbors (Clean Fuels Alliance America)
Why Is It Taking So Long to Get the Necessary Guidance on the 45Z Tax Credit Program? (AgWeb)
Iowa Biodiesel Producers Urge Safe Harbor (Fuels Market News)
Biodiesel companies press Biden admin for tax credit guidance -- Producers say they’re hamstrung by the Treasury Department’s delay in setting the rules for a clean fuels tax credit taking effect in January. (Politico Pro Greenwire)
Ever Cat Fuels ceases biodiesel production in Minnesota (Biobased Diesel Daily)
Come By Chance refinery considering 'economic shutdown' less than one year after reboot (CBC; includes VIDEO)

Excerpt from CBC: Braya Renewable Fuels is blaming tight margins and the expiration of tax credits for Come By Chance struggles -- The company operating the refinery at Come By Chance confirmed Monday that it is considering a shutdown of the Placentia Bay facility, less than one year after it began producing renewable fuels.

Supervisors at the refinery were notified on Sunday that Braya Renewable Fuels "is evaluating the possibility of an economic shutdown of the plant."

In a statement, the company blamed the potential shutdown on "lower-than-normal margins and short-term market disruptions caused by the expiration of the Blenders Tax Credit."

...

In a follow-up statement to CBC News, the company said the shutdown may occur "later this year."

"If temporary market conditions make it economically unfeasible to operate the plant, the processing of feedstock may be paused. During this time, all equipment would be maintained in good condition and in a ready to start mode," the statement reads.

Braya currently has a permanent workforce of 230 people, and the company "plans to retain its permanent workforce if a temporary economic shutdown is required."

Some temporary employees will be laid off on Dec. 19, but the company said this workforce reduction is unrelated to market conditions, and was planned for several months.

The refinery began producing fuel 10 months ago, converting a feedstock of animal fats and vegetable oils into a ready-to-use diesel fuel that can be used in everything from a pickup truck or a train, or power a factory. Braya boasted that its product reduces overall carbon emissions by more than 50 per cent when compared with petroleum-based diesel.

At the time, Braya CEO Todd O'Malley said "the future is bright for us," and that low-carbon fuel tax credits in the United States were helping make the business profitable.

...

But the U.S. $1 per gallon clean fuel production tax credit, which is part of the U.S. Inflation Reduction Act, and is set to expire on Dec. 31.

Fuel marketers in the United States have been urging Congress to extend the tax credit in order to support biodiesel producers, fuel retailers, trucking companies and the soy industry. READ MORE

Excerpt from Politico Pro Greenwire: Biofuel producers who want to take advantage of a new clean fuels tax credit next year say they desperately need to know how the Treasury Department intends to implement it.

Companies worried about the Biden administration’s delay in outlining the details of the credit — which is supposed to take effect Jan. 1 — are calling on Treasury to reveal some details now, so that producers can base year-end business decisions on what to expect in 2025.

“Lack of guidance today is already impacting biodiesel production,” said ADM and five other producers in a letter to Treasury Secretary Janet Yellen on Sept. 20, urging quick action on the tax credit in Section 45Z of the Internal Revenue Code. Without some kind of “safe harbor” guidance, production could grind to a halt, they warned.

Comments by a Treasury official on Tuesday that the administration is “actively” working on guidance for the tax credit didn’t offer much reassurance, said Paul Winters, communications director for Clean Fuels Alliance America, an industry group for biodiesel, renewable diesel and sustainable aviation fuel. READ MORE