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

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

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