Fuel Groups Warn of Higher Prices without Tax Credit Certainty

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November 13, 2024

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by Kim Chipman and Tarso Veloso (Bloomberg) More than 30 trade groups across the energy, farming and transport sectors say a lack of US government guidance on tax credits is putting Americans at risk of higher fuel prices. The current US Congress should extend credits set to expire next month, including a $1 a gallon biodiesel tax incentive that’s been in place since 2005, they say, to ensure market stability as fuelmakers, airlines and crop processors wait for details on how new credits that take effect in January will work.

“Absent the certainty provided by a bridge package, American consumers would face rising energy and fuel prices, and our organizations and the members we represent would face regulatory, legal, and tax filing uncertainty,” the groups including those representing fuel retailers and truck stops wrote in a letter to congressional leaders on Wednesday. READ MORE

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Excerpt from Argus Media: A new US tax credit for low-carbon fuels will likely begin next year without final guidance on how to qualify, leaving refiners, feedstock suppliers, and fuel buyers in a holding pattern.

The US Treasury Department this month pledged to finalize guidance around some Inflation Reduction Act tax credits before President Joe Biden leaves office but conspicuously omitted the climate law's "45Z" incentive for clean fuels from its list of priorities. Kicking off in January and lasting through 2027, the credit requires road and aviation fuels to meet an initial carbon intensity threshold and then ups the subsidy as the fuel's emissions fall.

The transition to 45Z was always expected to reshape biofuel markets, shifting benefits from blenders to producers and encouraging the use of lower-carbon waste feedstocks, like used cooking oil. And the biofuels industry is used to uncertainty, including lapsed tax credits and retroactive blend mandates.

But some in the market say this time is unique, in part because of how different the 45Z credit will be from prior federal incentives. While the credit currently in effect offers $1/USG across the board for biomass-based diesel, for example, it is unclear how much of a credit a gallon of fuel would earn next year since factors like greenhouse gas emissions for various farm practices, feedstocks, and production pathways are now part of the administration's calculations.

This delay in issuing guidance has ground to a halt talks around first quarter contracts, which are often hashed out months in advance. Renewable Biofuels chief executive Mike Reed told Argus that his company's Port Neches, Texas, facility — the largest biodiesel plant in the US with a capacity of 180mn USG/yr — has not signed any fuel offtake contracts past the end of the year or any feedstock contracts past November and will idle early next year absent supportive policy signals. Biodiesel traders elsewhere have reported similar challenges.

Across the supply chain, the lack of clarity has made it hard to invest. While Biden officials have stressed that domestic agriculture has a role to play in addressing climate change, farmers and oilseed processors have little sense of what "climate-smart" farm practices Treasury will reward. Feedstock deals could slow as early as December, market participants say, because of the risk of shipments arriving late.

Slowing alt fuel growth

Recent growth in US alternative fuel production could lose momentum because of the delayed guidance. The Energy Information Administration last forecast that the US would produce 230,000 b/d of renewable diesel in 2025, up from 2024 but still 22pc below the agency's initial outlook in January. The agency also sees US biodiesel production falling next year to 103,000 b/d, its lowest level since 2016.

The lack of guidance is "going to begin raising the price of fuel simply because it is resulting in fewer gallons of biofuel available," said David Fialkov, executive vice president of government affairs for the National Association of Truck Stop Operators.

And if policy uncertainty is already hurting established fuels like biodiesel and renewable diesel, impacts on more speculative but lower-carbon pathways — such as synthetic SAF produced from clean hydrogen — are potentially substantial. An Argus database of SAF refineries sees 810mn USG/yr of announced US SAF production by 2030 from more advanced pathways like gas-to-liquids and power-to-liquids, though the viability of those plants will hinge on policy.

The delay in getting guidance is "challenging because it's postponing investment decisions, and that ties up money and ultimately results in people perhaps looking elsewhere," said Jonathan Lewis, director of transportation decarbonization at the climate think-tank Clean Air Task Force.

Tough process, ample delays

Regulators have a difficult balancing act, needing to write rules that are simultaneously detailed, legally durable, and broadly acceptable to the diverse interests that back clean fuel incentives — an unsteady coalition of refiners, agribusinesses, fuel buyers like airlines, and some environmental groups. But Biden officials also have reason to act quickly, given the threat next year of Republicans repealing the Inflation Reduction Act or presidential nominee Donald Trump using the power of federal agencies to limit the law's reach.

US agriculture secretary Tom Vilsack expressed confidence last month that his agency will release a regulation quantifying the climate benefits of certain agricultural practices before Biden leaves office, which would then inform Treasury's efforts. Treasury officials also said this month they are still "actively" working on issuing guidance around 45Z.

If Treasury manages to issue guidance, even retroactively, that meets the many different goals, there could be more support for Congress to extend the credit. The fact that 45Z expires after 2027 is otherwise seen as a barrier to meeting US climate goals and scaling up clean fuel production. READ MORE

Excerpt from The Trucker: NATSO, representing truck stops and travel centers, and SIGMA: America’s Leading Fuel Marketers are urging Congress to harness growing momentum for the extension of a series of expiring tax credits during the Lame Duck session, including the $1 per gallon biodiesel blenders’ tax credit.

The associations, which represent nearly 80 percent of fuel sold at retail, applauded Senator Chuck Grassley for his recent public comments stating the biodiesel tax is among 20 included in a tax package that “must be passed.”

According to a media release, NATSO and SIGMA noted that the organizations appreciate Senator Grassley’s leadership on this issue as well as all the Members of Congress who have co-sponsored H.R. 9060, bipartisan legislation introduced by Representatives Mike Carey, Annie Kuster and Claudia Tenney that would extend the biodiesel blenders’ tax credit for one year.

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The Inflation Reduction Act, which was signed into law by President Biden after passing Congress on a purely partisan basis, created a new Clean Fuel Production tax credit known as “45Z.” Despite repeated requests, the industry has not received guidance from the Biden Administration regarding what the value of that credit will be for different fuels. This uncertainty, combined with the scheduled expiration of the biodiesel blenders’ credit at the end of 2024 is hurting biodiesel producers, fuel retailers, trucking companies, and the entire soy complex.

A diverse group of stakeholders support H.R. 9060, including the American Trucking Associations, Energy Marketers of America, Illinois Soybean Growers, Iowa Biodiesel Board, Kentucky Soybean Association, Mid Atlantic Soybean Association, Minnesota Soybean Growers Association, National Association of Convenience Stores, National Energy and Fuel Institute, Ohio Soy Association, Small Advanced Biofuel Refiners, and Truckload Carriers Association.

According to the release, biodiesel and renewable diesel have historically been the most widely used biofuels in commercial trucking and remain the most viable option for reducing carbon emissions from the nation’s trucking, home heating oil, and rail industries in the near term. The biodiesel tax credit directly lowers the cost of diesel fuel for truck drivers, which in turn reduces shipping costs and helps lower the prices consumers pay for goods transported by truck.

“Extending this tax credit would ensure that motor carriers can continue to cut carbon emissions within existing fleets while also keeping fuel prices and consumer costs down,” the release said. “The biodiesel blenders’ tax credit has been instrumental in developing a strong renewable diesel industry in the United States, driving significant growth in production. The U.S. biodiesel and renewable diesel market expanded from approximately 100 million gallons in 2005 to around 4 billion gallons in 2023, all while contributing to lower transportation-related carbon emissions.” READ MORE

Excerpt from NATSO: As you know, beginning January 1, 2025, and following enactment of the Inflation Reduction Act of 2022 (PL 117-169), the tax code institutes a planned shift from the longstanding structure of energy tax incentives flowing from the Energy Policy Act of 2005 toward a new “technology-neutral” energy tax regime. This new regime, anchored by the Section 48E clean electricity investment tax credit, 45Y clean electricity production tax credit, and 45Z clean fuels credit, will represent a significant change for which many of our companies and industries have spent much of 2024 planning. Unfortunately, the Treasury Department has not yet implemented final regulations for any of these policies, meaning we approach 2025 with significant uncertainty.

Bipartisan House and Senate Members have proposed numerous pieces of legislation that would constructively impact this scheduled transition and prevent unnecessary disruption in energy and fuel markets. These proposals in many cases include extensions of prior tax incentives that would preserve existing, longstanding and settled rules for a limited period of time. These policies include:

• IRC § 40A – Biodiesel tax credit

• IRC § 40B – Sustainable aviation fuel tax credit

• IRC § 40(b)(6) – Second generation biofuel producer credit

• IRC § 48(c)(1) – Qualified fuel cell investment tax credit

• IRC § 48(c)(7) – Qualified biogas investment tax credit

• IRC § 6426, 6427 – Alternative fuel tax credit

Particularly given the upcoming 2025 tax policy debate, enacting a modest, short-term tax package this fall would help to ensure energy and agriculture market stability and predictability while preserving grounds for an open energy and tax debate in the 119th Congress.

Absent the certainty provided by a bridge package, American consumers would face rising energy and fuel prices, and our organizations and the members we represent would face regulatory, legal, and tax filing uncertainty. The combination of these effects would be economic headwinds at a time when Congress and tax-writers are attempting to consider more broad, holistic reforms and extensions in the tax system. READ MORE

Excerpt from Clean Fuels Alliance America: Clean Fuels Alliance America and nine national and state associations wrote to House and Senate leaders requesting a one-year extension of the §40A Biodiesel and Renewable Diesel Tax Incentive. With fewer than 60 days till the scheduled transition to the new §45Z Clean Fuel Production Credit and insufficient guidance from the U.S. Treasury, the one-year extension of existing policy is needed to provide certainty and stability to stakeholders in the biodiesel and renewable diesel industry.

“Due to the significant uncertainty created by this lack of guidance, American clean fuel producers and their partners in agriculture and fuel marketing are facing tremendous confusion in the marketplace,” the groups write. “It is therefore critical that Congress provide a temporary, short-term extension of the existing 40A blenders credit to allow the necessary transition and a smooth integration of the new credit into business plans.”

Treasury has requested comment on the §45Z Clean Fuel Production Credit and issued guidance on registration requirements and the prevailing wage and apprenticeship requirements. But Treasury has not provided guidance sufficient to enable taxpayers and industry stakeholders to calculate the tax credit value for the fuels they produce. Many producers have not received the registration letters necessary to claim the credit.

Kurt Kovarik, Clean Fuels Vice President of Federal Affairs, added, “Farmers, fuel producers, and marketers needed to know the value of the new credit months ago to successfully negotiate feedstock contracts and fuel offtake agreements for the start of 2025. The industry is facing extreme uncertainty that threatens to undermine clean fuel production, jobs, economic opportunities for farmers, and near-term carbon reductions. A one-year extension of the existing policy would provide time for Treasury and the industry to navigate the transition to the new credit.”

A copy of the letter is available for download.

ABOUT CLEAN FUELS ALLIANCE AMERICA

Made from an increasingly diverse mix of resources such as recycled cooking oil, soybean oil, and animal fats, the clean fuels industry is a proven, integral part of America’s clean energy future. Clean Fuels Alliance America is the U.S. trade association representing the entire biodiesel, renewable diesel and sustainable aviation fuel supply chain, including producers, feedstock suppliers and fuel distributors. Clean Fuels receives funding from a broad mix of private companies and associations, including the United Soybean Board and state checkoff organizations. READ MORE

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