The Effects of US Policy Uncertainty

by John Campbell (Ocean Park/Biobased Diesel Daily) Policy chaos has contributed to a collapse in profit margins and a substantial decline in production, but higher RVOs and a modified 45Z credit could stimulate a quick revival.

The U.S. biobased diesel (BBD) industry has faced challenging times and an uncertain future frequently over the past 30 years. Led by farmers, it has continued to grow from very meager beginnings to a robust industry dominated by major oil companies accounting for an estimated $42 billion in economic impact.

The renewable fuels policy environment has never been as chaotic as it is today. Does renewable fuels policy fall under the rubric of “the green new scam” or is it an answer to the “energy emergency” declared by President Trump? Trying to outguess policy direction is futile, but we know that Trump 2.0 is far different than Trump 1.0, at least to date. In the first Trump administration, there were wins and losses for biofuels. For example, renewable volume obligations (RVO) under the federal Renewable Fuel Standard were set reasonably high, but they were mitigated by substantial amounts of small-refinery exemptions (SREs).

On tax policy, the industry is dependent on a new clean fuel production credit hooked to a carbon-intensity (CI) score included in section 45Z of the Inflation Reduction Act of 2022. Section 45Z was intended to replace the blenders tax credit (BTC), but the rules were not finalized by the Biden administration. While the U.S. Department of the Treasury and Internal Revenue Service released initial guidance regarding section 45Z and the production tax credit (PTC) this January, there have been further amendments as evidenced by the House committee’s draft bill in May to extend the 45Z tax credit through 2031 (from 2027). The consequence of this continuing ambiguity is that most renewable diesel and biodiesel producers are neither booking these tax credits nor able to monetize them. READ MORE