Biofuel Producers Shutting Down Without 45Z Guidance

By Cassidy Walter

Brad Wilson said if the U.S. Department of the Treasury doesn’t issue regulations on the 45Z Clean Fuel Production Credit soon, the 45-billion-gallon-a-year biodiesel plant he manages in northwest Iowa may have to idle.

“You’re going to be selling at a huge loss and just rolling the dice, hoping when the final guidelines come out from Treasury the credit value is enough to cover the loss,” said Wilson, President of Western Iowa Energy, a biodiesel plant located in Wall Lake, Iowa. “There’s no way we are going to take that risk in today’s market.”

Iowa Renewable Fuels Association Executive Director Monte Shaw said some plants are already shutting down.

“Biomass-based diesel fuels” — a catch-all term that includes biodiesel, renewable diesel, and sustainable aviation fuel — are often made from soybean oil. According to Clean Fuels Alliance America (Clean Fuels), a trade association that represents producers of these fuels, biomass-based diesel currently adds $1.30 in value to a bushel of soybeans, and if plants are forced to idle it will have a direct impact on soybean oil demand.

“We anticipate somewhere between 25% to 75% of the industry idling by the end of this year or into January if there is no guidance,” said Kurt Kovarik, vice president of federal affairs for Clean Fuels. The organization estimates a 25% industry shutdown would correlate to 250 million pounds of unprocessed soybean oil.

Why Shutdowns?

The biomass-based diesel industry has enjoyed a tax credit on and off for several years. Today biodiesel and renewable diesel in this category can claim a $1-per-gallon credit. The credit is factored into purchasing and sales decisions and can mean the difference between operating at a loss or profit. Starting in January this credit expires and the industry will qualify for the 45Z Clean Fuel Production Credit, created by the Inflation Reduction Act.

How much a biofuel plant will be eligible to claim under the 45Z credit is tied to the company’s ability to reduce carbon emissions. Until Treasury finalizes how carbon intensity (CI) scores can be measured, no company knows for sure how much they will be able to claim. Rumors abound on when Treasury will release guidance, including that it may be after 2025 has already begun.

This makes it impossible for biodiesel and renewable diesel producers to know whether they are purchasing feedstocks like soybean oil at a profitable price. The same is true for booking fuel sales.

Fall is typically when producers buy the feedstock needed for first quarter production, but Wilson said, “You hardly see anybody buying feedstock right now or doing sales for biodiesel in Q1.”

Looking for a Safe Harbor

To avoid further shutdowns, the industry is urging Treasury to issue “safe harbor” regulations that would allow producers to calculate a CI score and estimate a credit value while awaiting final regulations.

Last month the Iowa Renewable Fuels Association organized a letter to Treasury Secretary Janet Yellen. Signed by six Iowa biodiesel producers, the letter said, “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.”

Shaw said since sending this letter, those industry warnings are starting to unfold.

Clean Fuels also sent the Secretary a letter in August and this was preceded by a letter in July signed by 52 U.S. Representatives and Senators. Both letters asked, among other things, for Treasury to issue safe harbor guidance by Sept. 1 of this year.

Fighting Fatigue

Kovarik said Clean Fuels is continuing to communicate to leaders in Washington about the urgency of the situation but is up against a fatigue at Treasury from fielding requests related to the Inflation Reduction Act.