US food company Darling Ingredients says a new US tax credit for low-carbon fuels is already boosting demand for its feedstocks and fuel, setting the company up to profit even if the rules of the incentive shift.
The Inflation Reduction Act's "45Z" credit was always expected to help Darling, which has partnered with US refiner Valero on multiple US biofuel facilities and markets low-carbon biofuel feedstocks like animal fats that earn more subsidy under the incentive than conventional vegetable oils. Guidance around 45Z issued by former president Joe Biden also cut off opportunities for fuels derived from canola oil and imported used cooking oil, potentially boosting demand for Darling's animal fats.
The company this year is seeing "improving" animal fat prices and demand for low-carbon feedstocks, both from the company's Diamond Green Diesel joint venture with Valero and from other processors, chief executive Randall Stuewe said on earnings call Thursday.
At the same time, the Biden guidance left out answers on thorny questions about the credit, saying for instance that agencies will provide clarity later on how refiners can obtain necessary third-party certification for sustainable aviation fuels (SAF) and how they can apply for special emissions rates for unique fuel pathways. Plus, existing guidance is preliminary, meaning President Donald Trump's administration could shift credit rules when designing formal regulations. Congress could also make changes.
But Darling executives were confident not only that they can make deals around the current guidance but that the company could adjust if policy changes later this year.
"Could the notice change, or could a new notice be put out? That's certainly possible," executive vice president for strategy Robert Day said. "We are confident, given the global network that we have and the integration between Darling and Diamond Green Diesel and Valero, that we'd be able to adapt to whatever regulation holds."
Day added that he expects other producers to "struggle" to deal with the complexity. Lower domestic production of biofuels coupled with lower imports will likely raise prices of US renewable identification number (RIN) credits and state low-carbon fuel standard credits, supporting margins for producers that remain, he said.
Diamond Green Diesel sold 294mn USG of renewable diesel during the fourth quarter last year, down by nearly 13pc from the same period last year. A project to produce up to 15,000 b/d of SAF at its Port Arthur, Texas, plant is now fully operational, Valero said last week, and Diamond Green Diesel is considering other projects to up SAF capacity, Darling chief operating officer for North America Matt Jansen said.