News
13/05/25
US budget bill would prolong 45Z, boost crops
New York, 13 May (Argus) — A proposal from House Republican tax-writers would
extend for four additional years a new tax credit for low-carbon fuels and
adjust the incentive to be more lenient to crops used for biofuels. Republicans
on the House Ways and Means Committee on Monday introduced their draft portion
of a far-reaching budget bill, which included various changes to Inflation
Reduction Act clean energy subsidies. But the "45Z" Clean Fuel Production
Credit, which requires fuels to meet an initial carbon intensity threshold and
then ups the subsidy as emissions fall, would be the only incentive from the
2022 climate law to last even longer than Democrats planned under the current
draft. The proposal represents an early signal of Republicans' plans for major
legislation through the Senate's reconciliation process, which allows
budget-related bills to pass with a simple majority vote. The full Ways and
Means Committee will consider amendments at a markup this afternoon, and House
leaders want the full chamber to vote on the larger budget bill before the US
Memorial Day holiday on 26 May. Afterwards, the proposal would head to the
Republican-controlled Senate, where lawmakers could float further changes. But
the early draft, in a chamber with multiple deficit hawks and climate change
skeptics that have pushed for a full repeal of the Inflation Reduction Act, is
remarkable for not just keeping but expanding 45Z. The basics of the incentive —
offering benefits to producers instead of blenders, throttling benefits based on
carbon intensity, and offering more credit to sustainable aviation fuel (SAF) —
would remain intact. Various changes would help fuels derived from US crops. The
most notable would prevent regulators measuring carbon intensity from
considering "indirect land use change" emissions that attempt to quantify the
risks of using agricultural land for fuel instead of food. Under current
emissions modeling, the typical dry mill corn ethanol plant does not meet the
45Z credit's initial carbon intensity requirement — but substantially more
gallons produced today would have a chance at qualifying without any new
investments in carbon capture if this bill were to pass. The indirect land use
change would also create the possibility for canola-based fuels, which are just
slightly too carbon-intensive to qualify for 45Z today, to start claiming some
subsidy. Fuels from soybean oil currently qualify but would similarly benefit
from larger potential credits. Still, credit values would depend on final
regulations and updated carbon accounting from President Donald Trump's
administration. Since the House proposal does not address the current law's
blunt system for rounding emissions values up and down, relatively higher-carbon
corn and canola fuels still face the risk of falling just below 45Z's required
carbon intensity threshold but then being rounded up to a level where they
receive zero subsidy. The House bill would also restrict eligibility to fuels
derived from feedstocks sourced in the US, Canada, and Mexico — an attempt at a
middle ground between refiners that have increasingly looked abroad for biofuel
inputs and domestic farm groups that have lobbied for 45Z to prioritize US
crops. That language would make more durable current restrictions on foreign
used cooking oil and significantly reduce the incentive to import tallow from
South America and Australia, a loss for major renewable diesel producers Diamond
Green Diesel, Phillips 66, and Marathon Petroleum. The provision would also hurt
US biofuel producer LanzaJet, which has imported lower-carbon Brazilian
sugarcane ethanol as a SAF feedstock to the chagrin of domestic corn ethanol
producers. The bill would also require regulators to set more granular carbon
intensity calculations for different types of animal manure biogas projects, all
of which are treated the same under current rules. Other lifecycle emissions
models treat some dairy projects at deeply negative carbon intensities. Those
changes to carbon intensity calculations and feedstock eligibility would kick in
starting next year, meaning current rules would remain intact for now. The
proposal would however phase out the ability of clean energy companies without
enough tax liability to claim the full value of Inflation Reduction Act
subsidies to sell those tax credits to other businesses. That pathway, known as
transferability, would end for clean fuel producers after 2027, hurting small
biodiesel producers that operate under thin margins in the best of times as well
as SAF startups that were planning to start producing fuel later this decade.
Markets unresponsive, but prepare for new possibilities There was little
immediate reaction across biofuel, feedstock, and renewable identification
number (RIN) credit markets, since the bill could be modified and most of the
changes would only take force in the future. But markets may shift down the
road. Limiting eligibility to feedstocks originating in North America for
instance could continue recent strength in US soybean oil futures markets. July
CBOT Soybean oil futures closed 3pc higher on Monday at 49.92¢/lb on the news
and have traded even higher today. The spread between soybean oil and heating
oil futures is then highly influential for the cost of D4 biomass-based diesel
RIN credits, which are crucial for biofuel margins and have recently surged in
value to their highest prices in over a year. The more lenient carbon accounting
will also help farmers eyeing a long-term future in renewable fuel markets and
will support margins for ethanol and biodiesel producers reliant on crops. Corn
and soy groups have pushed the government for less punitive emissions tracking,
worried that crop demand could wane if refiners could only turn a profit by
using lower-carbon waste feedstocks instead. The House bill, if passed, would
still run up against contradictory incentives from other governments, including
SAF mandates in Europe that restrict fuels from crops and California's efforts
to soon limit state low-carbon fuel standard credits for fuels derived from
vegetable oils. By Cole Martin and Matthew Cope Send comments and request more
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