The rising demand for renewable fuel and subsequent tax credits to incentivize production has led to a significant spike in imported feedstocks like used cooking oil and tallow, which some say could undermine the domestic oilseed industry and result in fraudulent materials entering the market.
Animal fat and vegetable oil imports more than doubled between 2020 and 2023, according to the Foreign Agricultural Service. Imports of used cooking oil (UCO) from China, which more than tripled in 2023, have contributed significantly to the increase.
Federal policies like the national Renewable Fuel Standard and a blender’s tax credit, coupled with California’s Low Carbon Fuel Standard, have driven greater demand for renewable diesel. Biofuel tax credits also offer more for feedstocks like UCO or tallow that have a lower carbon intensity as measured by the Energy Department's GREET model.
These incentives and the subsequent rise in imports have domestic soybean processors worried their own investments in the biofuel industry will not pay off.
“Every pound of imported feedstock really does take a pound of domestic soybean capacity,” said Kailee Tkacz Buller, President and CEO of National Oilseed Processors Association. “We’ve made all this capacity for homegrown soybean oil, and instead foreign feedstocks are coming in to fill that void that we’re here to fill.”
NOPA represents U.S. soybean crushers such as Cargill and ADM. It says the rise in imports comes as the domestic soybean industry has expanded crushing capacity by 30% and has invested billions of dollars to hit renewable fuel volumes.
In addition to Chinese imports, NOPA and others in the industry are closely tracking all imported feedstocks, including tallow and yellow grease.
The Renewable Fuel Standard volumes that EPA set for 2023 through 2025 “were so completely off the mark” that it constrained the market and disadvantaged domestic feedstocks in comparison to imported UCO and tallow, said Paul Winters, director of public affairs and federal communications for Clean Fuels Alliance America.
Paul Winters, Clean Fuels AllianceNOPA believes biofuel tax credits included in the Inflation Reduction Act are incentivizing the sharp increase in feedstock imports. As a result, the group plans to push for the new 45Z tax credit to be solely for domestic feedstock producers. The current 40B credit for sustainable aviation fuel allows registered fuel importers to receive incentives. The 40B credit will be replaced by the 45Z incentive next year.
“We’re okay with it coming in, but we don’t think it should qualify for the tax credit,” Buller said of foreign feedstock.
There is now an oversupply of oils and fats in the U.S. market, which is impacting everyone’s prices, said Winters. Additionally, the domestic and international supply of soybean and soybean oil is “depressing” prices.
An S&P Global Commodity Insights study commissioned by NOPA found that domestically produced feedstocks are on track to support an additional 1.4 billion gallons of renewable diesel and biodiesel by 2030.
These findings make it clear the U.S. oilseed industry is more than capable of meeting demand for fuel, Buller said in a statement on the study, which came out Tuesday.
The industry is also pushing for greater traceability and verification when it comes to these feedstock imports. Rumors have circulated for months that some of the product entering the U.S. market is fraudulent.
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Recently, lawmakers including some Senate Agriculture Committee members, gave voice to these concerns. Sens. Chuck Grassley, R-Iowa, and Roger Marshall, R-Kan., led a bipartisan letter to EPA, USDA, the U.S. Trade Representative and Customs and Border Protection raising questions about UCO tracing and verification.
In the letter, they echoed concerns from NOPA and others in the industry that UCO may be blended with virgin vegetable oils like palm oil, which is tied to environmentally harmful practices such as deforestation in Southeast Asia. This practice could classify as fraudulent value distortion of the commodity to take advantage of U.S. tax incentives.
“The Biden administration has created vigorous standards to verify, not just trust, American producers, and it is imperative that the same scrutiny is applied to imported feedstocks,” the senators wrote.
The lawmakers listed a number of questions for the agencies, which all oversee this issue in some capacity. Primarily, lawmakers want the agencies to confirm if any imported UCO are counterfeit.
There’s currently no proof that any fraudulent feedstock has entered the market, but given the skyrocketing volumes and tax credit system, tracing the point of origin is “essential,” Buller said.
Following an address at the Clean Fuels Alliance America's annual fly-in and stakeholder meeting, Secretary Tom Vilsack said pending guidance for the 45Z tax credit could improve confidence in UCO by setting standards for verification. He said with future standards he's hopeful "that we can make a competitive argument that it makes more sense to support American agriculture than it does transporting a bunch of used cooking oil from faraway places," which avoids some of the import verification process.
EPA and California have regulations to audit and test UCO, but there’s no clear definition of the feedstock, which can make it challenging, Buller said. In addition to greater auditing, NOPA is pushing for greater agency collaboration on the issue.
“It's very complicated and I think the reason you're hearing so much about potential fraud is that everyone's trying to figure out if there is fraud, how do you prove it?” Buller said. “Well, each one of these agencies has a piece of that puzzle.”
Buller suggested the U.S. industry and policymakers could take some notes from Europe, which has increased its auditing and testing.
Previously, a lot of the Chinese UCO imports went to Europe. But when there were instances years ago of companies mislabeling palm oil as UCO, Europe launched a trade investigation for Chinese UCO, biodiesel and renewable diesel, Winters said.
After Europe increased its scrutiny, China shifted its UCO market to the United States. This history has caused some of the uncertainty among domestic industry groups.
Winters said Clean Fuels Alliance America is working with other trade associations to develop investigative data on whether fraudulent UCO exists. He agreed that the rise in feedstock imports has an impact on domestic producers, and said that if a biofuel producer or business is caught using fraudulent UCO, it could be damaging to the entire industry’s reputation.
However, he emphasized that there is no real evidence that the imports are fraudulent. Some have pointed to shipments headed to one destination and then converted to another as possible fraudulent activity, but this is likely more of a spot market transaction, said Winters.
“The argument we keep hearing from others and that we simply can't buy into, is that, you know, there's so much of it, it must be fraudulent,” Winters said. “The rumors are being generated by people who don't like competition between their feedstocks, their fuels and others.”
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