Banning the use of foreign biofuel feedstocks such as used cooking oil for a new tax credit could result in retaliation against U.S. farm exports, Agriculture Secretary Tom Vilsack said Tuesday.
The Treasury Department is under pressure from some lawmakers to limit eligibility for the new 45Z clean fuels tax incentive to fuels made from feedstocks sourced in the United States. The 45Z credit, which was created by the Inflation Reduction Act, takes effect in 2025.
“It's a tough issue, because if you essentially create some kind of significant restriction in the effort of trying to protect commodities and items that are grown and raised here, you essentially invite the entire world to do the same thing,” Vilsack told members of Growth Energy, an ethanol industry group.
“So, when we try to export corn, or we try to export soybeans, or we try to export pork, or we try to export poultry or beef or whatever, or ethanol, other countries go, ‘Wait a minute. They're restricting this over here to protect their industry. Okay? We'll do the same.’”
In a letter to the Treasury Department last week, more than 40 lawmakers said the Biden administration should make it clear that the 45Z credit would only apply to biofuels produced from domestic feedstocks. The lawmakers say that state and federal policies are driving demand for used cooking oil and tallow sourced overseas.
The National Oilseed Processors Association and the American Soybean Association support the lawmakers’ request.
Sen. Sherrod Brown, D-Ohio, responded to Vilsack's comments in a post on X. "Allowing American tax dollars to go to foreign farmers out of fear of retaliation is ridiculous. The Administration needs to put American farmers first — anything else is a betrayal of the people who feed & power our country," the Brown post said.
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The debate over the 45Z credit is coming as the California Air Resources Board is proposing a 20% cap on the amount of renewable diesel made from soybean or canola oil that can qualify for the state’s low carbon fuel standard. Critics say the cap could drive more demand for foreign feedstocks for renewable diesel.
While warning against restrictions on foreign feedstocks, Vilsack said it was important to guard against fraudulent imports that are reported as used cooking oil but are actually palm oil.
Vilsack said the administration is working to issue regulations for the 45Z tax credit before Biden leaves office Jan. 20.
“There's just a genuine effort and interest on behalf of the administration to get this done done before Jan. 20, and it's on the top of my list,” he said. “So, everybody knows I'm very interested in this at the department.”
The value of the 45Z credit will vary depending on the carbon intensity of the biofuel. USDA has been providing input to Treasury on the agricultural practices that can lower the carbon score of feedstocks such as corn and soybeans.
Farm groups have complained that Treasury's guidance for a temporary tax credit for sustainable aviation fuel is too restrictive.
Corn ethanol can qualify for the 40B credit, if the grain is grown with three practices that are considered climate-smart – no-till, cover crops and energy-efficient fertilizer – or if the ethanol producer uses carbon capture and sequestration to reduce greenhouse gas emissions. Soy oil qualifies if the soybeans were grown using no-till and cover crops on the same acreage.
The 40B credit expires at the end of the year to be replaced by 45Z.
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