The Biden administration and congressional Democrats have steered billions into climate policy, including biofuel tax incentives. Industry groups are counting on bipartisan support to persuade GOP congressional leaders and the incoming Trump administration to leave those incentives in place.
During the campaign, President-elect Donald Trump called Biden’s climate policies the “green new scam” and has said he would rescind climate-related funding provided by the Inflation Reduction Act of 2022.
Investors are feeling some uncertainty about federal policy and don’t have the necessary “comfort” to make billion dollar investments on new clean energy facilities, said Tim Urban, who oversees tax policy at Bracewell’s Policy Resolution Group. A tax bill that Congress will likely consider next year could include modifications to or repeal of the IRA tax provisions, he said.
If Trump does want to revise certain provisions, he would have to get Congress to pass new legislation, Urban said.
Given these factors and the support in Congress, Urban said there’s still hope for the IRA. But industry groups and trade associations are going to need to make their case in front of the new administration and Congress in order to preserve certain elements of the law, he continued.
“I'm still optimistic that much, if not all, the IRA may be salvageable, but I think there's a lot of work to be done,” said Urban.
For the biofuel industry, the IRA contains key tax policies like 40B and 45Z. The temporary 40B guidance applies to sustainable aviation fuel production and is set to run until Dec. 31. The Treasury Department is currently considering rules for the 45Z credit, which will replace 40B on Jan. 1, and applies to renewable diesel, other biofuels and SAF.
Those in the biofuel industry are still processing the results of the election and deciding what they should anticipate and push for moving forward, said Paul Winters, director of public affairs and federal communications at Clean Fuels Alliance America.
He said there’s already uncertainty in the industry given the delays with the 45Z credit. He added the Renewable Fuel Standard is also expected to be delayed.
It’s unlikely that the Biden administration could put out final or even proposed regulations on 45Z before Trump’s inauguration day, said Geoff Cooper, president and CEO of the Renewable Fuels Association.
“If that’s the case then all this 45Z and other credits in the Inflation Reduction Act really all falls in the lap of the incoming Trump administration,” Cooper said.
Geoff Cooper, president and CEO of the Renewable Fuels Association
A new administration will likely pause all pending regulatory items to do their own review before proceeding with any rules, Cooper said. This could mean more uncertainty around the timeline for 45Z, the IRA tax credit program and the biofuel industry as a whole.
During the first Trump administration there was support of ethanol, and the former president championed things like year-round E-15. Cooper said there’s hope this support will continue.
The regulatory timeline is really the piece giving the industry pause. While 45Z is a big part of this, the future of other regulatory items like the RFS and tailpipe emissions standards are also a question that impacts the industry.
This uncertainty could lead to more pauses in investments, Cooper said. Farmers make decisions about their upcoming planting season a year in advance, and need some guidance now if they want to participate in 45Z, he continued.
Ethanol producers similarly need clarity soon about what technology to invest in and install, as this process can take months or even years to complete, Cooper said.
“You're absolutely seeing investments sitting on the sideline that should have been deployed, could have been deployed much earlier this year had there been some certainty and some clarity around how the 45Z tax credit is actually going to operate in practice,” Cooper said.
Looking ahead at the next Congress, Cooper said he believes things like 45Z and other IRA provisions will be included in broader tax policy discussions and policies.
There is an opportunity during the lame-duck session to provide some short-term clarity on tax policy by extending some existing credits like 40B. Cooper said lawmakers could introduce legislation or a package that extends a slate of biofuel tax credits.
“Taxpayers are utilizing that credit today so that absolutely could be one of half a dozen or so existing biofuel tax credits that Congress might decide, ‘you know what, let's extend those one more year, while we're sorting everything else out for the long term,’” Cooper said referring to 40B.
Winters said there is optimism a Trump administration could continue some support of IRA biofuel credits due to the bipartisan support in Congress for the industry.
House Speaker Mike Johnson, R-La., has also pledged to scale back large portions of the IRA is his party retains control of the chamber next Congress. However, he’s also suggested taking a more surgical approach and has said he does not intend to cut all clean energy tax credits in the law.
“You’ve got to use a scalpel and not a sledgehammer,” Johnson told CNBC in September. “Because there’s a few provisions in there that have helped overall.”
These comments followed an August letter from 18 House Republicans, including several House Agriculture Committee members and representatives of ag districts. In the letter, they pressed Johnson to preserve some elements of the IRA including energy tax credits.
Members wrote these credits have “spurred innovation, incentivized investment and created good jobs,” throughout the country and in many Republican districts.
“We hear from industry and our constituents who fear the energy tax regime will once again be turned on its head due to Republican repeal efforts,” lawmakers wrote. “A full repeal would create a worst-case scenario where we would have spent billions of taxpayer dollars and received next to nothing in return.”
“But if this administration can't get out that guidance, I would hope that the next could,” Budzinski said.
She added that she believes bundling requirements for conservation practices that are currently included in 40B should not be included in 45Z. Budzinski said this requirement is too stringent and has stalled the ability to “unleash this new market.”
In the next Congress, she said she’s hopeful maintaining conservation practices in the buildout of a sustainable aviation fuel market will be a priority, along with ensuring those practices are not required to be bundled.
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