China is ending an export tax rebate on used cooking oil, a common feedstock for renewable diesel, a move analysts say could raise prices and prompt U.S. producers to seek other options.
Chinese UCO exporters will no longer be eligible for a rebate on a 13% export duty as of Dec. 1, said a statement Friday by China’s Ministry of Finance and its State Taxation Administration.
The oil, classified as a waste feedstock, receives a very low carbon intensity score under U.S. low carbon fuel incentive programs, including California's low carbon fuel standard, and has become a target of domestic biofuel producers in recent years. UCO imports more than tripled in 2023, according to U.S. Census Bureau data; around half of all imports came from China.
“U.S. producers have been benefiting from the lower price for Chinese UCO on the market," said Paul Winters, director of public affairs for Clean Fuels Alliance America, which represents biomass-based diesel producers, "even though there's a tariff."
Chinese UCO is subject to a 7.5% tariff on top of an 8% tariff applied to all UCO imports. But Christopher Efird, founder and chief executive officer of NXTClean Fuels, a U.S. biofuel producer, said that while the additional 8% tariff on Chinese-origin UCO had not been enough to deter producers, additional price increases stemming from the termination of the export tax rebate could prompt some to look for alternate sources.
Christopher Efird“It was coming in at a significant discount to domestic used cooking oil or used cooking oil from some other places,” Efird said. “What will the long-term result be? We're going to have to see.”
A price bump caused by the lost rebate, Efird added, would only add to the challenges associated with imported Chinese UCO. The feedstock already faces scrutiny over fraud risks stemming from difficulties tracing its origin and demonstrating authenticity.
The issue has gained the attention of U.S. lawmakers. Six senators from rural states wrote to administration officials in June to express concern that Chinese UCO shipments may also include palm oil – which has been linked to deforestation and environmental damage – and urge a regulatory crackdown on Chinese UCO imports; U.S. biofuel and oilseed groups raised similar worries.
Even if the full financial hit of the lost rebate is passed on to U.S. buyers, however, it is unlikely to offer many new opportunities for U.S. feedstock growers. Used cooking oil currently enjoys around a 70-cent-a-gallon advantage over soy due to its lower carbon intensity classification in state-level clean fuel incentive programs, according to Scott Gerlt, chief economist at the American Soybean Association, which represents growers of another common biofuel feedstock.
“The end of the tariff rebate would cut into that but not eliminate it,” Gerlt said.
If the Inflation Reduction Act’s clean fuel production tax credit, known as 45Z, is implemented with an approach that rewards lower carbon intensity feedstocks with larger credits, that advantage could be compounded, Gerlt added.
Scott GerltCarbon intensity, or CI, “is material,” Efird said. “People are still going to fight for the CI and they're going to pay more to get the used cooking oil.”
The rebate adjustment on UCO is part of a package of Chinese export tax rebate changes for a range of exports, including aluminum, copper and batteries. But Efird and others suggested it could foreshadow future Chinese efforts to divert more UCO to domestic biofuel producers and reduce its own feedstock costs.
“There's more movement to keep a significant portion of this used cooking oil in China,” Efird said.
Several new bio-based diesel facilities are expected to come online in the country next year. Chinese biofuel producers have also raised concerns with Beijing over the quantity of exported UCO and reduced volumes available for domestic producers, according to USDA's annual Chinese biofuel report.
Meanwhile, the European Union in August imposed antidumping duties of up to 36.5% on Chinese biodiesel imports, erecting a new barrier to a major export market.
“It seems clear that China is trying to shift the feedstocks back, at least partially, to its own domestic producers and meet some of these new market opportunities where they can still export the fuel,” Winters said. “There's a little bit of a balance between their promotion of their own domestic production and their search for foreign currency.”
Adding to the uncertainty is whether, or when, President-elect Donald Trump acts on his campaign threat to impose a minimum tariff of 60% on Chinese imports.
“Then we'd have to see what the price elasticity of demand is and whether that will really result in significant reductions in Chinese supply,” said Andrew Shoyer, a trade lawyer at Sidley Austin, a global law firm. “So much is going on and so much might change in the next several months.”
