Biofuel groups are expressing increased concern about the lack of formal guidance from the Treasury Department for a clean fuel tax credit set to take effect Jan. 1, saying investment has already slowed due to the uncertainty.
The 45Z Clean Fuel Production Credit will replace existing credits for biomass-based diesel and sustainable aviation fuel. However, the Treasury Department has yet to even propose guidance on how fuel producers can qualify for the new credit.
On Tuesday, conflicting reports were published about the likelihood that final guidance would be made public before President Joe Biden leaves office Jan. 20.
“Treasury anticipates issuing guidance before the end of the administration that will enable eligible producers to claim the 45Z credit for 2025,” the department said in an emailed statement to Agri-Pulse. But a spokesperson declined to say on the record whether that guidance would be in final or proposed form.
Some biodiesel production interests say the slowdown has begun.
“We’ve started to see some scaling back of production already, and I anticipate that’s going to get worse, way worse by the time we get to the end of this calendar year,” said Donnell Rehagen, CEO of Clean Fuels Alliance America.
Ahead of the Thanksgiving break, members of Clean Fuels Alliance America visited more than 80 congressional offices, trying to press lawmakers about the delays in guidance for 45Z.
Rehagen said the industry buys and produces fuel far in advance, but buyers don't know how much the product is worth under 45Z. He said one producer had first two quarters of product sold by November of last year but this year was struggling to sell product for December.
“It’s getting very, very daunting for us,” Rehagen said.
Without guidance soon, Rehagen said he expects production to pause, drying up demand for feedstocks such as soybean oil and animal fats.
Patrick Gruber, director and CEO of Gevo, a SAF producer, said the lack of guidance makes it challenging to get financing to build production plants. Currently, producers are raising money on equity. Clarity on 45Z would make it a lot easier, he said.
“The bottom line is optimism and excitement about 45Z is fading pretty quickly in the renewable fuels industry,” said Geoff Cooper, president and CEO of the Renewable Fuels Association.
Currently, Cooper said there hasn’t been a significant slowdown in ethanol production and he doesn’t anticipate a pullback because the ethanol margin is not as reliant on a tax incentive.
Geoff Cooper, Renewable Fuels AssociationThe lack of guidance could also have broader consequences across the industry by slowing investment in expansion projects and new technology.
Cooper said many efficiency and low-carbon projects are on hold now due to uncertainty, which affects jobs and the rural economy.
Some of these include capital-intensive projects that integrate renewable electricity on-site.
“Nobody knows the rules of the game,” Cooper said. “There are just too many unanswered questions and so all of those jobs, all of those projects that were expected to be well underway right now aren’t happening.”
Continued delays in the 45Z guidance could also hurt farmers who work with biofuel producers by supplying low-carbon feedstocks. Under the 40B credit, only specific climate-smart agriculture practices implemented together for certain crops qualify.
Groups have urged the administration to de-bundle these practices and include additional eligible crops and practices for 45Z. They argue this allows more farmers from all parts of the country to participate in these markets.
However, without a rule in place on what qualifies as climate-smart agriculture, and how that fits in with 45Z, it could be too late for farmers to adjust 2025 growing season plans.
Cooper said ethanol and biodiesel producers need to implement robust systems to manage climate-smart commodities, which could involve hiring new employees and other investments. These rules also require significant investment from farmers, which is challenging without clarity or certainty that they will receive an adequate return for making changes, he said.
“You’re just not going to make that leap of faith unless you have rules and regulations from the Treasury,” Cooper added.
For ethanol or biofuel producers who are waiting for guidance before taking a first step in some investments, if guidance does not come out by January, next year could be a “lost year” he said.
Failing release of the 45Z guidance, extending the suite of existing tax credits like 40A, 40B and the second generation biofuel producer credit would provide a smoother transition, Cooper said.
Should the delay continue, and the industry is still without guidance by mid-January, Cooper said 45Z could be swept up into discussions about the Inflation Reduction Act and be revised completely. He said this could leave industry without guidelines for another year, another case for extending existing credits to carry over until a new Congress and administration.
It's unlikely lawmakers consider an extension of the existing tax credits before the end of the year.
Senate Finance Committee Ranking Member Mike Crapo, R-Idaho, who is expected to chair the panel next Congress, said he has not been engaged in conversations about a biofuel tax credit extension this year. However, he said it’s an issue the committee will be discussing.
Idaho Republican Sen. Mike CrapoPresident-elect Donald Trump and Republicans controlling majorities of the House and Senate have made it clear that tax policy is a top priority for next Congress, said John Fuher, vice president of government affairs at Growth Energy. He said biofuel tax policy will be on the table next year with or without guidance.
Fuher said there’s no “real window” to do tax legislation at the end of this year, largely because of the anticipated focus in the next Congress.
However, Rep. Randy Feenstra, R-Iowa, who sits on the House Ways and Means Committee, said it’s “shameful” that guidance has not been released and emphasized the importance of the credit to biofuel plants in Iowa.
He said in his view that it would be important to have a backup should guidance not come out by Jan. 1. He suggested a six-month extension on current credits, saying talks were “in the works right now.”
“I understand how important it is to the biofuels industry,” Feenstra said. “They need certainty.”
For more news, go to: www.Agri-Pulse.com
