Despite a flurry of last-minute action from the Biden administration on biofuel policy, producers remain uncertain about how reliable those decisions will be in the new Trump administration.
The Biden Treasury Department released a notice of proposed guidance earlier this month that detailed some guidance on how the 45Z tax credit for clean fuel producers would be executed. It was later coupled with an updated GREET model from the Department of Energy and a proposal from USDA on how to account for climate-smart agriculture as biofuel feedstocks.
Initially, the moves were met with a slight sigh of relief from biofuel sectors that have been pleading for market clarity through administration guidance. However, Clean Fuels Alliance and others are less confident that producers can rely on the notices and are urging the Trump administration to act.
“We have waited a long time for 45Z,” said Donnell Rehagen, CEO of Clean Fuels Alliance America. “We’ve been begging for guidance.”
Speaking to reporters on the sidelines of the recent Clean Fuels Conference in San Diego, Rehagen said what the Treasury Department put out doesn’t resolve the uncertainty in the biodiesel industry specifically. He said the Trump administration needs to act promptly to resolve some of the confusion or else fuel production will remain low or stalled.
He estimated that half of biodiesel production capacity is idle, with some producers stalled while others have cut back production volume.
“It really has a dampening effect on the ability for our producers to know what their next step should be,” Rehagen said.
Donnell Rehagen, CEO of Clean Fuels AllianceUncertainty hurts both feedstock growers and processors as no one knows the true worth of their product, he said.
More uncertainty follows the flurry of executive orders and regulatory freezes signed by President Donald Trump in the first days of his administration.
Tim Urban, who oversees tax policy at Bracewell’s Policy Resolution Group, said the biofuels industry is right to have concerns about the reliability of the 45Z notice from Treasury and the Trump executive orders, saying it is an issue tax lawyers are trying actively to decipher.
If a biofuel producer were to rely on definitions in the January 45Z notice by Treasury, the producer could make a strong argument before a judge that it was relying on something published by the IRS, according to tax policy experts at the Clean Fuels Conference.
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However, the issue is murky because the notice was never published in the Internal Revenue Bulletin, the weekly publication in which IRS announces official rulings. Since the notice was omitted, it could “water down” how much producers wanting to claim the credit can rely on it, Urban said.
The executive orders Trump signed have had a more immediate impact on spending rather than taxation, Urban said. For example, one order paused spending for some clean energy projects. The order is likely to pull back money allocated under the Inflation Reduction Act of 2022 but not spent, but is less likely to affect tax provisions.
“The only way you can amend or repeal a tax law is by passing another law,” Urban said.
However, the regulatory freeze stopped agencies from putting out new guidance programmed during the Biden administration, Urban said. The Trump administration will get through the regulatory freeze period, do some analysis and meet with congressional Republicans to settle on one message before moving forward with any clarity on 45Z credits, he said.
“What I think is tantalizing, exciting and a little bit scary is that we’re sort of on the brink of the cliff,” Urban said. “The question is are we going to jump off? What’s going to happen?”
Enactment of the IRA created huge enthusiasm about potential tax advantages for biofuel but not all those enthusiasts now have the same optimism because of the delays and complexities.
Urban said the agriculture sector has a lot of influence in what happens next.
“One of the questions that you always wonder with something this big, is will the U.S. ag sector speak with one voice?” Urban said.
The House Ways and Means Committee's menu of possible cuts in the reconciliation bill includes stripping 45Z and other IRA tax provisions. Republicans from biofuel-heavy states like Iowa have indicated they want 45Z to be spared from potential cuts to other IRA tax incentives.
More tweaks to the guidance could come from the new administration. Those who were not satisfied with the Treasury notice, such as the biogas and renewable natural gas (RNG) sector, could be at the front of the line seeking changes.
Russ Sullivan, a tax attorney and former Senate Finance Committee staff director, said at the conference that Republicans will have to unite behind a reconciliation bill. It’s likely to fulfill campaign promises to cut back on the IRA but that 45Z is likely safe from cuts.
Beyond 45Z, the biofuel industry has several other outstanding priorities they will seek from the Trump administration. These include updated Renewable Volume Obligations (RVOs) for blending with transportation fuels for the 2026-2028 period.
“We need to come together with a unified message,” Rehagen said. “If as an industry we’re divided, we’re divided over feedstocks, we’re divided over which fuel we want to be talking about, that’s not going to be helpful to any policy efforts.”
He acknowledged it’s difficult to advocate as one industry rather than on behalf of oneself as the “pie gets tighter.”
Anthony Reed, a partner in energy at FGS Global, thinks officials returning from the first Trump administration may take more moderate positions on the Renewable Fuel Standard because of their previous experience.
Additionally, more fossil fuel companies have invested in renewable fuels since the previous administration and may be more likely to advocate for biodiesel in policies like RVOs.
“There’s going to be a lot of interest still in helping the biofuel sector,” Reed said.
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