News
13/05/25
US budget bill would prolong 45Z, boost crops
US budget bill would prolong 45Z, boost crops
New York, 13 May (Argus) — A proposal from House Republican tax-writers would
extend for four additional years a new tax credit for low-carbon fuels and
adjust the incentive to be more lenient to crops used for biofuels. Republicans
on the House Ways and Means Committee on Monday introduced their draft portion
of a far-reaching budget bill, which included various changes to Inflation
Reduction Act clean energy subsidies. But the "45Z" Clean Fuel Production
Credit, which requires fuels to meet an initial carbon intensity threshold and
then ups the subsidy as emissions fall, would be the only incentive from the
2022 climate law to last even longer than Democrats planned under the current
draft. The proposal represents an early signal of Republicans' plans for major
legislation through the Senate's reconciliation process, which allows
budget-related bills to pass with a simple majority vote. The full Ways and
Means Committee will consider amendments at a markup this afternoon, and House
leaders want the full chamber to vote on the larger budget bill before the US
Memorial Day holiday on 26 May. Afterwards, the proposal would head to the
Republican-controlled Senate, where lawmakers could float further changes. But
the early draft, in a chamber with multiple deficit hawks and climate change
skeptics that have pushed for a full repeal of the Inflation Reduction Act, is
remarkable for not just keeping but expanding 45Z. The basics of the incentive —
offering benefits to producers instead of blenders, throttling benefits based on
carbon intensity, and offering more credit to sustainable aviation fuel (SAF) —
would remain intact. Various changes would help fuels derived from US crops. The
most notable would prevent regulators measuring carbon intensity from
considering "indirect land use change" emissions that attempt to quantify the
risks of using agricultural land for fuel instead of food. Under current
emissions modeling, the typical dry mill corn ethanol plant does not meet the
45Z credit's initial carbon intensity — but substantially more gallons produced
today would have a chance at qualifying without any new investments in carbon
capture if this bill were to pass. The indirect land use change would also
create the possibility for canola-based fuels, which are just slightly too
carbon-intensive to qualify for 45Z today, to start claiming some subsidy. Fuels
from soybean oil currently qualify but would similarly benefit from larger
potential credits. Still, credit values would depend on final regulations and
updated carbon accounting from President Donald Trump's administration. Since
the House proposal does not address the current law's blunt system for rounding
emissions values up and down, relatively higher-carbon corn and canola fuels
still face the risk of falling just below 45Z's required carbon intensity
threshold but then being rounded up to a level where they receive zero subsidy.
The House bill would also restrict eligibility to fuels derived from feedstocks
sourced in the US, Canada, and Mexico — an attempt at a middle ground between
refiners that have increasingly looked abroad for biofuel inputs and domestic
farm groups that have lobbied for 45Z to prioritize US crops. That language
would make more durable current restrictions on foreign used cooking oil and
significantly reduce the incentive to import tallow from South America and
Australia, a loss for major renewable diesel producers Diamond Green Diesel,
Phillips 66, and Marathon Petroleum. The provision would also hurt US biofuel
producer LanzaJet, which has imported lower-carbon Brazilian sugarcane ethanol
as a SAF feedstock to the chagrin of domestic corn ethanol producers. The bill
would also require regulators to set more granular carbon intensity calculations
for different types of animal manure biogas projects, all of which are treated
the same under current rules. Other lifecycle emissions models treat some dairy
projects at deeply negative carbon intensities. Those changes to carbon
intensity calculations and feedstock eligibility would kick in starting next
year, meaning current rules would remain intact for now. The proposal would
however phase out the ability of clean energy companies without enough tax
liability to claim the full value of Inflation Reduction Act subsidies to sell
those tax credits to other businesses. That pathway, known as transferability,
would end for clean fuel producers after 2027, hurting small biodiesel producers
that operate under thin margins in the best of times as well as SAF startups
that were planning to start producing fuel later this decade. Markets
unresponsive, but prepare for new possibilities There was little immediate
reaction across biofuel, feedstock, and renewable identification number (RIN)
credit markets, since the bill could be modified and most of the changes would
only take force in the future. But markets may shift down the road. Limiting
eligibility to feedstocks originating in North America for instance could
continue recent strength in US soybean oil futures markets. July CBOT Soybean
oil futures closed 3pc higher on Monday at 49.92¢/lb on the news and have traded
even higher today. The spread between soybean oil and heating oil futures is
then highly influential for the cost of D4 biomass-based diesel RIN credits,
which are crucial for biofuel margins and have recently surged in value to their
highest prices in over a year. The more lenient carbon accounting will also help
farmers eyeing a long-term future in renewable fuel markets and will support
margins for ethanol and biodiesel producers reliant on crops. Corn and soy
groups have pushed the government for less punitive emissions tracking, worried
that crop demand could wane if refiners could only turn a profit by using
lower-carbon waste feedstocks instead. The House bill, if passed, would still
run up against contradictory incentives from other governments, including SAF
mandates in Europe that restrict fuels from crops and California's efforts to
soon limit state low-carbon fuel standard credits for fuels derived from
vegetable oils. By Cole Martin and Matthew Cope Send comments and request more
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