Donald Trump's return to the White House next year will give Republicans the power to rethink biofuel incentives that have spurred a boom in production under President Joe Biden.
Biden-controlled agencies may try to use their final months in power to push through tax credit guidance that encourages biorefineries to do more to reduce their greenhouse gas emissions. But in both the executive branch and in Congress, Republicans will soon have leverage to shift away from Democrats' recent efforts to tie biofuel incentives to climate impacts.
The Inflation Reduction Act's "45Z" tax credit, starting in January, will offer greater federal subsidies to fuels that produce fewer emissions. The Biden administration could issue long-awaited guidance spelling out how the government will calculate carbon intensities for different fuels and feedstocks, but that might just delay the inevitable. A Republican-controlled Congress could use the Congressional Review Act next year to repeal any guidance lawmakers see as too restrictive to farmers, and a Trump administration will regardless be able to develop new rules that reprioritize which companies benefit from the credit.
Republicans could focus on imported feedstocks, which have surged in recent years as refiners cashed in on state clean fuel incentives by sourcing waste feedstocks primarily from Asia and South America. Farm groups, fearing that ample supply of foreign used cooking oil and tallow is curbing demand for domestic biofuel feedstocks like soybean oil, have pushed for the US government to restrict refiners using foreign feedstocks from claiming 45Z.
An outright ban has legal risks, but Trump officials could think more creatively around deterring feedstock imports – potentially through guidance that is generous to crop-based fuels or that imposes carbon penalties on feedstocks that travel long distances to reach the US. Expected tariff hikes on foreign imports could alone curb demand for global biofuel feedstocks, with Chinese used cooking oil a likely target. But products like Brazilian tallow and Canadian canola oil potentially could be affected as well.
Congress could also complicate the tax picture before Trump takes office. Senator Chuck Grassley (R-Iowa) said before the election Tuesday that he expects a proposal to extend the $1/USG blenders tax credit for biomass-based diesel another year to feature in an end-of-year package. Current bill language would not repeal 45Z but would allow fuel to claim whichever incentive offers the larger benefit, likely boosting crop-based diesels set to earn much less than $1/USG under 45Z.
There is no guarantee a lame duck Congress will take up such a proposal, especially with various other policy priorities on lawmakers' agendas. But expiring biofuel credits could feature in negotiations, including a blenders credit for sustainable aviation fuel and a credit that benefits cellulosic ethanol producers, biofuel lobbyists said.
A potential vehicle for longer-lasting policy changes is an expected fight in Congress next year over tax policy. Republicans, hoping to pay for extending Trump-era tax cuts that would otherwise expire, could do so by repealing Inflation Reduction Act incentives. But farm state lawmakers, especially in a House of Representatives that looks like it will be closely contested between Republicans and Democrats, would also have leverage to push for some federal biofuel incentives to remain, even if they look different than the current 45Z mechanism.
Importantly too, the 45Z incentive is set to expire after 2027. Whether details are hashed out in Congress this year, next year, or afterwards, Trump and his allies will be able to tie any credit extension to desired policy objectives. There are two bills in Congress that would extend the credit into the 2030s, but the only one with Republican support bars foreign feedstocks from qualifying.
Federal momentum around boosting biofuels in a second Trump term will also depend on how policies beyond tax credits develop. Increasingly ambitious state climate policies – such as California's low-carbon fuel standard, which could be made more stringent this week – could keep planned renewable diesel and sustainable aviation fuel capacity additions on track.
At the same time, retaliatory tariffs from China could hurt farmers more than higher domestic biofuel sector demand helps. And Trump could use planned updates to federal renewable fuel blend mandates to either assuage biofuel producers struggling to plan around policy uncertainty or to lower compliance costs for oil groups that strongly backed his candidacy.
