24/10/15
Tax credit delay risks growth of low-CO2 fuels
Tax credit delay risks growth of low-CO2 fuels
New York, 15 October (Argus) — A new US tax credit for low-carbon fuels will
likely begin next year without final guidance on how to qualify, leaving
refiners, feedstock suppliers, and fuel buyers in a holding pattern. The US
Treasury Department this month pledged to finalize guidance around some
Inflation Reduction Act tax credits before President Joe Biden leaves office but
conspicuously omitted the climate law's "45Z" incentive for clean fuels from its
list of priorities. Kicking off in January and lasting through 2027, the credit
requires road and aviation fuels to meet an initial carbon intensity threshold
and then ups the subsidy as the fuel's emissions fall. The transition to 45Z was
always expected to reshape biofuel markets, shifting benefits from blenders to
producers and encouraging the use of lower-carbon waste feedstocks, like used
cooking oil. And the biofuels industry is used to uncertainty, including lapsed
tax credits and retroactive blend mandates. But some in the market say this time
is unique, in part because of how different the 45Z credit will be from prior
federal incentives. While the credit currently in effect offers $1/USG across
the board for biomass-based diesel, for example, it is unclear how much of a
credit a gallon of fuel would earn next year since factors like greenhouse gas
emissions for various farm practices, feedstocks, and production pathways are
now part of the administration's calculations. This delay in issuing guidance
has ground to a halt talks around first quarter contracts, which are often
hashed out months in advance. Renewable Biofuels chief executive Mike Reed told
Argus that his company's Port Neches, Texas, facility — the largest biodiesel
plant in the US with a capacity of 180mn USG/yr — has not signed any fuel
offtake contracts past the end of the year or any feedstock contracts past
November and will idle early next year absent supportive policy signals.
Biodiesel traders elsewhere have reported similar challenges. Across the supply
chain, the lack of clarity has made it hard to invest. While Biden officials
have stressed that domestic agriculture has a role to play in addressing climate
change, farmers and oilseed processors have little sense of what "climate-smart"
farm practices Treasury will reward. Feedstock deals could slow as early as
December, market participants say, because of the risk of shipments arriving
late. Slowing alt fuel growth Recent growth in US alternative fuel production
could lose momentum because of the delayed guidance. The Energy Information
Administration last forecast that the US would produce 230,000 b/d of renewable
diesel in 2025, up from 2024 but still 22pc below the agency's initial outlook
in January. The agency also sees US biodiesel production falling next year to
103,000 b/d, its lowest level since 2016. The lack of guidance is "going to
begin raising the price of fuel simply because it is resulting in fewer gallons
of biofuel available," said David Fialkoff, executive vice president of
government affairs for the National Association of Truck Stop Operators. And if
policy uncertainty is already hurting established fuels like biodiesel and
renewable diesel, impacts on more speculative but lower-carbon pathways — such
as synthetic SAF produced from clean hydrogen — are potentially substantial. An
Argus database of SAF refineries sees 810mn USG/yr of announced US SAF
production by 2030 from more advanced pathways like gas-to-liquids and
power-to-liquids, though the viability of those plants will hinge on policy. The
delay in getting guidance is "challenging because it's postponing investment
decisions, and that ties up money and ultimately results in people perhaps
looking elsewhere," said Jonathan Lewis, director of transportation
decarbonization at the climate think-tank Clean Air Task Force. Tough process,
ample delays Regulators have a difficult balancing act, needing to write rules
that are simultaneously detailed, legally durable, and broadly acceptable to the
diverse interests that back clean fuel incentives — an unsteady coalition of
refiners, agribusinesses, fuel buyers like airlines, and some environmental
groups. But Biden officials also have reason to act quickly, given the threat
next year of Republicans repealing the Inflation Reduction Act or presidential
nominee Donald Trump using the power of federal agencies to limit the law's
reach. US agriculture secretary Tom Vilsack expressed confidence last month that
his agency will release a regulation quantifying the climate benefits of certain
agricultural practices before Biden leaves office , which would then inform
Treasury's efforts. Treasury officials also said this month they are still
"actively" working on issuing guidance around 45Z. If Treasury manages to issue
guidance, even retroactively, that meets the many different goals, there could
be more support for Congress to extend the credit. The fact that 45Z expires
after 2027 is otherwise seen as a barrier to meeting US climate goals and
scaling up clean fuel production . But rushing forward with half-formed policy
guidance can itself create more problems later. "Moving quickly toward a policy
that sends the wrong signals is going to ultimately be more damaging for the
viability of this industry than getting something out the door that needs to be
fixed," said the Clean Air Task Force's Lewis. By Cole Martin Send comments and
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