3 min read

US Midwest Biofuels Outlook Part 2: Challenges with 45Z

US Midwest Biofuels Outlook Part 2: Challenges with 45Z

In part 1 of this series, we explored the current landscape of the Midwest biofuels market. As discussed, challenges have persisted across the industry—from production and feedstock sourcing to imports and exports. Yet, despite the uncertainty, several potential opportunities lie ahead.

One of the biggest concerns for industry stakeholders right now is the 45Z Clean Fuel Production Credit. A part of Biden’s Inflation Reduction Act, the incentive aimed at encouraging the production of low-carbon fuels.

This credit is meant to replace previous biofuel tax incentives that expired at the end of 2024. While it has potential to highly benefit the industry, the Trump administration has left stakeholders understandably concerned about exactly what it will look like.

Uncertainty remains while 45Z idles during a 90-day delay for public comment. This post will explore what this delay means, and the future of this benefit in the Midwest.

What is the 45Z Tax Credit?

At its core, the 45Z tax credit is designed to reward producers for creating fuels that lower greenhouse gas emissions. The credit is calculated on a per-gallon basis, and its value depends on the carbon intensity of the fuel’s production process. The cleaner the process, the greater the benefit.

  • The underlying objectives all aim at broader sustainability progress:
  • To encourage biofuel producers to adopt cleaner production methods
  • To reduce reliance on fossil fuels
  • To drive further innovation in renewable energy

As promising as this credit sounds, uncertainty around its implementation is causing major headaches for the industry.

Lack of Clear Guidance Causing Hesitance for Market

Although the Biden administration released initial guidance on the 45Z tax credit in January 2025, the rules have yet to be finalized. That leaves producers in limbo. Without clear-cut regulations, many are hesitant to move forward with investment decisions or even claim the tax credit at all.

The economic and trade challenges facing the Midwest biofuels market are some of the most severe in the country. Declining profit margins have already forced several biodiesel production facilities to shut down, highlighting the fragile state of the industry.

One major example is Future Fuel’s decision to put its 60-million-gallon-per-year biodiesel plant in Arkansas on an extended maintenance shutdown. The company cited uncertainty surrounding the 45Z tax credit as the key reason behind the move.

Future Fuel’s shutdown alone is expected to remove roughly 15 million D4 RINs from the 2025 market. The change will tighten the supply of these critical compliance credits even more.

The renewable diesel sector is grappling with similar pressures. Narrow margins are forcing some producers to reconsider their long-term strategies. A few companies are even weighing the possibility of stepping away from biofuels entirely.

During the recent Iowa Renewable Fuels Summit, Monte Shaw, Executive Director of the Iowa Renewable Fuels Association, summed up the frustration:

“There’s still a lot of uncertainty. There’s still a lot of hesitancy to go forward and claim the tax credit.”

Why This Matters for the Midwest Biofuels Market

For the Midwest, the persistent uncertainty is especially troubling. The region is home to hundreds of ethanol and biodiesel plants. Many of these businesses have already been operating on razor-thin margins.

Several factors about the delay in finalizing 45Z are creating issues:

  • Producers can’t plan ahead: Without clear rules, they can’t determine whether their fuel qualifies for the credit, making it difficult to sign contracts or secure financing.
  • Feedstock sourcing is up in the air: Some renewable fuel producers rely on imported used cooking oil, but early indications suggest that may not qualify under 45Z. If true, this could completely reshape supply chains.
  • Investments are on hold: Many companies were gearing up for plant expansions or infrastructure improvements to comply with 45Z requirements, but now they’re waiting for more certainty before moving forward.

What’s Next?

For now, the biofuels industry is in a holding pattern—waiting on the Treasury Department and IRS to provide final guidance. But one thing is clear: stakeholders can’t afford to sit back and hope for the best.

Producers, industry groups, and policymakers need to keep up the pressure, advocating for clarity and fairness in how the credit is structured. The sooner these regulations are finalized, the sooner the Midwest biofuels sector can fully leverage the 45Z credit and move forward with confidence.

While the uncertainty is frustrating, the potential benefits of 45Z remain significant. If implemented effectively, this credit could help drive the next wave of biofuel innovation. This would help to ensure the Midwest remains a leader in renewable energy.

Get Access to Vital Biofuels Market Data and Crucial Analyst Insights

In a volatile biofuels market, clarity is key. With uncertainty around the 45Z tax credit and tightening margins, ResourceWise’s Prima CarbonZero platform delivers the market intelligence, pricing insights, and policy analysis companies need to navigate risk and stay ahead.

From regulatory impacts to feedstock trends, our expert analysis helps businesses make informed decisions in uncertain times. Learn more about Prima CarbonZero today.

LEARN MORE