Uncertainty Persists in US Biofuels as 45Z Delayed 90 Days
ResourceWise: Jan 24, '25
As the biodiesel industry wraps up 2024, producers find themselves at a crossroads. On one hand, production remains robust under the expiring US biodiesel tax credit (BTC). Conversely, 2025 looms with major uncertainty about how federal policy will shape the market.
Key Challenges with the Biodiesel Tax Credit
A significant source of concern is the future of the BTC. Reports suggest that the Biden administration plans to leave decisions regarding 45Z greenhouse gas (GHG) rules and payouts to the incoming Trump administration.
This lack of clarity has unsettled some producers, mainly those in agriculture. The ag sector has already experienced a challenging trading environment, which only complicates the matter.
Many producers are now calling for a BTC extension into 2025 to bridge any gaps. But a provision like that would have to wait for a broader legislative package which may not take shape until mid-2025.
With future policy uncertain, many companies have been maximizing production under the existing BTC to get the savings while they can. The start of 2025 could see a slowdown in activity as producers aim to minimize risk until there’s more clarity about the legislation.
Outlook for Imports and US Supply
A tighter supply and demand dynamic appears to be on the horizon for 2025.
Next year will see the demand for biofuels increase where mandates are taking effect, such as the EU. Industry insiders predict that some importers may decline to ship fuel to the US in 2025. Without guaranteed retroactive BTC payouts, shipping to the country may not yield profitable returns for overseas sellers.
To put this into perspective, imports of biodiesel, renewable diesel, and sustainable aviation fuel (SAF) totaled approximately 690 million gallons through October 2024, or about 828 million gallons annually. If imports decrease next year, the US biodiesel market could experience substantial supply challenges.
Tightening Domestic Markets
At the same time, next year’s biomass-based diesel mandate will add an estimated 500 million gallons of renewable fuels demand under RFS2 (the Renewable Fuel Standard). Combined with the anticipated exit of imports, this could tighten the domestic market by about 1.33 billion gallons.
The squeezing would offset most of the current surplus in biomass-based diesel, which stands at 1.53 billion gallons above the 2024 mandate.
The Disconnect in Feedstock Prices
Despite the looming supply crunch, domestic feedstock markets remain subdued. Uncertainty around US policy for 2025 appears to outweigh the optimism for a tighter supply/demand balance.
A notable example is soybean oil, a critical feedstock in the production of biodiesel. Soybean oil prices have dropped significantly, falling to deeper discounts than palm oil. This decline connects to broader long-term policy support questions, even as US soybean oil stocks have reached historically low levels.
A Market in Transition
Even with an unclear road ahead, the biodiesel industry is closing out 2024 on a high note. The BTC drove strong production throughout the year. However, the uncertainty surrounding policy in 2025 presents serious challenges for both producers and importers.
Demand seems poised to outpace supply over the next year. But decision-making confidence in the market is tentative. Whether future policies will support growth or stall momentum depends on the decisions made as the new US administration takes over.
The coming months will be critical for the industry as stakeholders look for clarity. Until then, the biodiesel market will need to balance its near-term opportunities with long-term uncertainties carefully.
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