Biofuels in the Big Beautiful Bill
After an investment slowdown driven by election-year uncertainty, the US House of Representative’s passage of the “Big Beautiful Bill” offers the first real signals of where US federal policy is heading. While the Senate will likely have changes, the Argus consulting team sees these key changes as a starting point on how markets are adjusting their strategy:
| Key Change | Market Implications | Open Questions |
|---|---|---|
| Extends 45Z credit to 2031 | Provides additional time for new biofuels projects to reach FID and operational status before the tax expires | Will the credit be made permanent to further support domestic biofuels production? |
| Restricts 45Z beneficiaries | Limiting only to producers using feedstocks from the US, Canada and Mexico, this 1) supports namely soybean, canola, and corn oil producers and 2) protects UCO and tallow producers against imports | 1) Could waste-based feedstocks in North America keep pace with biofuels demand? 2) will the inclusion of Canadian feedstocks negatively impact the development of Canadian biofuels refining projects? |
| Removes Indirect Land Use Change (ILUC) from carbon scoring under 45Z | Increases the credit benefits for crop-based pathways, specifically soybean and canola |
1) Can corn-based ethanol also qualify under 45Z when paired with carbon capture, renewable electricity, or the use of RNG as a heat source? 2) Will lower carbon intensity scores for ethanol make alcohol-to-jet pathways more competitive in SAF markets? 3) How will other jurisdictions treat ILUC considerations in their carbon scoring? Will a divergence in CI scores emerge between US federal and state or foreign formulas? |
| Carbon intensity scores for animal manure pathways | Provides greater incentives for using animal waste for biogas as a feedstock for fuels | 1) Can the transportation fleet absorb sufficient CNG to consume additional biogas? 2) Will biogas be allowed as a low carbon heat source for biofuels production? |
| Repeal of credit transfers | Restricts the ability of producers to monetize credits by transferring them, potentially impacting smaller producers who rely on such mechanisms | Will innovation be negatively impacted as demonstration scale projects lose this revenue source? |
| Limits on foreign ownership | Limits on the ownership stake and amount of foreign-held debt a biofuel refinery can have and still qualify for 45Z tax credits | Will these rules constrict available capital for the construction of new biofuels plants? |
North American farmers and larger, established US biofuels refiners may be the biggest winners from the current recommendations. The challenge that remains to be seen is where new RVO levels are set and if restricting imported feedstocks from 45Z benefits will negatively impact the biofuels industry’s ability to profitably produce sufficient volumes.
All information in this blog was compiled and penned by Chris Hairel, Vice President, Argus Consulting. Click here to learn more about how Argus consultants can support your business through bespoke research projects, price forecasting and market analysis.
Author: Chris Hairel, Vice President, Consulting, Oil products (biofuels)
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