Inflation Reduction Act a Rebirth for Biofuels

The Inflation Reduction Act (also known as the Manchin-Schumer bill) is set to invest $369 billion into energy and climate programs largely  through tax credits, the largest climate investment in human history. By 2030 it is expected to reduce GHG emissions by 40%. 

The bill contains significant tax provisions promoting biodiesel, renewable diesel and SAF(Sustainable Aviation Fuel). It is effectively a rebirth of the biofuels industry for both producers and collectors. Without the extension and expansion of biofuels credits the industry would not be competitive nor a contributor to reducing effects of greenhouse gasses and climate change.

Blender’s and Fuels Credit Critical to Industry

For 2023-24 there is an extension of the $1 per gallon biodiesel and renewable diesel blender’s tax credit and the $0.50 alternative fuels credit. Between 2025 and 2027 these incentives would move toward a tax credit system based on the amount of carbon reduction. The value of the credits would vary between companies based on the carbon reduction achieved. This credit system, modeled after California’s LCFS (Low Carbon Fuel Standard) is set to vary with the measure of carbon intensity producers achieve. 

A quick snapshot of what it means to biodiesel, renewable diesel and SAF producers looks like this:

Blender’s Tax Credit 2025-2027

(sliding scale)*

While this bill didn’t go nearly as far as climate experts wanted, it represents a significant step in the direction of mitigating climate change and allows the U.S. to reclaim a mantle of leadership in the global effort to forestall climate change.

Opposition from Some Industry Groups

However, two trade groups of fuel retailers oppose the bill. 

Their contention is that the bill provides excessive subsidies (or at least unequal) to newer SAF fuels ($1 for biodiesel vs $1.75 for SAF). The trade groups (NATSO and SIGMA) contend that  truckers deliver 80% of goods in America, and truckers will have to pay more for biodiesel fuel which will in turn raise the price of goods to the American consumer.

While the bill is far from perfect, and is larded with gifts to the fossil fuel industry, it represents the largest investment in greenhouse gas reduction and renewable fuels ever passed by Congress. The bill now returns to the house and if passed, goes to the President for signature.

It is expected to pass the house and move to the President’s desk for signature on August 12.

*The measure also includes a blenders tax credit for SAF for 2023-’24, ranging from $1.25 to $1.75 per gallon. Similar to the sliding scale for biodiesel and renewable diesel based on greenhouse-gas (GHG) reductions and carbon intensity, from 2025-’27, SAF would be eligible for a credit up to $1.75 per gallon for those that reduced GHG emissions by 100 percent—whereas a biodiesel that reduced GHG emissions by 100 percent would be eligible for $1 per gallon. Similarly, SAF that reduces GHG emissions by 57 percent would be eligible for a tax credit of 35 cents per gallon while a biodiesel or renewable diesel fuel with the same carbon-reduction profile would receive 20 cents per gallon.