Imported feedstocks such as used cooking oil are threatening the demand for U.S. soybean oil in the biodiesel industry. Fuel producers are turning away from conventional crop-based feedstocks like soybean oil in favor of waste feedstocks which are assessed by state and federal regulators producing fewer life cycle emissions. The result is that waste feedstocks receive larger low-carbon fuel standard (LCFS) credits in the production of biofuel.
Plus, in 2022, the Clean Fuel Production Credit (45Z) passed as part of the federal Inflation Reduction Act (IRA). It will generate more subsidy for fuels that produce fewer greenhouse gas emissions using the same assessment factors starting in 2025 when the current tax credits expire.
The IL Soybean Growers (ISG) took the lead to sound the alarm in the agricultural community about how 45Z will negatively impact the price of soybean oil. This provision dramatically reduces the incentive biofuel producers receive for soy biomass-based diesel from $1.00 per gallon to a mere thirty-five cents per gallon.
In addition, this policy would cost the average Illinois farmer over $3,300 per year and put our soy-based biodiesel producers at risk of shutting down, according to a recent study commissioned by Illinois Soybean Association (ISA). In fact, three soy biodiesel refiners recently closed in anticipation of this policy going into effect.
Since the IRA passed, overseas used cooking oil has become a more dominant player in the biomass-based diesel industry. The U.S. has seen an increase of over half a billion gallons of used cooking oil (UCO) displacing soybean oil because California favors UCO in its LCFS. Unfortunately, the most recent data shows that soybean oil makes up only 13.4% (first quarter 2024) of the biomass-based diesel market. In 2022, soybean oil made up 19.3% of the market, and in 2023 it was 17.2% of the California market. That decline in market share is expected to continue after the 45Z credit goes into effect.
Also of note, currently, soybean oil prices have fallen over 50% from a high of 89 cents per pound the month the IRA passed in August 2022 to only 43 cents per pound in October of 2024.
On the positive side, ISG has made headway to mitigate the impact of this detrimental policy on farmers:
- ISG pushed for passage of the first in the nation Sustainable Aviation Fuel (SAF) purchasing incentive, which will disallow imported feedstocks after 2028. (this is only an Illinois policy – not a national policy)
- Minnesota quickly followed using identical language. ISG negotiated with policymakers to ban foreign feedstocks from their SAF credits.
- ISG encouraged16 U.S. Senators (including Senators Duckworth and Durbin) to sign a letter to the U.S. Treasury stating they believe only domestic feedstocks should be eligible for credits funded with US taxpayer dollars.
- In September of 2024, 41 U.S. representatives signed a similar letter, including four that ISG worked with from the Illinois delegation .
- In October of 2024, with support from ISG, Sen. Sherrod Brown (D-OH) filed bipartisan legislation to codify domestic feedstocks into law.
At the end of the day, American tax dollars should be invested in domestic industries that use domestic feedstocks like Illinois grown soybeans to ensure our energy independence.
Please join ISG in this critical fight. Sign your name to the petition and implore your legislators to stop helping China and use American taxpayer dollars to help American farmers
As Illinois farmers, we write to urge U.S. policymakers representing Illinois to prioritize domestic agricultural feedstocks in biofuel policy.
The Clean Fuel Production Credit (45Z), passed into law in 2022, was intended to stimulate the development of a domestic fuel supply chain and promote the use of U.S. feedstocks to diversify and decarbonize American transportation fuels. However, it is failing to meet these objectives.
Tax credits funded by American taxpayers should not favor adversarial countries. They should first and foremost support biofuels produced from domestic feedstocks by U.S. fuel producers.
- 45Z should be rewritten to prioritize American energy independence by incentivizing the production of biofuels made with domestically produced feedstocks.
- State low-carbon fuel standard programs and the federal Sustainable Aviation Fuel (SAF) Tax Credit are driving demand for alleged foreign “waste” feedstocks over domestically produced corn, soybeans, and canola.
- These programs are based on carbon intensity models that do not account for the full lifecycle of these “waste” feedstocks. As a result, imports of used cooking oil from China increased from around 45 thousand metric tons (KMT) in 2022 to over 600 KMT in 2023.
- Import data strongly suggests that this used cooking oil is contaminated with palm oil from Southeast Asia. Palm oil production is linked to deforestation and human rights violations. It is appalling that the 45Z tax credit and California’s Low Carbon Fuel Standard fund these practices.
- Imports of tallow have increased by 400 percent over the past five years. While tallow is considered a waste feedstock, its production contributes to deforestation in the Brazilian rainforest. However, unlike domestic soy, tallow does not face a land use change penalty.
- Imports remain largely untested and unregulated. A series of traceability and verification tests must be mandated to ensure that all “waste” feedstocks are actually waste.
The current market dynamics are unsustainable for domestic soy biodiesel production and use. We must ensure that the 45Z tax credit primarily supports fuels produced domestically with U.S. feedstocks. This will allow American farmers, processors, businesses, investors, and end-users to benefit from the 45Z tax credit and the long-anticipated promise of new biofuel markets.