Markets thrive when they are informed and have a measure of certainty that includes benchmarks on which they can rely. Biodiesel producers in the US have been lacking this certainty, and a majority of their production capacity remains idled as a result.
A Fastmarkets biodiesel production survey under way in the week ending Friday, March 14 revealed that about 38% of biodiesel capacity was being used, with an additional 122 million gallons per year (mmgy) entering the start-up phase of production.
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There was also capacity for 30 mmgy that operators said they would begin to operate once their Canadian Low Carbon Fuel Standard (LCFS) pathway was approved and 30-40 mmgy that said it was a “coin-flip” as to whether they would produce anything in April 2025.
“[Our plant in the US state of] Michigan is in startup mode after an extended maintenance shutdown,” Roy Strom, president and chief executive officer of W2Fuel, said. “We will run some production to ensure everything is functioning correctly [but] we will not ramp-up production until we have some clarity on tax policy and that margins are there to support operating.
“If we could at least get [the US] Treasury [Department] to issue a statement, [saying] that we could rely on the guidance provided thus far, that might be enough to get us going again,” he added. “Unfortunately, the [silence] we are getting from Washington is slowly suffocating us.”
Another independent producer had similar sentiments.
“We know most of the independent bio producers are on the [market] sidelines, and even the integrated soy producers are struggling,” the second producer said. “ADM is laying off production employees. It seems the only folks running are those in advantaged situations or [which have additional] credit [markets] available.”
Another sign that integrated soy producers were struggling appeared when ADM registered soybean oil for delivery at the CBOT on March 10, from its facility in the city of Mexico in Missouri. The Mexico facility has a biodiesel plant on site.
“It’s a bad sign when an integrated producer is selling oil instead of producing soybean oil. It shows that the business model is damaged or broken,” another integrated producer said, who wished to remain anonymous.
45Z Policy still unclear
Lack of clarity on the new 45Z credit policy in the US has most independent producers sitting on the market sidelines unless they have regional credit markets they can use to help maintain a margin.
FutureFuel (FF) had been one of those companies not producing. On March 13, the biofuel producer announced that it was delaying the announcement of its financial and operating results for the fourth quarter and full year of 2024. It said that the delay was needed to allow its independent auditor additional time to complete certain procedures.
The transition from the Blenders Tax Credit (BTC) to the 45Z took effect on January 1, 2025, and has been anything but smooth. The BTC had provided a $1 per gallon credit to blenders, but that has now expired.
The 45Z credit is earned by the producer and is only available to US domestic producers. The 45Z is also claimed annually on an income tax return, less frequently than the BTC.
The 45Z credit is based on the carbon intensity of the fuel, providing a credit value that is generally 40-70 cents below the BTC.
Renewable identification number credits (RINs) are the mechanism that is supposed to incentivize production. They move higher when production is needed. But because the 45Z never received “final rule” status, this has left the market unsure of its viability, and looking for additional clarity from the current administration, as Strom has said.
