Deal struck by Senate Democrats includes biodiesel tax credit, new SAF incentive

Sen. Joe Manchin, D-West Virginia, announced July 27 that he has come to an agreement with Senate Majority Leader Chuck Schumer, D-New York, on a budget-reconciliation package advancing President Joe Biden’s and the Democrats’ agenda, referred to in its modified form as the “Inflation Reduction Act of 2022.” Manchin was the major force in blocking Biden’s Build Back Better plan in the Senate late last year and early this year.

According to the Senate Democrats, the Inflation Reduction Act “will make a historic down payment on deficit reduction to fight inflation, invest in domestic energy production and manufacturing, and reduce carbon emissions by roughly 40 percent by 2030. … The new proposal for the FY2022 Budget Reconciliation bill will invest approximately $300 billion in deficit reduction and $369 billion in energy security and climate change programs over the next 10 years. Additionally, the agreement calls for comprehensive permitting reform legislation to be passed before the end of the fiscal year. Permitting reform is essential to unlocking domestic energy and transmission projects, which will lower costs for consumers and help us meet our long-term emissions goals.”

Manchin said the act “addresses our nation’s energy and climate crisis by adopting commonsense solutions through strategic and historic investments that allow us to decarbonize while ensuring American energy is affordable, reliable, clean and secure. The need to balance all of these critical energy priorities is no longer open to debate given the energy threats we face. … This legislation ensures that the market will take the lead, rather than aspirational political agendas or unrealistic goals, in the energy transition that has been ongoing in our country. The Inflation Reduction Act of 2022 invests in the technologies needed for all fuel types—from hydrogen, nuclear, renewables, fossil fuels and energy storage—to be produced and used in the cleanest way possible. It is truly all of the above, which means this bill does not arbitrarily shut off our abundant fossil fuels. It invests heavily in technologies to help us reduce our domestic methane and carbon emissions and also helps decarbonize around the world as we displace dirtier products.”

Included in the massive budget-reconciliation bill are tax credits important to the biobased diesel industry.

“There are a number of very positive tax provisions for sustainable aviation fuels (SAF), biodiesel, renewable diesel, renewable natural gas, hydrogen, carbon sequestration and other clean fuels and manufacturers of clean fuels,” Larry Schafer of Playmaker Strategies, a longtime biofuels and tax expert, told Biobased Diesel Daily. “Short-term extensions for some, which transition to a technology-neutral approach in 2025 through 2027—but really good stuff. Every company and industry will be affected differently by the details of the many different provisions, but overall, this package will provide much-needed incentives, a solid baseline for what is happening today and a forward-looking boost to the manufacturers of clean energy.”

The bill provides for a two-year as-is extension of the $1 per gallon biodiesel and renewable diesel blenders tax credit as well as the 50-cent alternative fuels tax credit. The credits are set to expire at the end of this year, but the Inflation Reduction Act would extend them through 2024.

After that, in 2025-’27, the incentives would transition to a tax-credit system previously put forth by Sen. Ron Wyden, D-Oregon, based on carbon reduction. The value of the Wyden-style credit would vary from producer to producer and plant to plant, depending on their specific carbon reductions. The system would be similar to how California’s Low Carbon Fuel Standard is set up, with carbon intensity determining the value producers receive from carbon credits.

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.

In addition, the threshold for fuels to qualify for the clean fuel production credit in 2025-’27 was lowered, making it less challenging to meet. In previous versions, a fuel was required to meet a minimum standard of 35 kilogram of CO2 equivalent per million BTUs (kg CO2e/mmbtu), but this has been relaxed to 50 kg CO2e/mmbtu.

Fischer-Tropsch coprocessing is included in the definition of SAF, but both SAF provisions exclude hydrotreatment coprocessing of lipids.

“The Advanced Biofuels Association is pleased that the new Senate Inflation Reduction Act will provide extensions for renewable diesel and clean fuel production tax credits, as well as create a sustainable aviation fuel credit, which are essential to reducing greenhouse gas emissions from our nation’s highest emitting sector—transportation,” said Michael McAdams, president of the Advanced Biofuels Association. “Our low-carbon liquid fuels, which by law must exceed 50 percent emissions reductions, but frequently exceed 80 percent, are vital to propel the U.S. into a cleaner, energy-independent future. We encourage Congress to support this historic legislation that will create much needed certainty for the production of the American-made, low-cost, low-carbon fuels of the future.”

Gene Gebolys, CEO of World Energy, a company that owns several biodiesel facilities in the U.S. and Canada as well as the SAF plant undergoing a major expansion in Paramount, California, is “extremely encouraged” by the Senate negotiations.

Gebolys said he and World Energy have worked closely with Rep. Richard Neal, D-Massachusetts, who is chairman of the House ways and means committee, along with the committee staff, as well as with Chairman Wyden and Senate finance committee staff. “That work is evident in the similarity of the language being proposed for a Senate vote as early as next week with that already passed in the House last year,” Gebolys said. “To get these solutions to the scale we need in the time we need, we need federal government leadership too. Last night we got that. The proposed Senate package provides important provisions to advance the growth of SAF, hydrogen, renewable natural gas and biomass-based diesel fuels, and important new processes including carbon capture for sequestration or reuse.”

Now that a deal has been reached between key players in the Senate, the revised legislative text is being submitted to the Parliamentarian for review. The full Senate will consider it next week.

Since this is a reconciliation bill, only 51 votes are needed in the Senate to pass instead of 60. With Manchin on board in the evenly split Senate of 50 Democrats and 50 Republicans, Vice President Kamala Harris is expected to deliver the tie-breaking vote—provided all 50 Democrats approve the measure without a single Republican vote.

After Senate passage, the measure would go back to the House of Representatives, where this bill originated and passed last year as Build Back Better, for final approval.

Biden has already signaled he will sign the legislation.

“This is the action the American people have been waiting for,” Biden said. “I urge the Senate to move on this bill as soon as possible, and for the House to follow as well.”

Gebolys added that, with the bill’s final approval expected in Congress and Biden’s anticipated signature, “the U.S. will again be leading not only on the private side, but at the government level too.”