U.S. bill would get canola back into biofuel game
Canola oil would be one of the main beneficiaries of proposed changes to the 45Z Clean Fuel Production Credit making their way through U.S. Congress, says an analyst.
The feedstock is not eligible for the credit under the current rules because of its unfavourable carbon intensity (CI) score.
However, under new rules contained in the budget bill that recently passed through the U.S. House of Representatives, canola’s carbon intensity score drops to 38.5 grams of carbon dioxide per megajoule from 54.9.
That means it would qualify for the credit because of new rules that eliminate the indirect land use change (ILUC) penalty, which is responsible for a large chunk of canola’s poor CI score.
It means canola would receive a 45Z tax credit of US$0.19 per gallon for biodiesel, $0.22 for renewable diesel and $0.39 for sustainable aviation fuel.
That is still the lowest of the five major feedstocks, which are soybean oil, canola oil, tallow, used cooking oil and distillers corn oil.
However, it would very much put canola oil back in the game.
Zandar Capozzola, principal consultant for renewable fuel with Argus Media, said 45Z has been a disaster for the U.S. biofuel sector.
It replaced the blender’s tax credit, which gave biodiesel, renewable diesel and sustainable aviation fuel producers a $1 per gallon credit irrespective of what feedstock they were using.
The 45Z credit is based on a shifting scale of value based on feedstock and production process. Its average value has been $0.43 per gallon since it was introduced on Jan. 1, 2025.
“That’s a 57 per cent reduction in the tax value afforded to producers,” he said during a recent webinar.
Renewable diesel and biodiesel producers responded by slashing production. January’s output was 20 per cent below a year earlier with plants running at 47 per cent of capacity, down from 93 per cent in December 2024.
Things have improved since then with plants running at 63 per cent capacity in April, but it is still well below 2024 levels.
“The market has been hit really hard by this transition to the 45Z credit,” said Capozzola.
Biodiesel margins turned negative at the start of 2025, declining 75 per cent year over year through May. Renewable diesel margins fell 50 per cent over the same period.
Canola-based fuel was hardest hit because the feedstock doesn’t qualify for 45Z.
Tallow, used cooking oil and distillers corn oil have been the biggest beneficiaries, with corn oil earning an average $0.75 per gallon credit for biodiesel and renewable diesel production.
Foreign used cooking oil is not eligible for the credit (except for sustainable aviation fuel), pressuring domestic supplies of the feedstock.
The upshot is that 45Z has caused a move away from crop-based feedstocks. Canola oil accounted for five per cent of total feedstock use in February, down from 11 perc ent a year ago.
Tallow has surpassed soybean oil to take top spot, accounting for 31 per cent of feedstock compared to 26 per cent a year ago.
Total feedstock use in February was down 27 per cent compared to a year ago as many plants shuttered or paused production.
The 45Z policy changes contained in the draft budget proposal would be a boon for crop-based feedstocks.
For instance, soybean-oil renewable diesel would receive a $0.53 per gallon credit under the new rules compared to $0.22 under the existing regulations.
“We could see a tremendous reshuffling of the feedstock slate should this draft bill move forward in its current state,” said Capozzola.
The numbers for waste-based feedstocks would stay the same because they don’t face any ILUC penalty under the existing rules.
The draft budget bill also extends 45Z through 2031 and restricts feedstocks to the U.S., Canada and Mexico, which is also good news for Canadian canola growers.
Capozzola noted that the proposed new 45Z rules would not “play well” with California’s Low Carbon Fuel Standard, which caps crop-based feedstocks at 20 per cent.
For almost 30 years of expertise in the agri markets, UkrAgroConsult has accumulated an extensive database, which became the basis of the platform AgriSupp.
It is a multi-functional online platform with market intelligence for grains and oilseeds that enables to get access to daily operational information on the Black Sea & Danube markets, analytical reports, historical data.
You are welcome to get a 7-day free demo access!!!
Got additional questions?
We will be happy to assist!
Write to us
Our manager will contact you soon