Biodiesel tax credit extended through 2022

The federal spending bill approved in late 2019 included provisions to reinstate the $1 per gallon biodiesel mixture credit, which is commonly referred to as the biodiesel tax credit, according to the U.S. Energy Information Administration (EIA). The credit applies to biodiesel and renewable diesel, which is referred to as biomass-based diesel.

The credit was extended through 2022 and also was retroactively applied to 2018 and 2019. The credit was established under the American Jobs Creation Act of 2004 and has been reinstated over time. The existing credit of $1 per gallon can be claimed when the required amount of biodiesel or renewable diesel is blended with petroleum diesel for sale or use in a trade or business, according to the EIA. The credit has been extended or retroactively applied five times since 2011 and supports higher levels of biodiesel and renewable diesel consumption by offsetting the higher costs of the fuels compared to petroleum-based diesel fuel.

In 2013 and 2016, the tax credit was in effect during times of production, and domestic production and imports of biodiesel rose significantly compared to previous years. Domestic biodiesel production rose 33% to 110,000 barrels per day in December 2016, from December 2015. Imports also rose to a record high of 86,000 barrels per day in December 2016. The tax credit wasn’t in effect in 2017 but was retroactively applied as part of the Bipartisan Budget Act of 2018.

The fiscal impact of the credit in 2016 was $2.7 billion, up from about $550 million in fiscal year 2010. The taxpayer cost of the credit has risen as the federal biodiesel requirement for biomass-based diesel and advanced biofuel has expanded. The Environmental Protection Agency recently announced it had set the biomass-based diesel minimum requirement at 2.43 billion gallons for 2021, the same level as the 2020 requirement, according to a recent Transport Topics article. The 2020 volume requirement will be about 170 million gallons higher than the 2019 level.

The credit is expected to contribute to increased levels of domestic production and imports of biomass-based diesel through 2021. Domestic production is projected to rise from 119,000 barrels per day in 2019 to 135,000 barrels per day in 2020 and 158,000 barrels per day in 2021. Net imports of biomass-based diesel were 23,000 barrels per day in 2019 and are expected to rise to 28,000 barrels per day in 2020 and 39,000 barrels per day in 2021.