Written on: March 24, 2025 by Joe Uglietto
How the Expiration of the BTC and the Introduction of Section 45 are Impacting our Industry
If there’s one thing markets like, it’s low prices. Another is certainty. Right now, the renewable fuels market—and by extension the heating oil market—has neither certainty nor competitive pricing thanks to the fact that critical tax credits are in flux.
The Blenders Tax Credit (BTC) has supported the renewable fuels industry in the U.S. for more than two decades. This credit provided a $1 per gallon subsidy to the blender of record, creating a significant revenue stream within the renewable fuels supply chain. The BTC played a crucial role in promoting the use of renewable liquid heating fuels, offering a cost-effective and immediate path to carbon reduction that our industry has been leveraging with increasing success to maintain market share and position itself as one of the most effective solutions for reducing carbon emissions. Unfortunately, the BTC expired on Dec. 31, 2024, creating immediate market uncertainty and complicating future pricing and planning for producers, retailers and consumers. Most of the margin was pulled out of the renewable fuels market in one fell swoop. Why produce, blend or sell a product that is uncompetitive? What’s made matters worse is the absence of a clear replacement measure to signal long-term stability.
Complicating matters further has been the introduction of Section 45Z, also known as the Clean Fuel Production Credit. Introduced as part of the Biden Administration’s Inflation Reduction Act, Section 45Z took effect on Jan. 1, even though the final guidance has yet to be published. This credit aims to incentivize domestic production of clean transportation fuels, including ethnol, biodiesel and sustainable aviation fuels. Unlike the more straightforward BTC, Section 45Z credit opportunities vary based on the carbon intensity of the fuel and adherence to specific labor requirements. This added complexity has posed challenges for producers, leading to delays in investment and production.
Another important distinction is that, while the BTC was awarded to the blender of record, Section 45Z will be provided to the producer of the renewable fuel, with the credit amount dependent on the feedstock’s carbon intensity. The carbon intensity will be measured using the 45ZCF-GREET model, which was released recently by the U.S. Dept. of the Treasury and Internal Revenue Service (IRS). Section 45Z will provide a tax rebate against taxes owed and will not extend rebates to imported renewable fuels, whereas the BTC offered a liquid credit. Specifically, for on- and off-road diesel used for heating and transportation, Section 45Z will exclude used cooking oil and other imports from receiving a tax rebate. This will further complicate matters for the industry.
The wheels of regulation move slowly and even though Section 45Z is already in effect, the rulemaking process is ongoing, with details not yet finalized. What does this mean for the renewable fuel markets? We should know more soon.
For the time being, renewable fuel producers lack a clear long-term outlook. Even though 45Z went into effect on Jan. 1, and guidance was issued on Jan. 10 under the Biden Administration, there is a question about whether the Trump Administration will finalize, modify or eliminate 45Z entirely. The timing of the finalized rule remains uncertain, even though the Treasury has requested public comments by April 10, 2025.
Where does the industry go from here? That is the question of the hour. The BTC had a powerful impact on the renewable fuels market. It was instrumental in supporting the transition to renewable liquid heating fuels, reducing building emissions and fostering growth of the biofuels industry. Its expiration combined with the introduction of 45Z has been no less profound, slowing production and investment and impacting jobs and revenue in the sector. It’s absolutely true that Section 45Z aims to promote renewable fuels, but it has faced criticism for its complexity and lack of clarity. Additionally, the fact that it doesn’t offer the same level of incentive as the BTC cannot be overlooked. Should 45Z remain in effect in its current offer, it will most likely prove ineffective at supporting the renewable fuels market.
The only certainty these days is uncertainty, so the industry should be prepared for continued instability over the next couple of months. There is confidence however, that we will gain clarity at some point in the not-too-distant future. Until then, biodiesel prices will remain high. We will be keeping a close eye on how policymakers address these issues and the impacts they’ll have on both the renewable fuels market and the heating oil industry. ICM
Renewable Energy Insights is a regular column by Joe Uglietto, President of Diversified Energy Specialists, with a focus on emissions reductions & renewable energy innovation. DiversifiedEnergySpecialists.com
