Iowa Shutters Biodiesel Output on Federal Policy Uncertainty

Iowa biodiesel plants are operating at minimum or completely stopping production amid uncertainty over the future of renewable fuel and tax credit policies.

“These are tough times for Iowa’s biodiesel producers, and it’s frustrating to watch plants sit idle when we know how much they contribute to our economy and energy security,” Grant Kimberley, Iowa Biodiesel Board executive director, told Transport Topics. “The people behind these facilities — our neighbors, friends and community members — are feeling the strain. We need federal policies that support biodiesel production, not leave producers in limbo.”

Iowa is the top U.S. biodiesel producer, with a yearly production capacity of 472 million gallons, according to U.S. Energy Information Administration statistics for 2024.

“Biodiesel is more than just a renewable fuel — it’s a reliable, American-made solution that longhaul truckers can tap into on the road,” Kimberley said. “When biodiesel plants shut down, truckers lose access to a cleaner, cost-effective fuel that supports engine performance and reduces emissions. Truckers also lose business from the biodiesel industry since many of the fuel’s components, and the fuel itself, are moved by truck.”

Clean Fuels joined 10 national trade groups, including @APIenergy, in urging @epaleezeldin to set robust, timely, multiyear Renewable Fuel Standard (RFS) volumes for 2026 and beyond.@kovarikdc said investments in #biodiesel, #renewablediesel and #SAF are growing, and the #RFS… pic.twitter.com/wBIfoOaehj

— Clean Fuels Alliance America (@CleanFuelsAA) February 20, 2025

Biofuel groups were unsuccessful under the Biden administration in gaining timely tax guidance on the new 45Z Clean Fuel Production Credit from the Internal Revenue Service following the Dec. 31 expiration of the Biodiesel Tax incentive 40A, he added

In addition, the U.S. Environmental Protection Agency’s latest Renewable Fuel Standard volumes — that mandate how much green fuel must be blended annually into the national fuel supply — failed to consider actual output, according to Iowa Biodiesel Board.

“The Treasury issued overdue and incomplete guidance for the new Clean Fuel Production Credit in January,” said Paul Winters, public affairs and federal communications director for Clean Fuels Alliance America. “The delay very predictably disrupted production plans for U.S. producers. Many — especially smaller producers — were unable to negotiate fuel sales for the early months of this year, something they typically do a quarter-year in advance.”

Recently the Clean Fuels Alliance numbered among nearly a dozen national biofuel stakeholders that asked EPA Administrator Lee Zeldin to set Renewable Fuel Standards for 2026 and later to bolster U.S. biofuel availability.

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Winters 

On Jan. 23, the IRS released information on its Clean Fuel Production Credit that took effect Jan. 1. The income tax credit is for the domestic production of clean transportation fuel and applies to eligible transportation fuel produced domestically after Dec. 31, 2024, and sold by Dec. 31, 2027.

However, this guidance “was basically a proposal to propose a rule. The last administration left it to the current administration to propose the final rule,” Kimberley said, adding that the recent IRS notice was a more official bulletin, “but it’s not the same thing as a final rule, which is what producers need.”

Winters agreed there is confusion about the tax credit. “Producers still have questions about Treasury’s January guidance. And unfortunately, it will be difficult to get answers until the administration and Congress make decisions on tax policy. So while some producers have enough confidence in the tax credit to move forward, others may not. It could suppress clean fuel production and availability for many months,” Winters said.

The impact of the rulemaking postures by both federal agencies is already hitting Iowa’s biodiesel companies hard and being felt in national fuel supply output.

“Biodiesel production for January fell to its lowest monthly volume in the last five years. That will impact fuel availability across the United States — affordable, clean options at the pump will be harder to find for the next few months,” Winters pointed out. “January 2025 domestic production of biodiesel was 65.6 million gallons. Going back to 2020, the only time monthly domestic biodiesel production fell below 100 million gallons was in January 2022, at 90.7 million gallons.”

In Iowa, biodiesel companies are coping with unfavorable market conditions and uncertain federal policies that forced Western Dubuque Biodiesel in Farley to stop production Dec. 24. The company, located in Dubuque County, was formed 20 years ago by eastern Iowa farmers and business experts.

“Had we continued running, we would have been losing anywhere from 30 cents to 50 cents per gallon,” said general manager Tom Brooks. “The economics simply do not favor running, and without clear policy direction, we can’t make sound business decisions.”

Western Dubuque Biodiesel has retained its 22 employees amid the production stoppage by having them work on plant maintenance such as cleaning and repainting.

“We sat down with our employees and conveyed how important they are to us,” Brooks said. “We see them as valuable assets and have asked them to hang in there as we wait for markets to improve. Many livelihoods in Iowa depended directly or indirectly on biodiesel production, and we don’t take that lightly.”

Kimberley said the Treasury Department should detail how the tax incentive works in a final rule. Also problematic is that the tax credit’s carbon intensity scoring system favors imported used cooking oil and animal fats over U.S. soybean oil, and doesn’t factor in climate-smart agriculture.

“This two-tiered market has created a pricing disparity that has left many domestic biodiesel producers struggling to compete,” Kimberley said. “We need to continue using and updating the GREET [Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation] model to reflect the latest science-based data on the low carbon intensity of today’s agricultural products. Otherwise, our most abundant agricultural feedstocks, like soybean oil, are being subjectively penalized based on outdated and inaccurate assumptions about indirect land use change.”