Growing interest from state and federal policymakers on environmental issues has led to increased efforts to reduce the carbon footprint of various industries, including transportation. Low-carbon fuels such as biodiesel, renewable diesel and sustainable aviation fuel continue to be a preferred alternative to traditional fossil fuels, and lawmakers remain committed to prioritizing policies promoting their use.
At the federal level, the Renewable Fuel Standard (RFS) has been a significant driver of growth in the biodiesel and renewable diesel fuel industry. The RFS sets annual volume targets for different types of renewable fuel including biodiesel and renewable diesel, which has had a positive impact on Missouri farmers.
As federal policymakers continue to debate the impact biodiesel, renewable diesel and sustainable aviation fuel play in issues of carbon reduction and energy independence, states are increasingly taking on leadership roles in developing and implementing comprehensive carbon policies. Nearly half of U.S. states have aggressive, economy-wide and/or sector-specific carbon policies, many of which are legally enforceable targets. These states represent more than 50% of the U.S. population and at least 40% of the on-road fuel market.
Most of this state activity has taken place on our coasts. California became the first state in the nation to adopt the California Low Carbon Fuel Standard (LCFS), which is viewed as the gold standard of environmental policy. The California LCFS utilizes a mix of state regulation and market-based methods directing obligated parties to choose how they will reduce emissions while providing consumers with clean energy options.
This program has provided a successful market for biodiesel and renewable diesel. Since 2017, biomass-based diesel has contributed nearly half of the carbon reductions in the program providing the biggest source of carbon reductions. In 2022, more than 1.5 billion gallons of biomass-based diesel was used, displacing nearly half of the entire diesel fuel pool in the state of California.
Other Western states including New Mexico and Colorado have shown interest in similar policy. This year, New Mexico nearly passed a Clean Fuel Standard that would have reduced the carbon intensity of fuels used in the state by at least 20% compared to 2018 levels by 2030 and 30% by 2040. Legislation was also introduced in New Mexico that would have provided a 50 cents per gallon income and corporate tax credit for the blending of biodiesel. While these bills ultimately did not pass, they indicated a willingness to pursue policies benefiting our industry and creating new markets.
In Colorado, expected legislation will exempt biodiesel and renewable diesel from the state’s excise tax for special fuels. Supported by Clean Fuels’ member Chevron Renewable Energy Group, this program will mark a significant win for the industry while helping to grow demand for biodiesel and renewable diesel in Colorado’s 635-million-gallon diesel market.
On the East Coast, New York, Massachusetts, Connecticut and Maryland have adopted aggressive carbon reduction mandates culminating in net-zero carbon emissions by 2050. While many of these carbon reduction efforts have focused on full electrification of the transportation and heating and cooling sectors, more states are discussing and adopting policies that encourage and, in some cases, mandate, low-carbon liquid fuels such as biodiesel, renewable diesel, Bioheat fuel and sustainable aviation fuel (SAF). New York, Connecticut and Rhode Island have adopted Bioheat fuel mandates that require increasing amounts of biodiesel to be blended with traditional heating oil.
Vermont is on the verge of adopting a Clean Heat Standard, a program similar to California’s LCFS, requiring heating oil dealers and suppliers to purchase or sell credits depending on the carbon content of their heating fuel. Credits are generated when suppliers take measures to lower the carbon content of their fuel, which includes selling low-carbon fuels such as biodiesel and renewable diesel.
Massachusetts, Maryland, New Jersey and Pennsylvania are looking at similar proposals for either the heating or transportation sector — or both. In New York, the largest consumer of diesel fuel for both heating and transportation in the Northeast, state officials are looking at a California-like cap-and-invest program that would lower the carbon output of all liquid fuels and all manufacturers who emit carbon.
In the Midwest, state policy supporting renewable fuels takes various forms with the most common being tax incentives used to promote the sale and/or production. These programs garner robust support from stakeholders that help build large coalitions advocating for passage of legislation. Last year, we saw significant victories in Illinois, Iowa and Missouri. Illinois successfully passed legislation exempting the state’s sales tax for biodiesel blends using more than 19% biodiesel. Illinois is also the first Midwest state to incentivize the sale of renewable diesel. In May, Iowa Gov. Kim Reynolds signed into law the “Biofuels Access Bill”, which doubled the Biodiesel Production Tax Credit and created a first-of-its-kind incentive for the sale of B30+. Missouri also approved legislation creating new incentives for the sale and production of biodiesel.
In total, these three pieces of legislation will result in an additional 280 million gallons of biodiesel demand. These accomplishments were the result of the extraordinary effort by state soybean associations who advocated tirelessly to state lawmakers about the positive impact these policies will have for soybean farmers. These bills have also led states such as Nebraska, Indiana and Michigan to pursue biodiesel incentives.
Another successful Midwest biodiesel policy is the Minnesota B20 Standard. This law requires diesel fuel sold in the state to contain a B20 blend from April 15 through the end of September. From October through March, the standard reverts to B5. In the spring, there is a transition from B5 to B20 where the minimum blend level is B10 to provide fuel retailers time to build up inventory. This bill has resulted in a 120 million gallon biodiesel market in the state.
In other Midwest states, discussions surrounding a Low Carbon Fuel Standard have increased. These proposals, similar to the California LCFS, are designed to decrease the carbon intensity of transportation fuels and provide an increasing range of low-carbon and renewable alternatives (such as biodiesel and renewable diesel), which will reduce dependency on petroleum-based fuels. While these carbon programs have been successful due to the positive impact of biodiesel and renewable diesel, state soybean organizations should monitor these policy discussions to ensure they remain fuel and technology neutral and adequately account for positive farming practices.
Throughout these debates and discussions, Clean Fuels’ state and federal teams continuously advocate for policies that will bring added value to our industry and to soybean farmers. We rely heavily on our relationships and the partnerships we have with state soybean members, producer members and other key industry stakeholders to advocate to policymakers about the economic and environmental impact of our fuels.
