Will rising domestic demand for sustainable renewable fuels—including those using feedstocks from corn, soybeans and other U.S.-grown crops—be a bonanza for farmers? That dream may be fading as American energy giants take advantage of loopholes in green tax credit laws to look overseas for cheaper feedstocks to supply alternative fuel processors.
Bloomberg reported that American purchases of Brazilian beef tallow, which can be used as a feedstock for biofuels, climbed 377% in the first four months of 2024 from a year earlier. Brazil has accounted for nearly all the 40% increase in overall tallow shipments into the U.S. in the period. Brazil rarely exported tallow until 2022, according to Bloomberg, when Texas-based Darling Ingredients Inc., purchased FASA Group, Brazil’s largest independent rendering company. FASA has since become a supplier of waste fat to Diamond Green Diesel, a biofuel venture between Darling and Valero Energy Corp.
Total U.S. tallow imports rose fourfold since 2019 to a record 779,300 metric tons in 2023, according to U.S. government trade data analyzed by Bloomberg. Brazil, which made up for roughly 23% of shipments last year, saw its share jump to 40% in the first four months of the year.
Meanwhile, concern is growing that a similar spike in imports of “used cooking oil” from China may consist mostly of virgin palm oil, mixed in with a small amount of cooking oil. U.S. Sen. Roger Marshall (R-Kansas) filed a June 20 letter to the Environmental Protection Agency, the U.S. Department of Agriculture, U.S. Customs and Border Protection and the United States Trade Representative concerned with the recent and dramatic increase in used cooking oil imports from China. Marshall was joined by Sens. Sherrod Brown (D-Ohio), Pete Ricketts (R-Nebraska), Deb Fischer (R-Nebraska), Charles Grassley (R-Iowa), and Joni Ernst (R-Iowa).
“Since 2020, in response to demand for renewable fuels, the U.S. has gone from importing less than 200 million pounds of UCO per year to importing over 3 billion pounds in 2023, with more than 50% of these imports coming from China,” according to the letter. “As evidenced in recent news coverage, there is concern by some in the renewable fuels industry that large amounts of imported UCO may be a blend of UCO with virgin vegetable oils such as palm oil, which is directly linked to deforestation in Southeast Asia. This would constitute fraudulent value distortion of the commodity designed to take advantage of U.S. tax incentives in addition to Renewable Identification Number fraud under the RFS. If true, this would have an especially punitive effect on U.S. agriculture, as imported UCO bears a lower carbon intensity score than domestically produced agricultural feedstocks, which incur punitive and unnecessary indirect land use change penalties in state and federal programs, as well as onerous verification and reporting requirements required of farmers to validate carbon-friendly practices.”
As the senators noted, renewable diesel made from waste fat or used cooking oil has a lower carbon score than soy oil and therefore gets higher tax credits in California — ironically, given concerns about deforestation for beef production in Brazil. A large part of U.S. green diesel is consumed in California. The green tax credits that drive the market for alternative fuels do not specify U.S. sourcing of feedstocks.
“As long as the rules are the way they are, these biofuel companies are going to use whatever is cheapest,” John Baize, an independent analyst who advises the U.S. Soybean Export Council, told Bloomberg.
According to Geoff Cooper, executive director of the Renewable Fuels Association, which represents ethanol producers, the tax credit loopholes mean that U.S. taxpayers are essentially subsidizing foreign growers and producers — including Brazilian cattle growers and Indonesian palm farmers—at the expense of U.S. corn and soybean farmers. The fact that Brazil recently upheld an 18% tariff on imported American ethanol adds insult to injury.
The existing federal tax credit for blending biodiesel expires at the end of 2024 and transitions into a carbon performance-based tax credit available only to U.S. biofuel producers beginning in 2025. The switch from a blender credit to a producer credit may slow the importation of finished biodiesel, said Cooper, but it might not necessarily stop the importation of foreign feedstocks.
He said the issue is of great concern to ethanol producers and corn farmers because virtually all ethanol plants also produce corn oil, which is a biodiesel feedstock, and prices for corn oil have fallen as foreign feedstock supplies have flooded the U.S. market.
David Murray can be reached at [email protected].
