New policy actions, namely the passage of federal legislation, will weigh in on the continued viability of Illinois-produced soybean oil in the renewable fuels sector. It’s a call to action for growers to stay informed of and engaged in the policymaking process as federal and state policies go into effect in the coming months.

30,000-Foot View of the Issue

Carbon Intensity (CI)-based tax incentive policies for fuel continue to threaten to turn U.S. soybean oil into an economically unviable feedstock. On the federal level, this is the 45Z policy, and on the state level, there are Low Carbon Fuel Standards (LCFS) or Clean Fuel Standards (CFS). The intent of these policies is to promote waste feedstocks and dismantle the profitability of domestic soybean oil.

The hard reality is that though many biofuel producers still want and prefer to use U.S.- grown soybean oil, current incentives are pushing them toward alternatives. The new, improved 45Z as passed in the recent One Big Beautiful Bill (OBBB) still promotes these waste feedstocks over soybean oil. However, the domestic United States-Mexico-Canada Agreement (USMCA) provision will help prevent those feedstocks from taking market share completely. However, state level LCFS policies are actively promoting imports, and jacking up carbon intensity on row crop agriculture with bogus land-use change charges.

Simply put, biofuel producers and users prefer virgin U.S. soybean oil because it’s cleaner, easier to convert into fuel, results in a product with a lower cloud point and can be sourced reliably. Yet under the California-style LCFS framework, the economics still don’t add up for domestic soybean oil.

Illinois soybean farmers should be aware of how the playing field tilts away from American growers in a bureaucratic LCFS policy in the rulemaking process.

What’s a Waste Feedstock?

Carbon intensity-based fuel policy favors fuels using waste feedstocks, and these “waste” feedstocks are most often imported from other countries. Every gallon of waste, imported or domestic, used for biodiesel under these programs displace a gallon of soybean oil.

What is a waste feedstock, officially? A Massachusetts state law regulating biofuels states that: “Waste feedstock shall include, but not be limited to, waste vegetable oils, waste animal fats, substances derived from wastewater and the treatment of wastewater, or grease trap waste.” In theory, that means anything but soybean oil.

Yet in practice, this definition has been stretched to accommodate a variety of non-U.S. feedstocks. Used cooking oil is often Brazilian soy in disguise, tallow is often animal fat produced on deforested land in Brazil and palm oil often comes from China (through southeast Asia) labeled as used cooking oil. These products are entering the U.S. market under the waste feedstock banner. In some cases, legitimate waste from China’s restaurant industry is then mixed in for good measure. This is what the USMCA provision in the recently passed OBBB was aimed at preventing, and its inclusion in the bill was a big win for Illinois soybean growers.

Still, LCFS policies look to upend this in Illinois by outright promoting these imports over U.S. agriculture feedstocks. Illinois farmers might be shocked to learn that these imports then receive an incentive worth much more than soy grown in the U.S. The LCFS policies also have the capability to altogether ban or severely limit soybean oil’s participation in the market.

A Matter of Incentives

In 2023, soy-based biofuels accounted for 2.1 billion gallons of fuel, amounting to approximately 28 million acres of soybeans assuming typical yields, according to data from the U.S. Energy Information Administration (EIA) and the Federal Reserve Bank of Kansas City. Under the previous 40A Biodiesel Tax Credit, each acre earned an estimated $75 incentive using a U.S. average of 50 bushel per acre. Under the Inflation Reduction Act (IRA) version of 45Z, that drops to just $25 per acre for biodiesel and a mere $11 for renewable diesel, as illustrated in the table on this page. This is improved for the OBBB version of 45Z, but the numbers are still not as good as under the previous 40A legislation.

What this means: The switch from 40A to IRA 45Z represents a 70% drop in biodiesel credits and an 85% drop in renewable diesel credits for soy. The credits are expected to be improved slightly, so we now have a discount of 50% for biodiesel and 65% for renewable diesel.

(Sources: U.S. Department of Agriculture’s Economic Research Service, U.S. Energy Information Administration, U.S. Department of Energy, U.S. Code, American Soybean Association.)

Not All Fuel is Created Equal

The situation pitting waste oil versus U.S.-grown soy oil mirrors the difference between a car being assembled domestically using foreign parts and a car being manufactured in the U.S. There’s a big difference in the two practices, even though on the surface, the final outcome is a car. Domestic soy oil is superior to waste oil, yet policy treats imported biofuel feedstocks as equal — or superior — to the homegrown product.

For example, Illinois Soybean Board members visited a California biofuel plant last year that had previously used 20 million gallons of soybean oil annually. To conform with California’s LCFS, the plant switched to using foreign cooking oil. When board members arrived, the plant had been idled to await used cooking oil imports. The facility refused to restart production using U.S.-grown soybean oil because the LCFS made soy-based biodiesel financially infeasible.

This event served as a wakeup call that CI policies are not designed to support U.S. agriculture. Rather, they’re dismantling it, often at the expense of the exact stakeholders who helped launch the biofuels industry.

Structural Reform Can Reverse this Trend

The domestic-feedstock-only policies passed in the OBBB are a step forward in correcting this problem, but they’re just a BandAid fix. The underlying problem remains: Carbon intensity scoring programs still promote waste feedstocks over U.S. soybean oil.

Agricultural and biofuels policy experts are chasing “domestic feedstocks” headlines and must start tackling the root cause of these recurring policies: Politically oriented, carbon-intensity-modeling-based incentives.

In 2022, the IRA drastically changed biofuel policy, and the Trump Administration, with Republican support, drastically restructured 45Z. If history is telling, changes in leadership could create more uncertainty and the need for restructuring biofuels policies in the future. For that reason, Illinois soybean farmers should stay informed about these policies given their direct impact on the bottom lines of farmers around the state.