This article is part of our President’s FY2025 Budget Request Coverage. Visit our Rolling Analysis Page for more.

The Inflation Reduction Act of 2022 (IRA) made numerous changes to biofuel tax breaks, including extending some (either in the long-term or short-term), provided for some to end at the end of calendar year 2024, and created new ones as well. A summary of biofuel tax credits in IRA, with initial costs from the Joint Committee on Taxation (JCT) versus those in the President’s FY25 budget request are as follows (summaries of each were developed after analyzing the IRA statute and updated estimates of costs from the FY25 budget can be found in bold, underlined text below):

• Section 13201. Extension of Incentives for Biodiesel, Renewable Diesel and Alternative Fuels (estimated cost of $5.571 billion for two years from JCT, but President’s FY25 budget request estimates $10 billion from FY23-25 for biodiesel credit and another $2 billion for the alternative fuel credit)
  • Extension of $1-per-gallon biodiesel tax credit, alternative fuel credit, and alternative fuel mixture credit for two years, through the end of 2024.
  • The $3 billion-per-year tax break is one of the most expensive energy tax extenders.
  • Biodiesel and renewable diesel is derived from soy and other vegetable oils, animal fats, used cooking oil, etc. According to the National Academies of Sciences, the tax credit has been found to increase – instead of decrease – GHG emissions.
  • Subsidies for the mature biodiesel industry have been on the books for decades, costing taxpayers tens of billions of dollars, and costs are expected to increase significantly in the future for expansion of the soy-based renewable diesel industry.
  • The Environmental Protection Agency found that the tax credit distorts markets and results in higher production levels than would be expected without the tax credit in place. Biodiesel and renewable diesel fuels are also more expensive than fossil-based diesel.
• Section 13704. Clean Fuel Production Credit (estimated cost of $2.946 billion for three years from JCT, but President’s FY25 budget request estimates $19 billion from FY25-29)
  • New production tax credit of at least $0.20 per gallon, up to $1 per gallon, adjusted for inflation, for fuel produced from 2025-2027. Sustainable aviation fuel could receive credit of up to $1.75/gallon, with a minimum of $0.35/gallon.
  • Would enter into force after biomass-based diesel tax credit expires in 2024.
  • Carbon intensity of fuels must be less than 50 kilograms of CO2e per mmBTU to receive credit for calendar years 2025-2027, which would likely exclude biofuels such as first generation corn ethanol but could subsidize mature soy biodiesel and renewable diesel and other corn- and soy-based biofuels, depending on implementation. Represents first time that carbon intensity reductions are required for biofuel tax credit eligibility.
  • Lifecycle GHG emissions rate determined by GREET model from Argonne National Laboratory, with the exception of aviation fuel.
  • Biomass definition is broad, meaning almost anything qualifies to be converted into a taxpayer-subsidized fuel, as long as it meets the GHG reduction requirement.
• Section 13404. Alternative Fuel Refueling Property Credit (estimated cost of $1.738 billion from FY22-31 from JCT, but President’s FY25 budget request estimates $11.3 billion from FY25-34)
  • In place through 2032.
  • Tax break for electric vehicle, ethanol and biodiesel fuel pump, and other alternative fuel infrastructure.
• Section 13202. Extension of Second Generation Biofuel Incentives (cost estimate of $54 million for three-year extension from JCT, and President’s FY25 Budget Request estimates a FY25-34 cost of $20 million)
  • Extension of $1.01-per-gallon tax credit through 2024 and applicable retroactively for production in 2022.
  • Cellulosic biofuels industry was intended to spur development of non-food-based biofuels derived from feedstocks such as perennial grasses and corn cobs/leaves, but the industry has failed to get off the ground despite significant taxpayer funding. Numerous facilities have failed – including those intending to use woody biomass as a bioenergy feedstock – bringing taxpayer dollars down with them.
• Section 13203. Sustainable aviation fuel credit (cost estimate of $49 million for two years from JCT, but other cost estimates have been as high as $7 billion; President’s FY25 budget request estimated $530 million from FY24-27)
  • New $1.25-per-gallon or more tax credit for so-called “sustainable” aviation fuel beginning in 2023 (in place through 2024) that meets a 50 percent greenhouse gas emission reduction threshold, as determined by the Carbon Offsetting and Reduction Scheme for International Aviation adopted by the International Civil Aviation Organization (ICAO) or a similar method, which could be broader and include more fuels.
  • Fuels derived from woody biomass may qualify and other first-generation biofuels from food-based feedstocks that may look on paper as if they’re better for the climate but in reality aren’t. Using food crops for fuel would also increase food prices further, not to mention impacts on forests, wetlands, grasslands, and other carbon-rich land converted to cropland. Some details won’t be known until the program is implemented by respective federal agencies.
  • Biomass definition is broad, meaning almost anything qualifies to be converted into a taxpayer-subsidized fuel, as long as it meets the GHG reduction requirement.