July 15, 2026
The expiration of the Biodiesel Blender’s Tax Credit (BTC) at the end of 2024 and its replacement by the Section 45Z Clean Fuel Production Credit has been characterized as a policy upgrade – a more sophisticated, carbon emissions-based framework that is renewable fuel neutral. While that characterization has some merit for renewable fuel producers, the picture is less favorable for downstream biodiesel blenders.
Under the BTC, blenders had a path to the credit value – sometimes negotiated through the purchase of B99 – but it was real. Under 45Z, that path is murky at best. What was once a fixed, transparent $1.00-per-gallon incentive has become a producer-held asset whose value depends on carbon intensity, feedstock sourcing, tax position, and commercial negotiations throughout the supply chain.
While the IRS is still finalizing 45Z guidelines and regulations, the economic implications are coming into focus. 45Z is changing commercial negotiations in the supply chain.
The BTC: A Transparent Credit that Created Negotiating Certainty
When the BTC was introduced in 2005, downstream blenders generally captured the full value. Over time, however, that market evolved.
The mechanism was B99 – a blend of 99% biodiesel and 1% ultra-low sulfur diesel (ULSD). By delivering B99, producers became the blender of record and could claim the tax credit themselves. Producers often shared a portion of that value through product pricing, frequently resulting in an effective 50/50 split. Downstream blenders with greater purchasing leverage could instead buy B100 and retain the full credit.
Exactly who captured the credit varied from transaction to transaction. What never varied was the value itself. Every market participant knew the credit was worth exactly $1.00 per gallon. That transparency provided a common reference point for negotiations, regardless of whether the producer, blender, or both ultimately benefited from the credit.
45Z is a Fundamentally Different Economic Model
Although both programs provide incentives for renewable fuels, they operate very differently.
Under Section 45Z, the credit belongs exclusively to the renewable fuel producer. Downstream blenders no longer have a statutory path to earning it.
More importantly, 45Z is not a fixed-value incentive. It is a variable economic instrument whose value depends on numerous factors, including feedstock selection, production practices, carbon intensity calculations, and compliance with the 45ZCF-GREET methodology.
| BTC (Section 40A) Expired Dec. 31, 2024 |
45Z Clean Fuel Production Credit 2025–2029 |
|
|---|---|---|
| Who earns the credit | Fuel blender (in practice, partly captured by producers via B99) | Fuel producer – explicitly and exclusively |
| Credit amount | $1.00/gallon flat | $0.20–$1.00/gallon sliding scale tied to CI score |
| Eligible fuels | Biodiesel & renewable diesel only | Ethanol, biodiesel, renewable diesel, RNG, SAF, hydrogen |
| Imported fuel eligible? | Yes | No – domestic production only; post-2025 feedstocks must originate in US, Canada, or Mexico |
| Carbon intensity requirement | None | Required – CI score via 45ZCF-GREET model; must be below 50 kg CO₂e/mmBTU |
| Compliance & recordkeeping | Straightforward – blender tracks gallons blended | Complex – GREET modeling, third-party certification, IRS Form 637, emissions verification |
| How credit is collected | Refundable excise tax credit – paid as direct cash from IRS regardless of tax liability | Income tax credit – offsets federal tax liability; excess sold via Section 6418 transfer market at 85–93 cents on the dollar |
A soybean oil pathway, for example, may generate an estimated credit approaching $0.66 per gallon under the updated 45ZCF-GREET model after the removal of indirect land use change (ILUC) penalties. But that value can change as feedstocks, production practices, or compliance assumptions change. Those calculations are proprietary to the producer and reported directly to the IRS.
Another important difference is how the tax incentive is collected. Unlike the refundable BTC, 45Z is an income tax credit. Producers use the credit to offset federal income tax liability, and excess credits may be sold under Section 6418. However, legal costs, insurance, transaction expenses, and negotiated discounts mean producers often realize less than the statutory value.
As a result, blenders are negotiating against economics they cannot fully see, and for a credit that is significantly less in value.
Farmers are Entering the Value Equation
Section 45Z also changes who participates in the economics of the tax credit. Under 45Z, lower-carbon feedstocks have become part of the equation, giving farmers new opportunities to negotiate premiums because those feedstocks can increase the value of the producer’s tax credit.
The result is a fundamentally different value chain. Producers now face pressure from both directions: upstream from farmers seeking premiums for lower-carbon feedstocks and downstream from blenders seeking commercial arrangements that preserve blending margins.
What Has Actually Changed for Blenders?
Several practical realities now define the market.
First, the pool of value available for sharing has become smaller. A producer earning approximately $0.66 per gallon has less value available than the former $1.00 BTC, even before considering monetization costs or premiums paid for lower-CI feedstocks.
Second, blenders are now competing with feedstock providers (e.g., farmers) for a piece of the credit, with producers stuck in the middle.
Third, there is no longer a built-in commercial mechanism like B99 that naturally encouraged sharing of the tax benefit. Any sharing of 45Z value depends entirely on commercial relationships and competitive dynamics.
Finally, blenders are negotiating with less information than before. Producers know the credit value associated with each production pathway. Blenders generally do not.
A Different Market – Not a Broken One
None of this suggests that biodiesel blending is no longer economically attractive. Blending margins will continue to be driven primarily by the spread between biodiesel and ULSD. When biodiesel remains economically advantaged, blending opportunities continue to exist regardless of tax policy.
Likewise, refiners and importers with Renewable Volume Obligations remain dependent on a healthy downstream blending market. EPA’s increasing biomass-based diesel volumes and strengthening D4 RIN values continue to support demand for biodiesel blending, and balance out the economics once filled by the BTC.
What has changed is not the need for blenders – it is the way tax incentives are factored into the equation. The transition from the BTC to 45Z changed how value is created, who controls that value, and how that value is negotiated throughout the supply chain.
By Reo Menning, President & CEO