US farmers protest against climate law loophole subverting green fuel crops

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US farmers are urging the White House to crack down on Chinese imports of used cooking oil in the waning weeks of Joe Biden’s administration, warning the shipments are undermining rural America’s big bet on crops for low-carbon fuels.

Used cooking oil is a key ingredient in green diesel and sustainable aviation fuel, and imports from China have reached record highs, nearing 1mn metric tonnes in September, according to US Department of Agriculture trade data. Other countries have blocked the imports, contributing to their surge into the US.

President Biden’s landmark climate law was supposed to be a win-win: long-suffering rural farmers would get incentives to grow new crops that would fuel the next generation of clean technologies and help the environment in the process. But the law failed to limit the incentives to domestic producers, instead attracting a flood of imports.

Now those imports are undercutting the incentives before they have taken effect. Farmers have invested in green fuel crops such as corn, camelina and soyabeans in the expectation of surging demand under the Inflation Reduction Act. But the rules have not been finalised, the credits have not taken effect — and the law may be scrapped by Donald Trump’s incoming administration.

“It’s really a blow to us,” Ron Kindred, a soyabean and corn farmer in Illinois and chair of the state’s soyabean association, told the Financial Times. 

“[The tax credit] was going to be a big win for Illinois farmers, and now we’re losing,” Kindred said, adding that multiyear low prices for soyabeans had exacerbated the hardship facing farmers. Soyabean oil futures are down nearly 14 per cent since the start of the year, according to Argus Media. 

Soyabean oil is a major feedstock for biofuels, particularly biodiesel and renewable diesel. The crops are harvested and processed into vegetable oil and then a chemical reaction turns the component into fuel.

IRA tax credits and state low-carbon fuel standards have spurred investment in plant-based alternatives to gasoline, diesel and jet fuel, with US production expected to increase 53 per cent to 1.3mn barrels of oil equivalent per day in roughly a decade, more than any other country, according to Rystad Energy. 

The tax credits, which will start in January, do not require feedstocks to be sourced domestically, favouring cheaper imported waste-based feedstocks with lower carbon intensities. Washington’s reliance on Beijing for fuel has increased sharply as a result: China is behind more than half of US used cooking oil imports this year, up from less than 1 per cent in 2022, when the tax credit was first signed into law, according to data from the Department of Agriculture.

“Having our market be flooded by imported used cooking oil is a very real threat to rural economic vitality,” said Anne Schwagerl, a fifth-generation farmer and vice-president of the Minnesota Farmers Union. “We want to ensure there are guardrails that protect family farmers in rural communities.” 

Farmers and agricultural groups have called for restrictions in the final rules to limit tax credits to producers of American-grown crops, with the American Farm Bureau Federation, American Soybean Association and National Corn Growers Association meeting White House clean energy senior adviser John Podesta last month to lobby for domestic requirements. 

In September, a bipartisan group of senators and House representatives introduced bills to restrict the tax credit to domestically sourced feedstocks and expand its eligibility for an entire decade.

“We typically hope that American taxpayer dollars are going to support American industries,” said one large soyabean oil crusher. “Importing [used cooking oil] could be seen as just one for one replacing opportunities for US farm products.”

The EU imposed anti-dumping duties on used cooking oil imports from China over the summer, following warnings that the domestic industry was being undercut by a flood of Chinese supply.

US farmers and lawmakers also raised concerns over whether Chinese used cooking oil contains virgin palm oil, which has been linked to deforestation. The US Environmental Protection Agency is currently auditing domestic and foreign feedstocks of used cooking oil for fraud.  

Biofuel producers and analysts warn that restrictions to domestic feedstock could limit supplies to a burgeoning industry and slow the move to greener fuels. “If you want this to go faster, please don’t pick winners and losers in the feedstock space,” said Bruce Fleming, chief executive of Montana Renewables, a sustainable aviation fuel producer.

The biggest obstacle is uncertainty. While the tax credit begins in January, farmers have yet to receive final rules. The Treasury department last month said it was working “actively” on guidance but did not provide a release date, and declined a request for additional comment. Promises from Donald Trump on the campaign trail to eliminate the IRA have also cast doubt over the future of the tax credits in the new administration.

“If [farmers] don’t know something very soon, it will be too late to take advantage of tax credits by 2025,” said Geoff Cooper, president of the Renewable Fuels Association. “2025 becomes a lost year.”