Will There Be a Three-Year Extension for Biodiesel Tax Credit?

The $1 per gallon tax credit for biodiesel and renewable diesel fuel, which is set to expire at the end of 2022, may have a longer life. Legislation to extend the tax credit through 2025 has been introduced in both the U.S. House of Representatives and Senate. This is welcome news for fuel oil dealers who blend biofuel.

The biodiesel tax credit was created as part of the American Jobs Creation Act of 2004 and has been renewed or extended five times since 2011. In its current form, qualified taxpayers may claim the tax credit, at $1.00 per gallon, when the required amount of biodiesel or renewable diesel is blended with petroleum diesel for sale or use in a trade or business.

The tax credit was designed to encourage the use of biodiesel and renewable diesel by offsetting the higher cost of these fuels relative to petroleum-based diesel fuel. From 2013 to 2016, when the tax credit was in place for the entire three-year period, U.S. biodiesel production grew by 400 million gallons. And in 2020, despite COVID-19-related market conditions, production still grew more than 150 million gallons with the help of the tax credit.

According to the National Biodiesel Board, U.S. biodiesel and renewable diesel industries support 65,000 jobs and more than $17 billion in economic activity each year. From 2015 to 2018, it is estimated that use of biodiesel and other renewable diesels helped reduce U.S. carbon emissions by 9.3 million tons.

We will continue to follow the tax credit extension bills as they work their way through the legislative process. In the meantime, if you have any questions about earning a $1 per gallon tax credit for the biodiesel you are blending, please contact Gray, Gray & Gray at (781) 407-0300.

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