US Senators Chuck Grassley (R-Iowa) and Amy Klobuchar (D-Minn.) have introduced bipartisan legislation seeking to extend the Small Agri-Biodiesel Producer Credit through 2029, potentially providing additional tax support for smaller US biodiesel producers using domestic agricultural feedstocks.
The credit is currently scheduled to expire on 31 December 2026. Under the proposed extension, eligible producers would continue to receive an income tax credit of $0.20 per gallon on their first 15 million gallons of annual biodiesel production.
Companies producing up to 60 million gallons of biodiesel annually using domestic agricultural feedstocks are eligible for the credit under the existing framework.
The legislation comes as the US biodiesel and renewable diesel industry continues to operate under a changing federal clean-fuels policy landscape, including the separate Section 45Z Clean Fuel Production Credit.
Bill targets smaller biodiesel producers
The Small Agri-Biodiesel Producer Credit is specifically designed for producers below the defined annual production threshold.
Under the current provision, a qualifying company can claim $0.20 for each gallon produced on the first 15 million gallons in a taxable year. That means the maximum credit exposure under the provision is $3 million per year for an eligible producer, assuming the full 15-million-gallon qualifying volume.
The proposed legislation would extend the availability of the credit through 2029 rather than allowing it to expire at the end of 2026.
The measure has been introduced by Grassley and Klobuchar, whose states are both significant agricultural and biofuel-producing markets.
Clean Fuels welcomes proposed extension
Clean Fuels Alliance America, the US trade association representing the biodiesel, renewable diesel and sustainable aviation fuel supply chain, welcomed the proposed extension.
Kurt Kovarik, Vice President of Federal Affairs at Clean Fuels, said the credit would provide greater certainty to small biodiesel producers in Iowa, Minnesota and other parts of the country.
“Small biodiesel producers are making an outsized contribution to America’s energy security right now,” Kovarik said, adding that these producers are supplying lower-cost, drop-in distillate fuel and supporting rural communities.
His comments represent the trade association’s assessment of the role of smaller biodiesel producers rather than an independent estimate of the sector’s economic or energy-security contribution.
Credit comes alongside the 45Z clean-fuel incentive
The proposed extension should be distinguished from the Section 45Z Clean Fuel Production Credit, which is a broader federal incentive for qualifying clean-fuel production.
Congress extended and modified the 45Z credit through 2029 in 2025. The credit is based on the carbon intensity of eligible fuel and feedstock combinations, with the value calculated using the 45ZCF-GREET framework.
The two incentives therefore operate within a broader federal policy framework supporting domestic clean-fuel production, but they are not the same tax provision.
The 45Z framework has also undergone significant changes. Current rules restrict eligibility for fuels produced from feedstocks sourced outside the United States, Mexico and Canada and incorporate changes to the treatment of indirect land-use change in carbon-intensity calculations.
Small producers face changing market conditions
The proposed extension comes after a period of uncertainty for US biomass-based diesel producers.
Clean Fuels Alliance America said in March that biodiesel and renewable diesel facilities had faced shutdowns or reduced operating rates during 2025 amid market uncertainty. The organisation subsequently welcomed the Environmental Protection Agency’s final 2026-2027 Renewable Fuel Standard volumes for biomass-based diesel and advanced biofuels.
The RFS and tax-credit structures are separate policy mechanisms, but both influence the commercial environment in which US biodiesel producers operate.
For smaller plants, the continuation of a dedicated producer credit could provide an additional source of support alongside revenues from fuel sales and other applicable clean-fuel incentives.
Domestic agricultural feedstocks remain central
The Small Agri-Biodiesel Producer Credit specifically targets biodiesel produced using domestic agricultural feedstocks.
US biodiesel production commonly relies on feedstocks including soybean oil and other vegetable oils, while the wider renewable-fuels industry also uses recycled cooking oil and animal fats. Clean Fuels Alliance America represents producers and other participants across the biodiesel, renewable diesel and SAF supply chain.
Feedstock eligibility and carbon intensity have become increasingly important in the US clean-fuel tax regime, particularly following changes to the 45Z credit.
For producers, the interaction between feedstock sourcing, carbon intensity, tax-credit eligibility and federal fuel mandates will therefore remain an important factor in project economics.
What happens next
The proposed legislation does not itself extend the credit. Congress would need to pass the measure and enact it before the existing provision expires.
Until then, the Small Agri-Biodiesel Producer Credit remains scheduled to end on 31 December 2026.
The proposed 2029 extension would give eligible small producers a longer period of access to the dedicated incentive, while the broader US clean-fuels market continues to be shaped by the RFS, 45Z and feedstock-related policy changes.
Bioenergy Business Analysis
The proposed extension highlights the continued policy focus on maintaining production incentives for smaller US biodiesel facilities. The $0.20-per-gallon credit on the first 15 million gallons is specifically targeted at producers within the programme’s 60-million-gallon annual production ceiling, making it different from the broader, carbon-intensity-based 45Z credit.
The key issue now is legislative action. The extension has been introduced but is not yet law, so its eventual effect on producer investment, plant utilisation and rural economies will depend on whether Congress adopts the proposal before the existing credit expires.
