45Z Nears Finalization, Reshaping U.S. Biofuels and Imported UCO

The completion of the review by the White House Office of Management and Budget (OMB) marks a turning point for the long-delayed 45Z Clean Fuel Production Tax Credit. The policy has now entered a clear countdown phase. For the U.S. biofuels industry, this represents a return of regulatory certainty; for supply chains dependent on imported feedstocks—particularly overseas used cooking oil (UCO),it signals an approaching structural shake-up.

The acceleration of the rulemaking process is not accidental. After the proposed 45Z rule was submitted in December 2024, OMB convened 16 meetings in January with industry stakeholders, overwhelmingly representing U.S. agriculture, biofuels, and energy producers. This composition sends a clear message: the primary objective of 45Z is to stabilize and reinforce domestic fuel and agricultural supply chains.

OMB has confirmed that the proposed rule was modified during the review process and is now advancing toward a Notice of Proposed Rulemaking (NPRM), expected in May. In U.S. regulatory practice, this typically means the policy direction is largely settled, with remaining work focused on technical implementation rather than fundamental changes.

Ironically, delays in issuing final guidance have already harmed the market. U.S. biodiesel production is expected to decline sharply in 2025 as project developers delay investments, shift feedstock procurement to short-term contracts, and reassess SAF project economics.

For imported UCO, the key risk is not an outright ban, but the loss of eligibility for tax credits. Through carbon intensity modeling, default emissions values, and traceability requirements, 45Z is systematically raising compliance costs for imported feedstocks—allowing the market to marginalize them organically.