W|Carbon: Trump Administration Energy Policies Sharpen
UCO Imports Raise Concern
❖ Inauguration Looming – Major Implications For Energy Industry Segments
o EV Programs: there are growing expectations that the Federal tax policy will be canned almost immediately. The cuts will likely spread further into EV charging infrastructure and spill over into trade with tariff increases for component imports, primarily from China. The U.S. remains far behind Chinese EV adoption rates, where new EV sales in China account for nearly 40% of vehicle registrations compared to less than 10% in the U.S.
• To make up for the Federal tax cuts, California, the U.S. leader in EV adoption, has already floated the possibly of revamping its own tax program (a potentially expensive commitment for a state already facing budgetary pressures). The move would also likely benefit Tesla (TSLA), whose leadership emerged as a key Trump ally late in the election but also holds a leading ~54% market share in CA’s battery electric segment. We note EV sales currently make up a ~1/4 of new vehicle sales in CA.
o Job Growth, Likely Through An Easing Regulatory Burden On The Petroleum Industry. Trump will return to Office with a relatively low unemployment rate but stubbornly high prices, which were a campaign focus but have already begun to be walked back. In the absence of general price reductions, we expect the Administration to focus on growth through job creation via large-scale infrastructure projects, removal of regulatory red tape, and energy independence through net exports. Recall previous areas of focus were on methane emissions regulation rollbacks, authorizing new drilling in sensitive regions, including new leasing and permitting, reduced corporate tax rates, and a focus on energy independence that yielded the U.S. emerging as a net energy exporter.
o Inflation Reduction Act (IRA): Many aspects of the Trump Administration's take on the IRA will cut across numerous energy sectors. Key areas of focus for us include renewable fuel and related power production including hydrogen and its derivatives ammonia, methanol, and electric power). Decisions made on green hydrogen will affect production options for green ammonia, and the availability of green ammonia will affect other technologies like RNG and CCS, as well as GHG reduction strategies for SAF where ammonia is part of the life cycle of crop production.
• Many programs that could be considered to be misaligned with Trump policies are either underway, approved, or even funded. While the new Administration may claw back any unallocated fund, we don’t expect many interruptions to projects and programs that are already underway.
• Biggest Threat = 45Z. With the final regulation still not released, the Clean Fuel Production Credit will not be fully implemented by Inauguration Day. Various Administrations have retroactively activated these credits, but that will likely be a highly politicized decision.
• Hydrogen Three Pillars: While a major refining input, aspects of the three pillars, like matching, have proven challenging to implement. The power commitment for green hydrogen weighs heavily on cost and is not offset by IRA provisions. Relaxation of the requirements is potentially something to watch.
o DOE Loan Guarantee Program: Loan guarantee approval provides opportunity to reward stakeholders, including those that potentially lost out from premature drawback of IRA allocations. The program allocation grew under the previous Trump Administration and could be used as a relief valve for those IRA projects that faced the chopping block.
o W|Carbon Analysis: Look to resolution on some of these problems though we expect others will be ultimately resolved only through guidance or per applications. A few others to watch include the examination of RNG from landfill and MSW sources, particularly food waste, stacking of IRA incentive values perhaps with co-located but separate taxpayers, and finally, whether or not a negative CI results in a 45Z value greater than $1.75 per gallon.
❖ Imported UCO Revives Concerns In CA’s LCFS Market From Both Regulators & Feedstock Industry Associations
o Background On Tariffs: The previous Trump Administration began with a mercantilist approach, targeting markets where the U.S. was a net importer (we expect more of the same). With a threat of blanket tariffs on key trade partners, foreign leaders have already descended to meet the incoming Administration to “resolve” potential trade issues. For energy, solar and EV components are most likely to face this approach.
o With the massive growth rate in renewable diesel demand in the California market and recent LCFS Amendments to impose limits on various feedstock sources, and the confluence of increased imports of UCO, the issue has reemerged. To further compound the issue, market demand is nearly saturated as East Coast demand has started to pick up. Aside from the highlighted feedstocks in the new regulations, distillers corn oil (DCO), an important co-product for ethanol plants, has enjoyed growing share as a feedstock in the lucrative LCFS market – hence the recent objections from industry trade groups.
o Challenges in verification remain in the spotlight due to issues with biodiesel and renewable diesel feedstocks in the past. In the U.S. and in markets like the European Union that have focused on traceability:
• The volumetric availability of palm oil remains available to mischaracterize UCO origin;
• Mislabeling; and
• “Light use” for food processing also present challenges for what is supposed to be a waste product.
o Full Circle To Pressure Against Soybean Oil: CARB limitations on feedstock through “limits” on soybean/canola/sunflower oil-based, renewable diesel and biodiesel, where use above a 20% threshold will be assigned the CI of that year’s target rather than the actual CI of the fuel. The change will not be implemented until 2028 for companies that already have an approved or submitted pathway. That runway may give companies above the 20% threshold time to diversify feedstocks.
o W|Carbon Analysis: Outcomes from several upcoming CARB workshops on iLUC and sustainability certification for LCFS will impact the sector. The workshops are the prime opportunity for stakeholders to present their cases for their unique pathways and requires participation. Each unique pathway should expect counter representation from NGO’s working to further “limit” pathways. Standing on the sidelines likely will not be rewarded at this point in the process.