Illinois sweetens incentives for increased biodiesel use with new tax exemption law

Illinois extended the current tax exemption on sales of B10 biodiesel until 2023 with passage of a new law, which will also increase the biodiesel blend level subject to the tax exemption incrementally through 2026, according to an April 20 statement from the Clean Fuels Alliance.

The Illinois law currently in place gives biodiesel retailers a 20% exemption of the state's 6.25 % excise tax for selling blends containing between 1% to 10% of biodiesel. The new bill signed into law by Illinois governor J.B. Pritzker will keep that sales exemption in place through 2023, and then increases biodiesel blend levels subject to the tax exemption to B13 in 2024, B15 in 2025 and B19 in 2026.

"This innovative tax exemption program in Illinois, which has been in place since 2003, has drawn hundreds of millions of gallons of biodiesel into the state. This modification, signed by Governor Pritzker today, will expand that demand and solidify Illinois as a leading source and user of better, cleaner biodiesel," said Clean Fuels CEO Donnell Rehagen in the statement.

The legislation was spearheaded and guided through the legislative process by the Illinois Soybean Association (ISA) with support from Clean Fuels Alliance America and several of its member companies, including Archer Daniels Midland and Renewable Energy Group, to increase use of biofuels and reduce greenhouse gas emissions.

Soybean consumption and production

Illinois is currently fourth among all states in biodiesel production and third in consumption with 160 million gallons consumed annually, according to the statement. Energy Information Administration data showed Illinois biodiesel production of 174 million gal/yr in 2021.

Illinois also ranks among the biggest producers of soybeans in the country.

US Department of Agriculture data showed the state to be the largest producer of soybeans in 2021, producing 672.6 million bushels.

Demand for biodiesel is being supplanted by demand for renewable diesel, which has the same chemical structure as petroleum diesel. While both are made from renewable sources which include used cooking oil, beef tallow, and soybean oil, RD burns more cleanly than biodiesel because it does not have to be blended with a petroleum product.

The new law will help keep more soybean oil in-state to be processed at Illinois biodiesel refineries rather than shipped out-of-state to renewable diesel and sustainable aviation fuel producing facilities. As of 2021, the state also had four biodiesel plants, down from the five it had in 2020, according to the EIA.

The supply of soybean oil remains tight as new RD and SAF projects come online, with one of Illinois' five biodiesel plants shutting down in 2020, as soybean oil prices soared. CBOT soybean oil futures are averaging 75.2 cents/lb so far in Q2 2022, up from the 58.14 cents/lb and 31.3 cents/lb in 2021 and 2020, respectively.