Houston, 10 October (Argus) — Major changes in US trade and renewables policy this year have made investing in more biofuel capacity uneconomical for now, according to US independent refiner Phillips 66.
The company was considering co-processing renewable feedstocks at three of its oil refineries, but the current structure of US tariffs and 45Z biofuel tax credits “… and all the things that go into play with that, has made it less attractive to pursue that right now,” Phillips 66 executive vice president of refining Richard Harbison told Argus this week in an interview at the company’s headquarters.
Phillips 66 is always looking to address and reduce its carbon intensity and will continue to look at opportunities to do that, Harbison said, but the company must still make money for shareholders.
The 45Z clean fuel production credit, crucial for biofuel refinery production margins, offers a sliding scale of subsidies for alternative fuels based on their greenhouse gas emissions. A major tax and energy bill President Donald Trump signed into law this summer extended the incentive another two years but shifted around credit eligibility. New rules kicking off next year mean crop-based fuels will earn larger subsidies than they do this year, and fuels made from feedstocks outside North America will be ineligible.
Refiners have taken issue with the changes, saying that they will increase feedstock and fuel costs. They had pushed lawmakers to change the law to allow fuels made from co-processing to qualify for 45Z too, but they remain ineligible.
Phillips 66, which finished converting its Rodeo, California, refinery to a 52,000 b/d renewable diesel plant last year, said in February it was considering producing renewables at its 258,500 b/d Bayway refinery in Linden, New Jersey, if more states adopt low carbon fuel standards. The company also asked the Foreign-Trade Zones Board to approve changes to its existing approvals for oil products produced at Bayway and two other refineries — the 264,000 b/d Lake Charles refinery in Westlake, Louisiana, and its 265,000 b/d Sweeny refinery in Old Ocean, Texas — to include various fuels derived from both petroleum and biogenic feedstocks.
But the changes in 45Z and the US’ surge in import tariffs this year could threaten the profitability of such projects. All three of those Phillips 66 refineries are located in foreign-trade zones that allow companies to avoid tariffs on foreign inputs for products that are ultimately exported abroad. But most renewable fuels produced in the US are sold domestically, meaning the higher tariffs put in place this year on the imported feedstock would be in effect and make the process less economic.
Renewable diesel producers like Phillips 66 still also face the long-running problem of unclear program details and missed regulatory deadlines. Former president Joe Biden’s administration missed a January deadline to finalize regulations around qualifying and now President Donald Trump’s administration has signaled it might not even propose a regulation until May 2026.
Industry groups are hopeful more interim guidance comes sooner, but the uncertainty around key questions — like whether all types of fuel sales qualify — has prompted facilities to slash run rates this year.
Phillips 66’s Rodeo facility, which imported low-carbon waste feedstocks like used cooking oil and tallow from abroad, averaged 40,000 b/d of renewable fuel production in the second quarter, the lowest quarterly average since the company finished converting the refinery in June 2024.
Phillips 66 will report third quarter earnings on 29 October.
By Eunice Bridges and Cole Martin
