US Senators Propose Extending Small Biodiesel Producer Tax Credit to 2029

Washington — A bipartisan pair of United States senators has introduced a bill to extend a tax incentive for small-scale biodiesel producers through 2029. The move comes as US diesel prices have surged and the biofuel industry argues that federal policy is instead weighing on demand.

Senators Chuck Grassley (Republican, Iowa) and Amy Klobuchar (Democrat, Minnesota) introduced the bill on 30 September 2026, Transport Topics reported on Friday (2 October 2026). It would extend the Small Agri-Biodiesel Producer Credit, a federal income tax credit of 20 US cents per gallon on the first 15 million gallons produced by small agri-biodiesel producers. Without an extension, the credit expires at the end of December 2026.

Industry and logistics support

"Small biodiesel producers make an enormous contribution to America's energy security today," said Kurt Kovarik, Vice President of Federal Affairs at Clean Fuels Alliance America. He said an extension would give small producers certainty. The American Trucking Associations also voiced support, both for extending the small-producer credit and for a separate bill in the US House of Representatives seeking to revive the US$1-per-gallon Biodiesel Blenders Tax Credit through 2029. That blenders' credit expired in 2024.

Background: expensive diesel and small-refinery exemptions

• Diesel prices have surged. In the week of 28 September 2026, the average US diesel price reached US$6.382 per gallon, up around US$2.63 from a year earlier. Transport Topics linked the jump to US and Israeli military operations against Iran since February.
• Small-refinery exemptions. In September, the US government announced exemptions from 2025 Renewable Fuel Standard (RFS) obligations for 25 small refineries, equivalent to 1.76 billion compliance credits. The biofuel sector says the policy weakens biodiesel demand.
• Additional EPA rule. The US Environmental Protection Agency (EPA) plans to finalise a supplemental rule before the end of October so that the exemptions do not erode biodiesel and renewable diesel production.

Relevance for Indonesia

The United States and Indonesia both use incentives to keep biodiesel economically viable, but with different models. The US relies on tax credits and the RFS compliance-credit system, funded through market mechanisms, whereas Indonesia covers the price gap through palm oil export levy funds managed by the Plantation Fund Management Agency (BPDP). The main feedstocks also differ—soybean oil and used oils dominate in the US, palm oil in Indonesia. What they share: when fossil diesel prices spike, biodiesel is again seen as a buffer for energy security. Read also: October 2026 biodiesel market index price (HIP).