Insight: How a Texas refinery turns Amazon-destroying cattle into 'green' jet fuel

Diamond Green Diesel, a joint venture between Darling Ingredients and Valero Energy and a major U.S. sustainable fuel producer, is reportedly sourcing cattle tallow from Brazilian slaughterhouses linked to illegally deforested Amazon rainforest lands, according to a Reuters investigation. This practice, which undermines the 'green' credentials of the fuel used by airlines like JetBlue and Southwest to meet emissions targets under the UN's CORSIA agreement, raises significant ESG and reputational risks for the involved companies. Despite Diamond Green Diesel receiving over $3 billion in U.S. tax credits for biofuels, the sourcing highlights a potential loophole in sustainability certifications, where tallow is often considered a byproduct, potentially exacerbating Amazon deforestation as demand for biofuels grows.

Analysis

Diamond Green Diesel, a major U.S. sustainable fuels joint venture between Darling Ingredients (DAR) and Valero Energy (VLO), faces significant ESG, reputational, and legal risks following a report that it sources cattle tallow from Brazilian suppliers linked to illegal Amazon deforestation. The venture, which has collected over $3 billion in U.S. tax credits since 2022, supplies 'green' jet fuel to airlines including JetBlue (JBLU) and Southwest (LUV), whose own emissions reduction claims are now compromised. The investigation uncovered a critical loophole in the UN-backed CORSIA certification framework, where tallow is classified as a 'byproduct,' exempting its supply chain from deforestation audits by certifiers like the ISCC. Specific evidence includes a Darling-owned plant in Brazil, Araguaia, exporting $4.4 million in tallow to Diamond Green Diesel in 2023 while sourcing from meatpackers that failed audits for processing 20,000 cattle from illegally deforested lands. This direct link, coupled with active investigations by Brazilian federal prosecutors who hold companies in the supply chain responsible for illegalities, exposes the entire value chain—from producers to end-users—to potential regulatory action and a severe erosion of their sustainability credentials.

Key Decisions for Investors

• Investors in Darling Ingredients (DAR) and Valero Energy (VLO) should immediately assess the potential for financial and reputational damage, as their joint venture's reliance on a compromised supply chain puts over $3 billion in U.S. tax credits and its core business model at risk.
• The exposed loophole in the ISCC certification for tallow signals a systemic risk for the sustainable aviation fuel (SAF) sector; it is prudent to scrutinize the due diligence of all companies claiming sustainability based on byproduct feedstocks and anticipate stricter regulatory oversight.
• Holders of JetBlue (JBLU) and Southwest Airlines (LUV) should monitor for fallout, as the tarnishing of their ESG initiatives could impact brand value and attract scrutiny from environmentally-conscious consumers and investors.
• Watch for official company responses, potential investigations by U.S. or Brazilian authorities, and any re-evaluation of certification standards by CORSIA, as these events will be critical catalysts for the involved stocks.