10/01/25
US issues 45Z tax guidance for low-carbon fuels
Washington, 10 January (Argus) — US producers of low-carbon fuels can start
claiming the "45Z" tax credit providing up to $1/USG for road use and $1.75/USG
for aviation, following the US Treasury Department's release today of proposed
guidance for the credit. The guidance includes proposed regulations and other
tools to determine the eligibility of fuels for the 45Z tax credit, which was
created by the Inflation Reduction Act to replace a suite of incentives for
biofuels that expired at the end of last year. Biofuel producers have been
clamoring for guidance from the US Treasury Department so they can start
claiming the tax credit, which is available for fuels produced from 1 January
2025 through the end of 2027. "This guidance will help put America on the
cutting-edge of future innovation in aviation and renewable fuel while also
lowering transportation costs for consumers," US deputy treasury secretary Wally
Adeymo said. "Decarbonizing transportation and lowering costs is a win-win for
America." The creation of the 45Z tax credit has already prompted a change in US
biofuels markets by shifting federal subsidies from blenders to producers.
Because the value of tax credit increases for fuels with the lowest lifecycle
greenhouse gas (GHG) emissions, it could encourage refiners to source more waste
feedstocks such as used cooking oil, rather than conventional crop-based
feedstocks. While the guidance is still just a proposal, taxpayers are able to
"immediately" use the guidance to claim the 45Z tax credit, until Treasury
issues additional guidance, an administration official said. The guidance on 45Z
released today affirms that only the producer for the fuel is eligible to claim
the credit, not blenders. To be eligible for the tax credit, the fuel must have
a "practical or commercial fitness for use in a highway vehicle or aircraft" by
itself or when blended into a mixture, Treasury said. Marine diesel and methanol
suitable for highway or aircraft use are also eligible for 45Z, as is renewable
natural gas that can be used as a transportation fuel. Treasury also released an
"annual emissions rate table" offering providers a methodology for determining
the lifecycle GHG of fuel. Treasury said a key emissions model from the US
Department of Energy, called 45ZCF-GREET, used to calculate the value of the 45Z
tax credit is anticipated to be released today, although industry officials said
it may be delayed until next week. Treasury said it intends to propose
regulations at "a future date" for calculating the GHG emissions benefits of
"climate smart agriculture" practices for "cultivating domestic corn, soybeans,
and sorghum as feedstocks" for fuel. Those regulations could lower the
calculated lifecycle emissions of fuel from those crop-based feedstocks and
increase the relative 45Z tax credit. US biofuel producers said they are still
awaiting key details on the 45Z tax credit, including the update to the GREET
model. Among the outstanding questions is if the guidance released today
provides "enough certainty to negotiate feedstock and fuel offtake agreements
going forward", said the Clean Fuels America Alliance, an industry group that
represents the biodiesel, renewable diesel and sustainable aviation fuel
industries. It is unclear how president-elect Donald Trump intends to approach
this proposed approach for the 45Z credit, which will be subject to a 90-day
public comment period. Trump has promised to "rescind all unspent funds" from
the Inflation Reduction Act. But outright repealing 45Z would leave biofuels
producers and farmers without a subsidy they say is needed to sustain growth,
after the expiration last year of a $1/USG blender tax credit and a tax credit
of up to $1.75/USG for sustainable aviation fuel. Biofuel and soybean groups
were unsuccessful in a push last year to extend the expiring biofuel tax
credits. The 45Z credit is likely to be debated in Congress this year, as
Republicans consider repealing parts of the Inflation Reduction Act. House
Republicans have already asked for input on revisions to the 45Z credit,
signaling they could modify the incentive. In a tightly divided Congress,
farm-state lawmakers may hold enough leverage to ensure some type of biofuel
incentive — and potentially one friendlier to agricultural producers than 45Z —
survives. By Chris Knight and Cole Martin Send comments and request more
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