The U.S. House of Representatives early on May 22 narrowly passed a reconciliation bill by a vote of 215 to 214 that includes provisions updating and extending the 45Z clean fuel production tax credit. The bill, H.R. 1, commonly known as the “big, beautiful bill,” will now be considered by the U.S. Senate. 

The existing 45Z tax credit, established by the Inflation Reduction Act of 2022, provides a tax credit for the production and sale of low-emission transformation fuels. The credit starts at 20 cents per gallon for non-aviation fuels and 35 cents per gallon for sustainable aviation fuel (SAF). For facilities that satisfy the prevailing wage and apprenticeship requirements, the value of the tax credit is up to $1 per gallon for non-aviation fuels and $1.75 per gallon for SAF. The tax credit is currently in place for 2025, 2026 and 2027. 

Section 111112 of the H.R. 1 aims to limit availability of the 45Z credit to fuels produced from feedstocks produced or grown in the U.S., Mexico or Canada. It also aims to exclude indirect land use change (ILUC) from being used to calculate the lifecycle greenhouse gas (GHG) emissions of eligible fuel and directs the U.S. Treasury Department to establish distinct emissions rates for specific manure feedstocks, including dairy manure, swine manure and poultry manure. 

The draft bill would extend the 45Z credit through Dec. 31, 2031. Additional changes to the 45Z credit aim to restrict access to the credit for certain prohibited foreign entities. 

Section 10106 extends funding for the USDA’s Biobased Markets Program and the Bioenergy Program for Advanced Biofuels program through 2031. The Biobased Markets Program, commonly referred to as the Biopreferred Program, aims to expand the use of biobased products through a voluntary labeling program and federal procurement requirements, while the Bioenergy Program for Advanced Biofuels program provides payments to eligible producers of advanced biofuels. According to the bill language, current funding levels of $3 million and $7 million per fiscal year, respectively, would be continued through 2031.

H.R. 1 leaves the 45Q credit for carbon sequestration largely intact but aims to enact restrictions on transferability. Specifically, the legislation would repeal transferability for carbon capture equipment where construction begins two years after the bill’s date of enactment. It also restricts access to the credit for certain prohibited foreign entities. 

While H.R. 1 includes several provisions benefiting the biofuel and bioenergy industries, it also aims to repeal and scale back numerous other clean energy tax credits, including the clean hydrogen tax credit and the alternative fuel vehicle refueling property credit. 

The alternative fuel vehicle refueling property credit allows taxpayers to claim a tax credit for advanced refueling property placed in service during a give tax year, including property used to dispense E85, biodiesel blends of B20 or greater, natural gas, hydrogen, propane, and electricity. The credit value is 30% of the cost of the property, up to $100,000. The credit is currently scheduled to retire on Dec. 31, 2032. The draft bill would accelerate the sunset date of the credit to Dec. 31, 2025.

Also related to biofuels, H.R. 1 aims to repeal Section 60108 of Inflation Reduction Act of 2022, which allocated funding to the U.S. EPA to support certain functions related to the Renewable Fuel Standard This includes  $5 million to the EPA to support the development and establishment of tests and protocols regarding the environment and public health effects of a fuel or fuel additive; perform internal and extramural data collection and analyses to regularly update applicable regulations, guidance, and procedures for determining lifecycle GHG emission of a fuel; and review, analyze and evaluate the impacts of all transportation fuels, including fuel lifecycle implications, on the general public and on low-income and disadvantaged communities and $10 million to the EPA to fund “new grants to industry and other related activities…to support investments in advanced biofuels.” Any unobligated funds would be rescinded.

The bill also aims to terminate the clean hydrogen production tax credit, which was established by the IRA and allows taxpayers to claim a credit per kilogram of qualified clean hydrogen produced for sale or use. The credit is based on GHG emission rate of the production process, with a value of up to 60 cents per kilogram. The clean hydrogen tax credit is currently available for facilities that commence construction before Jan. 1, 2033. The draft bill would accelerate the expiration of the credit to Dec. 31, 2025. 

Another section of the draft bill aims to phase-out a credit that supports the installation of residential wood heating appliances and residential oil furnace or hot water boilers that are rated to be fueled with eligible biobased fuels.  The legislation would terminate the energy efficient home improvement credit, which currently allows taxpayers to claim a tax credit for household energy efficiency improvements. The value of the credit is 30% of qualified expenses, up to $1,200 annually, or $2,000 for heat pumps and biomass stoves. The credit is currently set to expire on Dec. 31, 2032. The draft bill would accelerate the expiration to Dec. 31, 2025.

In addition, the draft bill seeks to phase out the production tax credit (PTC) and investment tax credit (ITC) for clean electricity. The credits are not currently set to expire. The draft bill, however, aims to phase out the credit by reducing the value of the credit by 20% for facilities placed into service after 2029, by 40% for facilities placed into service in 2030, and 60% for facilities placed into service 2031. No credit would be available for facilities placed into service after 2031. Bill provisions also restrict access to the credit for certain prohibited foreign entities. 

H.R. 1 will now be taken up by the Senate, where the bill will likely be amended. Any differences between the House and Senate versions of the bill will likely be resolved via conference committee with the goal of crafting a piece of legislation that can be subsequently passed by both houses of Congress. Once the House and Senate are able to pass identical versions of the bill, the legislation will be delivered to the White House for President Donald Trump’s consideration. 

Representatives of the biofuel and bioenergy industries are speaking out to applaud H.R.1’s 45Z provisions. 

 “The budget reconciliation bill passed by the House this morning includes several provisions that are important to America’s ethanol producers and farmers,” said Geoff Cooper, president and CEO of the Renewable Fuels Association. “In addition to extending the 45Z clean fuel production credit by four years, the bill also reinstates crucial tax benefits that will stimulate research, experimentation, and innovation across the ethanol supply chain. As the bill now moves to the Senate, we hope additional improvements can be made to ensure these tax policies truly drive demand growth for American-made renewable fuels.”

“We’re grateful to our champions on Capitol Hill who have worked hard to preserve and extend rural priorities, like the 45Z clean fuel production tax credit,” said Emily Skor, CEO of Growth Energy. “This budget reconciliation package would give farmers and ethanol producers the freedom and flexibility to deliver for the American people. It ultimately delivers on the President’s agenda—it’s good for rural communities, good for innovation, good for investment, and good for American energy dominance,” said Growth Energy CEO Emily Skor. “We urge the Senate to protect the 45Z tax credit and get this bill onto the President’s desk, so we can unlock billions of dollars of investments in new markets for farmers and U.S. clean energy innovation." 

The American Biogas Council applauded the crucial changes the bill makes regarding carbon intensity scoring for manure-based biogas projects. “We urge the Senate to follow quickly suit and pass legislation that also includes the House provisions favorable to biogas, which will accelerate the deployment of biogas systems that capture energy from organic materials like manure, food waste and wastewater solids as they break down,” said Patrick Serfass, executive director of the ABC. “These systems transform this waste into clean, American-made energy, while reducing pollution and stimulating economic growth in rural communities.

“To fully realize the potential of biogas, we also call on the Senate to extend support for biogas systems under the clean electricity (Sections 48E/45Y) and clean hydrogen (Section 45V) tax credits, which are critical for farmers, municipalities and other operators who are limited from using Section 45Z but still seek to generate renewable energy from decomposable waste,” Serfass added. 

The Sustainable Aviation Fuel (SAF) Coalition is applauding the bill’s 45Z provisions. “The SAF Coalition applauds the House of Representatives for extending the Clean Fuel Production Credit (45Z) through 2031,” said Alison Graab, executive director of the SAF Coalition. “Sustainable aviation fuel is a vital solution for advancing U.S. energy dominance, driving rural economic growth, and establishing the United States as a global frontrunner in SAF production. 

“This legislation provides the long-term certainty SAF producers need to scale operations, drive private sector investment, and benefits American farmers and rural economies,” Graab added. “The Coalition is encouraged by the extension and looks forward to the Senate’s support.” 

 The Advanced Biofuels Association (ABFA) is also speaking out in support of the bill’s 45Z provisions. “The advanced biofuels industry is grateful to see the House include a multi-year extension of the Clean Fuel Production Credit (45Z) in its reconciliation package,” said Michael McAdams, president of the ABFA. “Certainty is essential for businesses to invest in the infrastructure and workforce to grow American energy dominance in the advanced biofuels space. 

“We look forward to working with biofuels champions in the Senate to make additional improvements to the credit as the legislative process continues to further expand America’s advanced biofuels capacity and strengthen the nation’s energy security.”

Additional information, including a full copy of H.R. 1, is available on the Congress.gov website.