The U.S. Department of Treasury and Internal Revenue Service on Jan. 10 released guidance on the 45Z clean fuels production credit, including a notice of intent to propose regulations and a notice providing the annual emission rate table for the credit. A credit-specific version of the U.S. Department of Energy’s GREET model (45ZCF-GREET) is also set to be released within days. 

The initial guidance provides a broad overview of how Treasury and the IRS plan to implement the 45Z credit, including eligible fuels and the plans to incorporate climate smart agriculture (CSA) practices in the carbon intensity (CI) calculations for certain domestically produced feedstocks. The development of detailed regulations implementing rules for claiming the credit, however, will be developed and finalized under the upcoming Trump administration. 

The Section 45Z credit, established by the Inflation Reduction Act, aims to incentivize the production of transportation fuels with lifecycle greenhouse gas (GHG) emissions levels below certain levels. It provides a per-gallon (or gallon-equivalent) tax credit for producers of clean transportation fuels based on the CI of production. 

The credit is currently in place for 2025-2027. For facilities that meet prevailing wage and apprenticeship requirements, the value of the credit is up to $1 per gallon for non-aviation fuel and up to $1.75 per gallon for sustainable aviation fuel (SAF). The base credit for facilities that do not meet prevailing wage and apprenticeship requirements is 20 cents per gallon and 35 cents per gallon, respectively. 

According to Treasury, the guidance issued on Jan. 10 aims to provide clarity on which entities and fuels are eligible for the credit and how taxpayers determine lifecycle emissions. Specifically, the guidance outlines Treasury and the IRS’ intent to define key concepts and provide certain rules in future rulemaking. 

Regarding what fuels are eligible for the credit, Treasury said it intends to propose that 45Z-creditable transportation fuel must itself (or when blended into a fuel mixture) have either practical or commercial fitness for use as a fuel in a highway vehicle or aircraft. Marine fuels that are otherwise suitable for use in highway vehicles or aircraft are also eligible, including marine diesel and methanol. The guidance also means that neat SAF that is blended into a fuel mixture that has practical or commercial fitness for use as a fuel would be creditable. Additionally, natural gas alternatives, such as renewable natural gas (RNG), would be suitable for use if produced in a manner such that if it were further compressed it could be used as a transportation fuel. 

Treasury’s guidance also addresses how taxpayers will be required to determine the lifecycle emissions of their fuel in order to calculate the credit amount. As part of the guidance, Treasury published an annual emissions rate table that directs taxpayers to the appropriate methodologies for calculating the CI for types and categories of 45Z-eligible fuels. That table directs taxpayers to use the most recent determinations under the 45ZCF-GREET model to determine the emissions rate of non-SAF transportation fuel. Either the 45ZCF-GREET model or the International Civil Aviation Organization (CORSIA) model can be used for SAF. 

Taxpayers that are producing a fuel that is not represented by fuel pathway and feedstock combinations specified in the guidance’s emission rate table may use the Provisional Emissions Rate (PER) process to obtain an emissions rate. Guidance on how to complete the PER process is expected to be released at a later date, according to Treasury. 

The guidance also signals Treasury’s intent to propose rules for incorporating the emissions benefits from CSA practices for domestic corn, soybeans and sorghum as feedstocks for SAF and non-SAF transportation fuels. Treasury said the CSA options would be available to taxpayers after the agency proposes regulations for the 45Z credit, including rules for CSA, and the 45ZCF-GREET model is updated to enable calculation of the lifecycle GHG emissions rates for CSA crops, taking into account one or more CSA practices. 

Representatives of the U.S. biofuels industry have expressed gratitude for Treasury’s release of long overdue 45Z guidance, but are stressing that many details of the upcoming 45Z regulations remain unknown, placing biofuel producers in limbo until the upcoming Trump administration proposes and finalizes the necessary regulations.  

The Renewable Fuels Association expressed doubt that the guidance will spur the investment and innovation in the clean fuels sector that Congress intended. “While we are pleased to see Treasury has finally released its long overdue guidance on 45Z, today’s package falls short of expectations and remains incomplete,” said Geoff Cooper, president and CEO of RFA. “The guidance is a potential step in the right direction, but much work remains to be done before clean fuel producers, farmers, and consumers can fully benefit from the 45Z program.”

Cooper noted that important information from the emissions rate table remains unavailable in today’s guidance, making it impossible for producers to know whether their fuel is eligible for the credit or not. While that information, along with a new 45Z GREET model, is expected to be released soon, today’s guidance leaves biofuel producers in limbo. Today’s guidance also fails to integrate climate-smart agriculture (CSA) practices that can lower the carbon intensity of renewable fuels, and it does not allow producers to determine their own unique carbon intensity values (called a “provisional emissions rate”).

“Unfortunately, today’s guidance does not provide the certainty or flexibility that ethanol producers were looking for, and many questions remain unanswered,” Cooper said. “We do not believe this guidance alone will spur the investment, innovation, and job creation in the clean fuels sector that Congress and the administration intended. It simply isn’t bankable, investible, or otherwise actionable for the vast majority of biofuel producers.

“For the 45Z program to truly drive innovation and value creation in the marketplace, the credit must allow for the inclusion of efficient farming practices, recognition of additional feedstocks and ethanol production technologies, flexible supply chain management tools, and the ability for individual producers to secure their own unique carbon intensity values,” Cooper continued. “But most importantly, producers will not act on this or any subsequent guidance unless they have the assurance that the credit will be durable, stable, and reliably available in the future.”

The American Coalition for Ethanol stressed the preliminary guidance has not provided clarity the industry needs. "ACE thanks the Biden Treasury Department for issuing preliminary guidance, acknowledging the need to incorporate climate-smart agriculture practices, and agreeing that emission values should be determined using the most recent GREET model which is updated annually,” said Brian Jennings, CEO of ACE. “Despite this step in the right direction, the job is unfinished because the preliminary guidance doesn’t provide the clarity our industry has been awaiting. The guidance omits key details essential for biofuel producers to capitalize on 45Z, including how climate-smart agriculture practices will be incorporated. Our focus will be to engage the incoming Trump administration to make the final regulations for the 45Z credit beneficial for our members.

"We are eager to collaborate with the Trump Treasury team to ensure 45Z is implemented effectively, with consideration of USDA’s technical guidelines on climate-smart agriculture practices that are under development,” Jennings added. “Since ag-based feedstocks represent about half of ethanol’s carbon footprint, it is critical to allow farmers and ethanol producers to realize the full value of sustainable farm practices through this tax credit. We once again applaud USDA Secretary Vilsack for his leadership on this topic. ACE will continue advocating for flexibility that recognizes the unique contributions of facility-specific process technologies and climate-smart farming practices to achieve meaningful carbon reductions.

“We have strongly urged both Treasury and USDA to update 45Z guidance for ag practice credit values on a routine basis by incorporating the best available science and results from real-world activities, such as the two USDA-Natural Resource Conservation Service (NRCS) Regional Conservation Partnership Programs (RCPPs) currently being led by ACE,” Jennings continued. “These projects are specifically designed to address the perceived need for more empirical data on the GHG benefits of ag practices and help improve the accuracy of the GREET model, and we look forward to the release of the 45ZCF-GREET model for use in determining emissions rates for 45Z in the coming days.”

Growth Energy said the guidance falls short of what the industry needs. “This long-overdue guidance is far from complete—it still lacks the critical details that are needed to help ensure that American biofuel producers and their farm partners can lead the world in clean fuel production," said Emily Skor, CEO of Growth Energy. "While we appreciate the work of Secretary Vilsack to champion our issues on behalf of rural America, today’s announcement falls short of providing the information that our industry and its farm partners need, including a model for an expanded number of eligible decarbonization technologies and guidance on climate smart agriculture (CSA) practices. 

"We look forward to working with the next Administration to fill in the gaps left by today’s announcement and to ensure this economic opportunity for the struggling farm economy is not left on the table,” Skor continued. “Demand for low carbon energy will continue to grow with or without us, and we need strong policy support in order to unleash the kind of investments that will position the U.S. for leadership in this market. Today’s guidance does not satisfy that need.”

Clean Fuels Alliance America stressed the importance of final 45Z rules in enabling producers to negotiate feedstock and fuel offtake agreements. “We look forward to working with our members to evaluate the overdue guidance and forthcoming GREET model,” said Kurt Kovarik, vice president of federal affairs at Clean Fuels. “We appreciate USDA, Treasury and the Department of Energy for issuing guidance. We’re hopeful that today’s notice provides the necessary certainty that producers can rely on ahead of the final rules. Clean fuel producers still need the carbon intensity scores from the GREET model to calculate their credit values; this missing information is key to enabling them to negotiate feedstock and fuel offtake agreements for the year and get back to business.” 

 “Domestic production of biomass-based diesel has doubled since 2020, benefitting from multiyear certainty in federal tax policy,” Kovarik added. “Biodiesel and renewable diesel combined now meet 9% of U.S. demand for distillate fuel for heavy-duty transportation needs. Clean Fuels and its member companies will carefully evaluate the guidance to ensure it provides needed certainty for all stakeholders and supports the industry’s continued growth.”

The American Biogas Council is stressing that more clarity is needed. “While Treasury took action to clarify the seemingly obvious fact that low-carbon fuel tax credits should accrue to renewable natural gas (RNG) producers, the agency’s guidance preceded issuance of the GREET45ZCF model, by which fuel producers must assess emissions rates,” said Patrick Serfass, executive director of the ABC. “Absent this information, the industry cannot assess the true impacts of the guidance.”  

“Furthermore, given Treasury’s recent reliance on the Department of Energy’s flawed Counterfactual Assessment for biogas, referenced in other guidance released within the last month, the biogas industry is pessimistic that the Administration will get it right for this clean fuels production tax credit,” he added. “These tax credits are supposed to be technology neutral, rewarding the clean energy sources that reduce carbon emissions the most. Instead, we’ve seen again and again, the Treasury and Energy Departments ignore the demonstrated and verified emission benefits of biogas and RNG systems. If the current pattern is not corrected, this would significantly limit the value of otherwise qualified fuels, arbitrarily penalizing RNG in what was designed as a technology-neutral incentive.   

“Biogas and RNG projects recycle manure, food waste, wastewater, and landfill gas into renewable fuel, investments that benefit both rural and urban communities alike,” Serfass continued. “When they do that, emissions are reduced from both the material they recycle and the displaced fossil fuels from the biogas they produce. Biogas systems often reduce carbon emissions at a rate that’s three to six times faster than a comparably sized solar or wind project. When policymakers ignore these facts, they pick technology winners instead of rewarding the industries that actually reduce emissions the most. It's bad for the environment and bad for domestic businesses. It’s unfortunate that Treasury has made these perverse choices to hurt clean fuel producers using American equipment and labor, the opposite of what was intended by Congress.” 

 The Advanced Biofuels Association is calling for the swift issuance of final 45Z guidance. “The advanced biofuels industry is pleased to finally receive initial guidance on 45Z clean fuel credits but is deeply disappointed by the long delays that have caused uncertainty and disrupted markets,” said Michael McAdams, president of the ABFA. “Congress designed 45Z to propel America’s leadership in energy innovation and strengthen our energy independence, yet the prolonged rulemaking process has hindered investment and market stability. 

 “We look forward to working with the incoming Trump-Vance administration to prioritize finalizing this process swiftly. Clear, multi-year guidance is essential to stabilize markets, and support the hardworking farmers and producers who fuel our economy and our future,” McAdams continued. 

Additional information is available on the Treasury website.