The Department of the Treasury and the Internal Revenue Service recently issued proposed regulations for domestic producers of clean transportation fuel to determine their eligibility for and calculate the clean fuel production credit under the One, Big, Beautiful Bill. The new law made important changes to what is often referred to as the 45Z credit.

The guidance also proposes rules to implement certain OBBB changes to the clean fuel production credit. OBBB changed the clean fuel production credit to:

  • Extend the credit to Dec. 31, 2029;
  • Limit feedstocks to those grown or produced in the US, Mexico, or Canada;
  • Add prohibited foreign entity restrictions;
  • Broaden sale attribution for fuel sold through related intermediaries;
  • Eliminate the special rate for sustainable aviation fuel;
  • Add an anti-abuse provision to prevent double crediting;
  • Prohibit negative emissions rates except for fuels derived from animal manure;
  • Require feedstock-specific emissions rates for fuels derived from animal manure; and
  • Exclude indirect land use changes from emissions rates

Biofuels and ethanol producers have generally welcomed the release of the proposed 45Z regulations as a needed step toward clarity and certainty after a long wait for guidance. However, some clarity is still required.

Kurt Kovarik, Clean Fuels’ VP of Federal Affairs, stated, “We greatly appreciate Treasury for moving forward with formal rules for the 45Z Clean Fuel Production Credit. The agency responded to many taxpayer concerns and resolved some uncertainties from the guidance issued a year ago. We anticipate this proposal will provide additional market certainty for biodiesel and renewable diesel producers.”

That sentiment was echoed by the American Coalition for Ethanol.

“We are grateful that Treasury’s proposed rule begins to provide ethanol producers and others more certainty and answers about how to claim the 45Z credit going forward, and we look forward to additional clarity on how ethanol producers can monetize low-carbon farming practices through the tax credit,”said ACE CEO Brian Jennings. Since ag-based feedstocks represent about half of ethanol’s carbon intensity, ethanol producers need to have the opportunity to monetize low-carbon feedstocks to fully unlock the value of 45Z.

He went on to add: “We urge Treasury to continue working closely with the U.S. Department of Agriculture and the Department of Energy to develop and finalize the tools necessary to achieve full monetization of farming practices, such as USDA’s Feedstock Carbon Intensity Calculator (FD-CIC) and DOE’s 45ZCF-GREET model. Last year, USDA asked ACE to help peer-review and beta-test the FD-CIC, and we submitted reams of data and feedback on the tool. We are encouraged Treasury expects the 45ZCF FD-CIC to undergo periodic updates, including incorporation of new data gathered from real-world activities such as the USDA Regional Conservation Partnership Program (RCPP) activity being led by ACE. This work is specifically designed to address the perceived need for more empirical data on the low-carbon benefits of farming practices to help improve the accuracy of modeling tools. We are hopeful the FD-CIC and 45ZCF-GREET model will reflect the feedback we provided and are finalized soon.”