Lawmakers ask US Treasury to speed guidance for 45Z clean fuel tax credit

US lawmakers asked the Treasury Department on July 24 to speed the release of guidance for a key clean fuel tax credit so that farmers and biofuel producers will know how to participate.

The letter, signed by Senator Joni Ernst, Iowa-Republican, and 51 other US lawmakers asked Treasury Secretary Janet Yellen to publish the proposed tax qualification for the Section 45Z credit by Sept. 1, and complete the final rulemaking no later than Nov. 1. The incentive is set to take effect Jan. 1, 2025.

Many of the lawmakers asking for quicker guidance represent rural states, where corn and ethanol producers stand to benefit from the credit.

"The 45Z credit should be leveraged to provide a forward-looking, technology-neutral market signal to increase our country's production capacity for low-carbon, domestic renewable fuels and for existing biofuel production to invest in decarbonization," the letter said. "The effective, timely, and scientific implementation of 45Z is essential to realize the credit's full potential."

Clean fuel guidance

The 45Z Clean Fuel Production Credit was approved in the 2022 Inflation Reduction Act and is designed to incentivize the domestic production of fuels with 50% lower lifecycle greenhouse gas emissions than petroleum. It will replace several expiring biofuel tax credits and, unlike those past provisions, will be "technology neutral" and designed to subsidize production of any kind of fuel that can meet the GHG reduction target.

The credit is designed to scale beyond the 50% reduction threshold, up to a maximum of $1/gal for nonaviation fuel and $1.75/gal for aviation fuel, according to the Congressional Research Service. Producers that reduce carbon intensity scores beyond 50% are eligible for an additional 2 cents per point of carbon intensity reduction. A 60% reduction would net an additional 20 cents/gal.

Those subsidies could be significant sources of revenue for biofuels producers. But who will qualify and what supply chain requirements they will need to follow remain unknown until Treasury publishes qualification guidance.

In May, 25 trade associations representing producers, blenders, retailers and feedstock providers, including corn growers, called on Treasury to "move ahead with all possible urgency" to "ensure there is no interruption in the development of these facilities and production of these fuels."

"America's biofuel producers and our farm partners stand ready to fast-track new investments in low-carbon fuels, but we need regulatory certainty to move forward," Growth Energy CEO Emily Skor said in a July 24 statement.

Push for model changes

The lawmakers also pushed back on Treasury's implementation of the Section 40B tax credit, another IRA subsidy designed to support the domestic production of sustainable aviation fuel.

During the 40B rollout, Treasury and other agencies published updated modeling of the lifecycle GHG impact of certain types of fuel production, which required ethanol producers to adopt three climate-smart agriculture techniques to be eligible for the credit. Biofuels groups were happy the benefits of climate-smart ag techniques were being recognized in the 40B framework, even if producers would find it difficult to adopt all three techniques in time to qualify for the credit in 2024. The compromise reflected competing concerns among Biden administration officials about the environmental impacts of ethanol production.

Ernst and her colleagues ask that the 40B model be revised for 45Z.

"The 'bundling' requirement for farmers to adopt multiple CSA practices before getting credit for any single practice creates a barrier to entry and will exclude many acres of farmland," the letter said. "In 45Z, more CSA practices must be included and farmers must be permitted to adopt them in a practice-by-practice fashion without a 'bundling' requirement."

The letter also urges Treasury to recognize a broader array of technologies designed to reduce emissions from biofuels production.

"Lack of regulatory certainty is already putting thriving businesses at risk as fuel producers are unable to make important business decisions regarding their fuel," the letter said. "Capital investment remains uncommitted, threatening certain projects and expansion plans, including the administration's stated goals to support new markets like sustainable aviation fuel (SAF) and low-carbon transportation fuels."

A Treasury spokesperson did not respond to a request for comment.