Biden administration still plans on issuing clean fuel tax credit guidance before end of term

The administration of United States President Joe Biden remains intent on clarifying which producers will be eligible for a crucial clean fuel tax credit before it takes effect in January 2025, a US Department of the Treasury spokesperson confirmed to S&P Global Commodity Insights.

"Treasury anticipates issuing guidance before the end of the administration that will enable eligible producers to claim the 45Z credit for 2025," US Treasury spokesperson Michael Martinez said in a statement.

That contradicted an earlier Dec. 3 report by Reuters, which cited three unnamed sources, that asserted the current administration planned to leave office without finalizing the eligibility guidance for Inflation Reduction Act's key biofuels tax credit.

The credit, known as 45Z, is designed to incentivize the domestic production of fuels with 50% lower lifecycle greenhouse gas emissions than petroleum. According to the Congressional Research Service, the credit is also designed to scale beyond the 50% reduction threshold, up to a maximum of $1/gal for non-aviation fuel and $1.75/gal for aviation fuel. Producers that reduce carbon intensity scores beyond 50% are eligible for an additional 2 cents per point of carbon intensity reduction.

The subsidies are seen as potentially significant sources of revenue for biofuels producers and a spur for the production of sustainable aviation fuel (SAF). The Biden administration has promised to ramp up SAF production to 3 billion gallons per year by 2030.

The uncertainty over the tax credit's exact guidance is a product of inter-agency disagreements about the environmental drawbacks of ethanol and diesel production. It remains unknown whether fuels can be scored by the US Department of Energy's GREET model as having a low enough carbon intensity to qualify for the credit -- amid environmentalists' concerns about land used for crops to create fuel -- and whether a bundle or specific climate-smart agricultural practices would be required for producers to meet the 50% reduction threshold.

"We just simply have to convince our friends at Treasury and energy and transportation that we have valid, solid data and information behind it," US Department of Agriculture Secretary Vilsack, widely seen as supportive of the biofuels' industry's push for eligibility, said of climate-smart agriculture at the Growth Energy Biofuels Summit Sept. 10. A USDA spokesperson told S&P Global Commodity Insights Dec. 3 that the credit guidance was still "under consideration."

In addition to advocating for legislation to extend bridge tax incentive packages outlining current subsidies -- such as 40B, a SAF-specific credit the Biden administration finalized in the spring, which is scheduled to expire on Dec. 31 -- biofuels trade groups have anxiously pressed the administration for greater 45Z clarity throughout 2024. And they continued to do so on Dec. 3.

"Many producers and their farm partners have already responded to the enactment of these incentives by investing in technologies to reduce their carbon intensity," Growth Energy CEO Emily Skor said in a statement. "To leave the credit unfinished would jeopardize the economic benefits this credit could deliver to America's rural communities."

"These reports make clear that Congress must extend the longstanding biodiesel blenders' tax credit to serve as a bridge until a new Administration and the 119th Congress can address longer-term tax policy in 2025," a spokesperson for NATSO and SIGMA, which represent fuel retailers and marketers, said in an email. "Without guidance, fuel producers will not be able to utilize the 45Z credit in the coming year. This will result in higher fuel prices and emissions as the biodiesel industry effectively shuts down."

"Tax credits are only effective when they are consistent, timely, and well-communicated," Advanced Biofuels Association president Michael McAdams said in a statement. "The prolonged lack of clarity has stalled vital investments and disrupted planning – hindering the ability to achieve national energy goals like producing 3 billion gallons of Sustainable Aviation Fuel (SAF) by 2030."