The Treasury Department and the IRS released proposed regulations Feb. 3 on the clean fuel production credit under the One Big Beautiful Bill Act.
Section 45Z of the tax code provides a clean fuel production credit, enacted as part of the Inflation Reduction Act, the tax-and-climate law signed by President Joe Biden in 2022.
The credit replaced prior renewable fuel incentives with a technology‑neutral credit aimed at incentivizing domestic production of lower carbon alternatives to petroleum‑based fuels.
The clean fuel production credit was extended and revamped in Republicans’ OBBBA, the tax-and-spending bill signed into law by President Donald Trump last year.
The credit is available for producers of qualifying transportation fuels—including sustainable aviation fuel, renewable diesel, ethanol, renewable natural gas, biodiesel, and other liquid or gaseous fuels—provided the fuel meets strict lifecycle emissions thresholds and is produced and sold within specific statutory parameters.
The Section 45Z credit applies to fuel produced domestically after Dec. 31, 2024, and sold by Dec. 31, 2029. To claim the credit, taxpayers must be registered with the IRS using Form 637, Application for Registration (For Certain Excise Tax Activities), at the time of production.
The proposed rules issued Tuesday provide guidance on the determination of clean fuel production credits, emissions rates, and certification and registration requirements, the IRS said.
The proposed regulations impact producers of clean fuel, including ethanol, biodiesel, renewable diesel, renewable natural gas, and sustainable aviation fuel.
The guidance also proposes rules to implement certain OBBBA changes to the clean fuel production credit. According to the IRS, the law changed the clean fuel production credit to:
- Extend the credit to Dec. 31, 2029;
- Limit feedstocks to those grown or produced in the U.S., 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.
“We appreciate the Treasury Department moving the needle by publishing proposed guidelines for the 45Z tax credit. It’s an important step to finalize improvements protecting access for domestic feedstocks, which the guidelines specify, and promote American biofuels demand,” American Farm Bureau Federation President Zippy Duvall said in a statement.
“However, this is just the first step. The Departments of Agriculture and Energy must now finalize guidance and resources for calculating carbon intensity scores so that the full range of Congressionally mandated improvements to the credit can be realized. This includes recognizing the many ways farmers across sectors promote stewardship by exploring additional conservation practices with potential to reduce carbon intensity scores that meet diverse agricultural needs. Encouraging the production of homegrown biofuels will not only help meet the demand for renewable energy but also fortify a farm economy that desperately needs a boost.
“America’s farmers and ranchers stand ready and willing to meet the needs of our growing energy portfolio and goal to be energy independent. We look forward to working with USDA and DOE to ensure farmers are recognized as partners in taking on the challenge.”
Geoff Cooper, president and CEO of the Renewable Fuels Association, issued the following statement on Feb. 3 regarding the proposed regs: “Today’s 45Z proposed rule is a step in the right direction toward providing the clarity and certainty that ethanol producers are seeking. We thank the Treasury Department and Trump administration for listening to the input provided by ethanol producers and other stakeholders. The proposal appears to resolve some of the previous confusion around what constitutes a ‘qualified sale,’ and begins to integrate the important improvements to 45Z that resulted from the One Big Beautiful Bill Act, such as the removal of indirect land use change emissions from the carbon intensity scoring framework.
“However, much work remains to be done and many questions still need to be answered. First and foremost, ethanol producers are anxiously awaiting a new, revised version of the 45ZCF-GREET model, which will help shed light and provide clearer direction on several critical issues. In addition, questions remain to be resolved around the quantification of emissions related to low-carbon feedstock production at the farm level, implementation of foreign feedstock prohibitions, and provisions related to the use of energy attribute credits.”
Cooper said the RFA looks forward to providing comments on the proposal to the Treasury Department and intends to testify at an upcoming hearing on the rule.
The Treasury Department and the IRS said they welcome comments and requests to speak at a public hearing on these proposed regulations. Commenters are encouraged to use the Federal e-Rulemaking portal to submit comments (indicate “IRS” and “REG-121244-23”). A public hearing has been scheduled as described in the “Comments and Public Hearing” section.
Paper submissions should be sent to: CC:PA:01:PR (REG-121244-23), Room 5503, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.
Photo credit: Brett_Hondow/iStock
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