Industry coalitions representing the entire value chain of low-carbon fuels in the United States have issued a joint call for the Treasury Department to promptly issue rules on the enforcement of the Clean Fuels Production Credit, which takes effect next year.
The Internal Revenue Code Section 45Z credit, established by the 2022 Inflation Reduction Act, will replace several fuel-related tax credits due to expire this year. These include credits for the production of biodiesel, renewable diesel, second-generation biofuel, sustainable aviation fuel and alternative fuel mixtures.
Under the 45Z credit, producers that meet prevailing requirements in terms of wage and the share of apprentices in labor can qualify for up to $1 per gallon of nonaviation fuel and $1.75 per gallon of aviation fuel. Credits increase as lifecycle greenhouse gas (GHG) emissions associated with the fuel they produce approach zero.
“This new technology-neutral production credit represents the first time a federal tax incentive based on lifecycle greenhouse gas emissions rates has been used to incentivize the domestic production of fuels”, 25 industry groups told Treasury Secretary Janet Yellen in a letter. “Our member companies and organizations, who constitute the nation’s leading producers, feedstock providers, blenders, consumers, and retailers of low-GHG renewable fuels, are eager to utilize this new tax incentive and participate in the further decarbonization of the highway transportation, maritime, rail, aviation, and home heating sectors”.
“The clean fuels marketplace is a complicated ecosystem that is tied in many cases to agricultural inputs and feedstock production, sales of fuel and futures, allocations to third-party marketers and other factors that require many months of advance understanding of the new tax structure”, stated the letter, shared online by Clean Fuels Alliance America, one of the signatories.
“With the Sec. 45Z credit set to take effect January 1, 2025, our member companies and organizations may face significant headwinds and business risk if this guidance is not published promptly. Any extended delays in publication of guidance for the Sec. 45Z credit may disrupt project timelines, impede capital flows, and threaten existing production and demand for low carbon renewable fuels”.
Kurt Kovarik, vice president for federal affairs at Clean Fuels Alliance America, said in a statement, “U.S. biodiesel and renewable diesel producers are facing uncertainty as the transition from the biodiesel and renewable diesel blender credit to the producer credit”.
“They are facing difficulties already as they try to negotiate feedstock and fuel offtake contracts for next year”, Kovarik warned.
Along with the guidance, relevant GREET (Greenhouse Gases, Regulated Emissions and Energy Use in Transport) models must also be issued, the trade associations said.
Besides Clean Fuels Alliance America, the letter was signed by the Alternative Fuels & Chemicals Coalition, the Association of American Railroads, the American Biogas Council, the American Short Line and Regional Railroad Association, the American Soybean Association, the Associated Equipment Distributors, the Association of Equipment Manufacturers, the Cargo Airline Association, the Coalition for Renewable Natural Gas, the General Aviation Manufacturers Association, Growth Energy, the Methanol Institute, the National Air Transportation Association, the National Business Aviation Association, the National Corn Growers Association, the National Oilseed Processors Association, the North American Renderers Association, the Renewable Fuels Association, the SAF Coalition, the U.S. Canola Association, Vertical Aviation International and Waste Gas Capture Initiative.
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