Waiting on clarity for biofuel tax credits

Sara Wyant

Farmers and the biofuels industry have been eagerly waiting for firm guidance on how an important new tax credit known as 45Z will work, but—despite some recent details—many are still waiting for clarity.

Section 45Z provides a federal tax credit for the production of transportation fuels like sustainable aviation fuel with lifecycle greenhouse gas (emissions below certain levels. It was originally signed into law in 2022, as part of the Inflation Reduction Act.

Recently, the Treasury Department offered both a notice of intent to propose regulations on the section 45Z credit and a notice providing the annual emissions rate table for section 45Z. In addition, the notice said the Department of Energy will release the 45ZCF-GREET model for use in determining emissions rates for 45Z in the coming days. The department is taking comments on the proposed guidance until April 10.

“We appreciate the critical role that America’s farmers play in building a clean energy economy, including by providing feedstocks for advanced biofuels grown with climate-smart practices that help farmers earn more for what they grow,” said John Podesta, White House senior adviser for International Climate Policy in the release.“Today’s announcement reinforces the important role climate-smart agriculture plays in clean transportation as well as the importance of providing pathways for unbundled accounting of climate smart practices that producers can count on.”

Farm, biofuel groups seek more

While the announcement provided some additional information, it was lacking in details describing what environmental practices, like lower fertilizer use or no-till practices, will be required for accessing the credit.

Amy France, the chair of National Sorghum Producers, wrote in a statement that the group appreciates the inclusion of sorghum as a feedstock, but acknowledged that gaps remain. 

“As we await their release in the coming weeks, it is clear that much remains to be seen before the full impact of this guidance can be understood,” France wrote. “These details are essential to determine how helpful this program will ultimately be for producers at the farm level.”

“What a missed opportunity for growers,” said Illinois farmer and NCGA President Kenneth Hartman Jr. “We have spent the last year providing Treasury officials with fact-based information in hopes of helping them develop clear and realistic guidelines for qualifying for the tax credit. It’s frustrating that our feedback fell on deaf ears.”

The burden to preserve this credit and to make it useful now shifts to the new administration, Hartman noted.

Geoff Cooper, president and CEO of the Renewable Fuels Association, said this guidance alone will not give the industry the confidence and clarity it needs to spur investment. 

“It simply isn’t bankable, investible or otherwise actionable for the vast majority of biofuel producers,” Cooper said of the Treasury’s guidance. 

He continued, saying that to be truly effective, 45Z must allow for the inclusion of farming practices, additional feedstocks and ethanol production technologies and more. 

It will be up to incoming President Donald Trump’s administration to finalize the guidance for the credit. The new administration will also have to clarify what farming practices will be required for eligibility. The credit took effect Jan. 1 and expires at the end of 2027.

The value of the credit per gallon varies based on the carbon intensity of the fuel. Guidance from the Treasury Department is required to set rules for measuring the carbon intensity. 

Focus on used cooking oil welcomed

The proposed guidance does provide some clarity on what entities and fuels are eligible for the credit and appears to acknowledge some industry concerns over the increased reliance on imported used cooking oil. Some stakeholder groups have argued that previous models offer more incentive to imports over domestically produced feedstocks. 

The emissions rate table included in the guidance specifies U.S. used cooking oil as a primary feedstock, seemingly limiting imported UCO to qualify. 

The American Soybean Association and National Oilseed Processors Association, two groups that have raised alarms about the rise in imported UCO, thanked the Treasury for heeding these concerns. 

Through September, 5.4 billion pounds of UCO and tallow were imported into the United States, according to the groups. By making these imports ineligible for the credit until Treasury can create UCO verification rules, they wrote that the guidance ensures 45Z will benefit domestic farmers and processors as Congress intended. 

“ASA thanks the Biden administration and Treasury for listening to our concerns and developing guidance that supports U.S. farmers while strengthening our domestic biofuels industry,” said ASA President Caleb Ragland, in a statement. He described the guidance as “an investment in U.S. farmers, who stand ready to feed and fuel the world—while also fueling the U.S. economy.”

In contrast to some of the disappointment coming from the biofuel industry, Patrick Gruber, CEO of Gevo, seemed optimistic about the Treasury Department’s proposed guidance on the 45Z tax credit for clean fuel producers. 

In an interview with Agri-Pulse, Gruber said the proposal successfully balanced a lot of the concerns from different stakeholders and set up a policy that is likely to endure under a Republican administration and Congress. Some of the remaining details are still to come as the industry this week awaits USDA proposed guidance on climate-smart agriculture and the updated 45Z GREET model from the Department of Energy.

“I think it was an honest effort to make something that survives regime changes, which is what we need if we’re going to have investment,” Gruber said.

Editor’s note: Sara Wyant is publisher of Agri-Pulse Communications, Inc., www.Agri-Pulse.com.