Coalition Seeks Information on New Biofuel Tax Credit System
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A coalition of biofuel proponents and agricultural groups is asking U.S. Treasury Secretary Janet Yellen to finalize and publish guidance about a Clean Fuels Production Credit based on carbon intensity scores that will replace a decade-old $1-per-gallon biofuel blender credit.
The tax incentive, adopted in the 2022 Inflation Reduction Act, will offer a credit based on the life-cycle greenhouse gas emission score of each fuel. However, a lack of formal government tax guidance on the incentive, officially called the Section 45Z Clean Fuels Production Credit, is hampering investment plans for renewable fuel production, stakeholders said.
“This new technology-neutral production credit represents the first time a federal tax incentive based on life cycle greenhouse gas emissions rates has been used to incentivize the domestic production of fuels,” said 25 trade associations representing producers, feedstock providers, blenders, consumers and retailers of low-carbon renewable fuels in a May 15 letter to Yellen.
In particular, they stressed that the clean fuels sector needs months’ worth of lead time to review and understand the new tax structure before it takes effect. They note that the overall industry is an interconnected, complicated ecosystem partially linked to agricultural inputs and feedstock production, sales of fuel and futures and allocations to third-party marketers.
A look at the signatories to the letter reveals the wide range of stakeholders. Among the 25 groups were railroads, airlines, equipment manufacturers and distributors, airline cargo carriers and the North American Renderers Association. Listed among the renewable fuel groups were the Advanced Biofuels Business Council, Alternative Fuels & Chemicals Coalition, American Biogas Council, Coalition for Renewable Natural Gas, Renewable Fuels Association and the Clean Fuels Alliance America. The agriculture organizations included the American Soybean Association, National Corn Growers Association, National Oilseed Processors Association and U.S. Canola Association.
“With the Sec. 45Z credit set to take effect Jan. 1, 2025, our member companies and organizations may face significant headwinds and business risk if this guidance is not published promptly,” the groups noted, adding that any extended delays in published guidance about the tax credit “may disrupt project timelines, impede capital flows, and threaten existing production and demand for low-carbon renewable fuels.”
Kurt Kovarik, vice president of federal affairs for Clean Fuels Alliance,, said: “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. The need for policy certainty is urgent.”
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Paul Winters, Clean Fuels’ director of public affairs and federal communications, told Transport Topics that the new 45Z producer credit represents a major transition from the $1-per-gallon blender credit that has been in place since 2005. In particular, there is now uncertainty in who can claim the 45Z producer tax credit and how it should be valued since it will be based on a U.S. Department of Energy “Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation (GREET)” model, a computer analysis tool developed by Argonne National Laboratory to calculate total energy consumption, emissions of air pollution and greenhouse gases, and water consumption for different types of transportation.
“Blenders, such as truck stops, will no longer claim the credit. The new credit will be based on carbon intensity scores — and for biodiesel and renewable diesel those will be derived from the GREET model. So it is a major transition,” Winters said. “We hope that Treasury will release initial guidance quickly. We needed it months ago. We know there will be a lengthy rulemaking process for the new credit and plenty of time to get details right.”
He said currently existing biodiesel and renewable diesel producers lack information to plan their feedstock and fuel offtake agreements for next year.
