The Treasury Department on Friday proposed long-awaited guidance for the new biofuel tax credit known as 45Z, appearing to limit the use of imported cooking oil but omitting key eligibility requirements for agriculture-based feedstocks.
It will be up to the incoming Trump administration to finalize the guidance for the credit, which was authorized from the Inflation Reduction Act and consolidates expired credits for biodiesel, renewable diesel, alternative fuels and sustainable aviation fuel. 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 department is taking comments on the proposed guidance until April 10.
The value of the credit per gallon varies 45Z based on the carbon intensity of the fuel. Guidance from the Treasury Department is required to set rules for measuring the carbon intensity.
The proposed guidance does provide some clarity on what entities and fuels are eligible for the credit, and how taxpayers can determine lifecycle emissions. It also outlines plans to define concepts and provide future rulemaking.
Notably, the guidance 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 these 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. “The guidance released today is an investment in U.S. farmers, who stand ready to feed and fuel the world—while also fueling the U.S. economy."
Under the guidance, the producer of the eligible clean fuel is eligible to claim the credit. Compressors and blenders of fuel would not be eligible, according to a Treasury Department press release.
Under 45Z a fuel must be “suitable for use,” as a transportation fuel. In a press release, the Treasury said it intends to propose that 45Z-eligible transportation fuel must have practical or commercial fitness for use in a highway vehicle or aircraft.
Under this intended proposal, natural gas alternatives like renewable natural gas, would also be suitable if produced in a manner that if it were further compressed, it could be used as transportation fuel.
Finally, the guidance publishes the annual emissions rate table that directs taxpayers on how to calculate carbon intensities for types and categories of eligible fuels. The table directs taxpayers to use the 45ZCF-GREET model for non-SAF fuels, and either that model or others from International Civil Aviation Organization for SAF.
Those utilizing the tax may also use the Provisional Emissions Rate process to get an emissions rate for fuel pathway and feedstock combinations not specified in the emissions rate table. Guidance for this process is expected later.
Kurt Kovarik, vice president of federal affairs at the Clean Fuels Alliance, said in a statement he hoped this guidance, particularly the proposed GREET model, can provide the "necessary certainty that producers can rely on ahead of final rules."
"Clean fuel producers still need the carbon intensity scores from the GREET model to calculate their credit values; this missing information is key to enabling them to negotiate feedstock and fuel offtake agreements for the year and get back to business," Kovarik wrote in a statement.
However, the guidance does not include rules for incorporating the emission benefits from climate-smart agriculture (CSA) practices for some crops as feedstocks for both SAF and other clean fuels. Forthcoming guidance will cover practices for cultivating domestic corn, soybeans and sorghum.
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 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."
The GREET model used for calculating carbon intensity also is being updated to include the lifecycle emission rates for CSA crops.
Industry groups have been lobbying the department against including a requirement that farmers use a group of climate-smart practices for their crops to be eligible feedstocks. A temporary tax credit for SAF that expired Dec. 31, 40B, required corn farmers to implement a bundle of three climate-smart practices. Groups said this requirement limited the number of farmers able to participate given their geographic location.
Instead, groups have pushed for more practices to be offered or more flexibility in the practice requirement.
The Treasury Department notes that USDA is developing voluntary technical guidelines for CSA reporting and verification. These guidelines will be considered in proposed rules on CSA for the purpose of 45Z, according to a Treasury press release.
In December, USDA submitted an interim final rule on this topic to the White House Office of Management and Budget. However, no details have been released about what could be in that rule or when it is expected to be released.
The USDA expects to have an update on the voluntary guidelines in coming days, according to an agency spokesperson.
The agency published a request for information for these guidelines in June, and received about 260 comments, some of those pushing for no-bundling requirement, a domestic feedstock requirement and a book-and-claim accounting system.
Additional guidance on how agricultural-based feedstocks are especially critical to ethanol groups, as these feedstocks represent about half of ethanol's carbon footprint, according to the American Coalition for Ethanol.
"We are eager to collaborate with the Trump Treasury team to ensure 45Z is implemented effectively, with consideration of USDA’s technical guidelines on climate-smart agriculture practices that are under development," said Brian Jennings, CEO of ACE, in a statement.
Groups have been warning that the lack of guidance so far has led to a slowdown in production. With some pieces of the credit now likely in the hands of the incoming Trump administration, it's unclear if the guidance will provide enough immediate certainty.
In a statement, 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 to be truly effective, 45Z must allow for the inclusion of farming practices, additional feedstocks and ethanol production technologies and more.
The Advanced Biofuels Association echoed concerns that this proposed guidance is too little too late.
"The advanced biofuels industry is pleased to finally receive initial guidance on 45Z clean fuel credits but is deeply disappointed by the long delays that have caused uncertainty and disrupted markets," said Michael McAdams, president of ABFA, in a statement. “We look forward to working with the incoming Trump-Vance administration to prioritize finalizing this process swiftly."
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