The U.S. Department of the Treasury, in collaboration with the Internal Revenue Service (IRS), has released new guidance on the Clean Fuels Production Credit under section 45Z. This credit offers tax incentives for producing transportation fuels with lifecycle greenhouse gas emissions below specified levels. The initiative is set to take effect in 2025 and targets both sustainable aviation fuel (SAF) and other non-SAF transportation fuels.
The guidance results from extensive stakeholder input and collaboration among various agencies. It includes a notice of intent to propose regulations for the section 45Z credit and an annual emissions rate table that guides taxpayers on determining the lifecycle greenhouse gas emissions of their fuels. The Department of Energy will soon release the 45ZCF-GREET model to assist in calculating these emissions rates.
Deputy Secretary of the Treasury Wally Adeyemo commented, "This guidance will help put America on the cutting-edge of future innovation in aviation and renewable fuel while also lowering transportation costs for consumers." John Podesta, White House Senior Advisor for International Climate Policy, highlighted the role of farmers: "Today’s announcement reinforces the important role climate-smart agriculture plays in clean transportation."
U.S. Deputy Energy Secretary David M. Turk emphasized the importance of this tax credit, stating, "The final guidance released today provides clarity and certainty to America's world-leading biofuel industry."
Section 45Z offers a per-gallon tax credit based on carbon intensity, consolidating previous credits related to biodiesel, renewable diesel, alternative fuels, and sustainable aviation fuel introduced by the Inflation Reduction Act (IRA). The Treasury is tasked with establishing rules for measuring production carbon intensity based on definitions from the Clean Air Act.
The current guidance clarifies eligibility criteria for entities and fuels claiming credits under section 45Z. Producers are eligible to claim credits, while compressors and blenders are not. Eligible fuels must be suitable as transportation fuel either directly or when blended into mixtures.
Additionally, today's guidance publishes an annual emissions rate table directing taxpayers to methodologies like the 45ZCF-GREET model or those from the International Civil Aviation Organization for SAFs. A Provisional Emissions Rate process will allow calculations for unspecified fuel pathways once further guidelines are published.
In terms of Climate Smart Agriculture (CSA) practices, Treasury plans to propose rules incorporating CSA's emission benefits into feedstock cultivation for SAFs and non-SAFs. These rules will be proposed alongside updates to calculate lifecycle greenhouse gas emissions rates accounting for CSA practices.
Treasury's efforts align with broader federal initiatives promoting CSA adoption through investments exceeding $3 billion in climate-smart projects and significant support from recent legislative measures like the Inflation Reduction Act.
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