Energy Marketers of America - Regulatory Alert

Regulatory Alert

Treasury and IRS Outline Regulations to Implement the 45Z Biofuel Production Tax Credit

EMA Regulatory Counsel Contacts: Jeff Leiter and Jorge Roman

Monday, January 13, 2025 – The U.S. Department of the Treasury and the Internal Revenue Service have issued long-awaited guidance regarding the implemention of the Section 45Z Clean Fuel Production Tax Credit pursuant to the Inflation Reduction Act. Effective since January 1, 2025, the 45Z regime provides a credit of up to:

$1.00 per gallon for the production of over-the-road biofuels (e.g. biodiesel, renewable diesel)
$1.75 for the production of sustainable aviation fuel.

Important for EMA marketers, the new tax regime shifts the incentives from blending to production and calculates the credits based on the carbon reduction attributes of the fuel. The production tax credit is available for each gallon of fuel produced domestically after December 31, 2024, and sold before January 1, 2028.

The guidance delineates forthcoming implementing regulations, including definitions applicable under the framework, the filing process, and general rules to clarify credit calculation, such as how to measure fuel and emission rates. For instance, proposed regulations will specify that the volume of a liquid fuel would be measured based on gallons adjusted to ambient pressure and temperature of 1 atmosphere and 60 degrees Fahrenheit. The guidance also provides the methodology for calculating the life cycle greenhouse gas emissions of fuels for purposes of obtaining tax credits.

Renewable heating fuels may possibly qualify for the credit, although the proposed regulatory language is ambiguous. In short, heating fuels would have to be “suitable for use” in a highway vehicle or aircraft. While the fuels do not have to be used in such applications, “possible” or “rare” uses are not enough to demonstrate practical and commercial fitness for use as a fuel in a highway vehicle. If another “step” is necessary to make it suitable, such as the type of additization normally found in diesel fuels, it may not qualify. EMA will seek further clarification on this issue and will continue to push for an inclusive framework.

EMA is carefully reviewing the guidance and will continue to monitor developments, as the Trump administration is likely to revise this regulatory matter. For now, comments on the guidance are due by April 10, 2025.

EMA opposes a “production” as opposed to a “blender” credit because producer credits are unlikely to be passed through to blenders and consumers downstream. EMA continues to advocate on Capitol Hill for an extension of the Biodiesel Blenders’ Tax Credit to prevent supply chain disruptions, sustain carbon reduction benefits, and maintain lower prices at the pump.

“The 45Z tax regime is rife with deficiencies and uncertainty. Ultimately, EMA advocates for a strategic biofuel tax policy that promotes regulatory certainty, energy security, environmental benefits, and affordability at the pump. A long-term Blender framework is the right policy approach. We will continue to make this case to the incoming administration,” said Rob Underwood.

Important: The Section 40A Biodiesel Tax Credit, which accrued to fuel blenders, expired on December 31, 2024.

Contact –– Rob Underwood (runderwood@emamerica.org) or EMA Regulatory Counsel Jeff Leiter (jleiter@bmalaw.net), Jorge Roman (jroman@bmalaw.net).

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