This article was originally published at 1:01 p.m. CST on Friday, Jan. 10. It was updated with additional information at 2:26 p.m. CST on Friday, Jan. 10.
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LINCOLN, Neb. (DTN) -- The Biden administration on Friday released much-anticipated guidance on the 45Z Clean Fuels Production tax credit with an update of a widely used greenhouse gas emissions model expected soon.
In response, biofuels interest groups expressed disappointment in a proposal they say lacks many key details.
The guidance released by the U.S. Treasury and the IRS includes a notice of intent to propose regulations on the section 45Z credit and a notice providing the annual emissions rate table for 45Z.
The 45Z tax credit is considered by the biofuels industry to be key in the future development of a sustainable aviation fuel industry.
Regarding used cooking oil as a feedstock, the Treasury proposal declines to include it in the 45Z credit and declares it ineligible until further guidance is provided.
There has been concern about used cooking oil imports flooding the U.S. market, making it difficult to track feedstock quality.
"With respect to used cooking oil feedstocks, the Treasury Department and the IRS are concerned about the improper identification of a substance that is not UCO as UCO (for example, virgin palm oil mislabeled as UCO), which could have substantially greater emissions impacts than genuine UCO, and the uncertainty of market impacts caused by incentivizing UCO (for example, the degree to which increased UCO demand would be backfilled by virgin oils such as palm oil)," Treasury said in the proposal.
"Both of these concerns are particularly acute for imported UCO given the lack of transparency regarding the local sources. Due to these significant concerns about the ability to reliably distinguish between imported UCO and palm oil and the resulting risk of crediting ineligible fuels, the Treasury Department and the IRS are considering appropriate substantiation and recordkeeping requirements for imported UCO."
The rate table refers taxpayers to the appropriate methodologies for determining the lifecycle greenhouse gas emissions of their fuel.
In addition to the guidance, the U.S. Department of Energy is expected to soon release an update of the Greenhouse gases, regulated emissions and energy use technologies, or GREET, model to be used in determining emissions rates for 45Z.
The 45Z provides a per-gallon, or gallon-equivalent, tax credit for producers of clean transportation fuels based on the carbon intensity of production.
According to a news release from the Treasury, 45Z "consolidates and replaces" credits for biodiesel, renewable diesel and alternative fuels, as well as an Inflation Reduction Act credit for sustainable aviation fuel.
"Treasury and the IRS intend to provide that the producer of the eligible clean fuel is eligible to claim the 45Z credit," Treasury said on Friday.
"Consistent with the statute, compressors and blenders of fuel would not be eligible."
Friday's guidance publishes the annual emissions rate table that directs taxpayers to use the 45ZCF-GREET model to determine the emissions rate of non-SAF transportation fuel, and either the 45ZCF-GREET model or methodologies from the International Civil Aviation Organization for SAF.
The Treasury will be accepting public comments through April 10, 2025.
INDUSTRY REACTION
Biofuels groups expressed disappointment with the announcement, saying on Friday the proposal is lacking in details that are important to taxpayers.
"This long-overdue guidance is far from complete -- it still lacks the critical details that are needed to help ensure that American biofuel producers and their farm partners can lead the world in clean fuel production," Growth Energy CEO Emily Skor said.
"While we appreciate the work of Secretary (Tom) Vilsack to champion our issues on behalf of rural America, today's announcement falls short of providing the information that our industry and its farm partners need, including a model for an expanded number of eligible decarbonization technologies and guidance on climate-smart agriculture practices."
Skor said her group expects to work with the incoming administration to "fill in the gaps" left by today's announcement.
Geoff Cooper, president and CEO of the Renewable Fuels Association, said he hopes to see more detail in the coming days and weeks to provide more certainty on where things are headed.
"The guidance is a potential step in the right direction but much work remains to be done before clean-fuel producers, farmers, and consumers can fully benefit from the 45Z program," Cooper said in a statement.
Though Treasury released an emissions rate table, Cooper said important information "remains unavailable" in Friday's guidance, "making it impossible for producers to know whether their fuel is eligible for the credit or not."
In addition, Cooper said the lack of climate-smart agriculture details does not allow producers to determine their own "unique carbon intensity values.
"Unfortunately, today's guidance does not provide the certainty or flexibility that ethanol producers were looking for and many questions remain unanswered," Cooper said.
"We do not believe this guidance alone will spur the investment, innovation and job creation in the clean fuels sector that Congress and the administration intended. It simply isn't bankable, investible, or otherwise actionable for the vast majority of biofuel producers."
Monte Shaw, executive director of the Iowa Renewable Fuels Association, said the Treasury announcement was "too little, too late" and that it does not provide a safe harbor for investors.
"It isn't even a proposed rule," Shaw said in a statement. "Putting out a notice of 'intent' 10 days before you leave office is nothing but punting the rule down the road."
Shaw said he questioned whether biofuels producers, farmers and consumers are able to utilize the 45Z credit.
"The lack of transparency and certainly has left many biodiesel production facilities running at a reduced rate or not at all," he said. "The supply chain needs to know the value of the credits to resume functioning normally. If America is to achieve energy dominance we can't leave biofuels producers and American farmers stuck in neutral."
Michael McAdams, president of the Advanced Biofuels Association, said his group was "deeply disappointed" by the delay in the release that has "caused uncertainty and disrupted" markets.
"Congress designed 45Z to propel America's leadership in energy innovation and strengthen our energy independence, yet the prolonged rulemaking process has hindered investment and market stability," McAdams said in a statement.
"We look forward to working with the incoming Trump-Vance administration to prioritize finalizing this process swiftly," he said. "Clear, multi-year guidance is essential to stabilize markets and support the hardworking farmers and producers who fuel our economy and our future."
In a joint statement, the American Soybean Association and the National Oilseed Processors Association said the proposal was a good first step.
"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, a soy farmer from Kentucky.
"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. We look forward to working with Congress and the incoming Trump administration to build on this progress and develop final guidance that supports rural America."
CLIMATE-SMART AG
Absent from the guidance released Friday are rules for incorporating emissions benefits from climate-smart agriculture practices, including for corn, soybeans and sorghum as feedstocks for sustainable aviation fuel and other fuels.
The Treasury said on Friday it "intends to propose rules" for incorporating climate-smart agriculture practices involving those crops.
"CSA practices have multiple benefits, including lower overall GHG emissions associated with biofuels production and increased adoption of farming practices that are associated with other environmental benefits, such as improved water quality and soil health," Treasury said.
In April 2024, Treasury established a first-of-its-kind pilot program to encourage climate-smart agriculture practices within guidance on the section 40B SAF tax credit.
The USDA invested more than $3 billion in 135 partnerships for climate-smart commodities projects.
"Combined with the historic investment of $19.5 billion in CSA from the Inflation Reduction Act, the department is estimated to support CSA implementation on over 225 million acres in the next five years as well as measurement, monitoring, reporting and verification to better understand the climate impacts of these practices," Treasury said.
John Podesta, White House senior adviser for international climate policy, said in a statement, the 45Z guidance will help spark more innovation in rural America.
"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," Podesta said.
"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."
SUITABLE FUELS
According to 45Z, a fuel must be "suitable for use" as a transportation fuel. Treasury and the IRS said they intend to propose that a fuel eligible for the 45Z credit must itself (or when blended into a fuel mixture) have either practical or commercial "fitness" for use as a fuel in a highway vehicle or aircraft.
The guidance clarifies that marine fuels that are otherwise suitable for use in highway vehicles or aircraft, such as marine diesel and methanol, are also 45Z eligible.
"Specifically, this would mean that neat SAF (100% sustainable aviation fuel) that is blended into a fuel mixture that has practical or commercial fitness for use as a fuel would be creditable," Treasury said.
"Additionally, natural gas alternatives such as renewable natural gas would be suitable for use if produced in a manner such that if it were further compressed it could be used as a transportation fuel."
Todd Neeley can be reached at todd.neeley@dtn.com
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