Renewable Fuel Groups Call for Clarity, Certainty in 45Z Final Rule
A variety of industry groups representing renewable fuel and feedstock producers told the Department of the Treasury in comments submitted this week that its final rule on the 45Z Clean Fuel Production tax credit should be issued as soon as possible to offer much-needed certainty to market participants.
And the agency should ensure that the guidance that is offered clarifies several provisions from the proposed rule that, if left unfettered, could have wide-ranging implications for the program, the groups noted.
The comments, which were due Monday, come amid a years-long process to finally offer full implementation of the 45Z program after it was originally passed as part of the Inflation Reduction Act of 2022 and given a set date of Jan. 1, 2025.
“While the credit has technically been available since January 2025, producers and farmers have struggled to capitalize on it with only minimal guidance,” Kurt Kovarik, vice president of federal affairs for the Clean Fuels Alliance America (CFAA), said.
Despite delays in implementing the scheme thus far, legislators moved last summer to extend its window for implementation to 2029 as part of the One Big Beautiful Bill (OBBB) Act while also revising the credit value tiers offered to producers by nixing a separate, higher potential credit value that would have been offered to producers of sustainable aviation fuel (SAF).
Geoff Cooper, president and CEO of the Renewable Fuels Association (RFA), said that producers of renewable fuels “require clarity, certainty, and timeliness in the final 45Z regulatory framework to support near-term operational decisions and longer-term capital investments.”
“Further delays in finalizing the regulations will limit participation and undermine the intended benefits of the program,” Cooper said.
Beyond calls to swiftly finalize the guidance, the groups also took issue with several portions of the proposal offered by the Treasury in February.
The Iowa Corn Growers Association (ICGA), in remarks penned by President Mark Mueller, called out the lack of clarity in the proposed rule on the agency’s intent to reward producers for engaging in “climate-smart” agriculture practices at their facilities.
“As it stands now, there is little to no information on how farmers using regenerative agricultural practices can benefit from 45Z,” Mueller said.
Brian Jennings, CEO of the American Coalition for Ethanol (ACE), also noted in comments that producers of renewable fuels must be given a pathway to monetizing practices like reduced tillage or precision fertilizer use to fully unlock the benefits of the 45Z program.
“If Treasury allows low-carbon farming practices to qualify towards emissions rates it could mean billions of dollars annually for clean fuel producers and farmers, providing a market-based opportunity to dramatically increase rural and farm income,” Jennings said.
And Chris Bliley, senior vice president of regulatory affairs for Growth Energy, urged the IRS “to adopt reasonable interim measures to allow taxpayers to access emissions reductions from farm practices swiftly and without unnecessary administrative delays.”
Bliley said the multi-agency process for implementing certain farm practices “would delay taxpayers’ access to farm practice incentives,” and said the agency should allow producers to use current USDA guidance until the agency is able to finalize its “45Z-specific” version of the standards.
Bliley also noted that the four practices referenced in the rule, no till, reduced till, cover crops, and nutrient management, are “far from an exhaustive list of farm practices that can be reliably quantified today.”
“The 45ZCF [Feedstock Carbon Intensity Calculator] module should include at least the full scope of practices included in USDA FD-CIC, and both modules should be regularly reevaluated for expansion into new farm practices as farmers continue to innovate,” Bliley said.
Many of the groups came out in support of the rule’s limitation on feedstock sourcing, as it limits participants to inputs from the U.S., Mexico or Canada. That limitation stems from the OBBB act passed last summer.
Though the group came out strongly in support of the provision, Cooper added that RFA “believes it is crucially important that foreign feedstock restrictions do not result in undue tracking, certification, and reporting requirements for feedstocks and fuel pathways — like ethanol made from corn and sorghum — that do not rely on imports.”
Mueller, meanwhile, applauded the language, as it “provides protection from foreign feedstocks receiving US taxpayer incentives, while giving US producers assurance that foreign competition for 45Z tax credits is no longer an issue for them.”
Some groups offered differing opinions over the agency’s decision in the proposed rule to alter the language defining a transportation fuel to note that “to be considered suitable for use, a fuel need not actually be used as a fuel in a highway vehicle or aircraft.”
As currently written, the language would allow producers of fuels with several use-cases, such as renewable diesel, to still receive a credit if they sell fuel that is technically suitable for transportation or industrial use for other purposes.
Kovarik said the group appreciates the agency’s inclusion of maritime use as an example that is eligible for use.
Biofuel producers have increasingly set their sights on the maritime industry in recent years as a potential market for their fuels, with particular interest from producers of biodiesel. And while BBD can be blended at higher rates than competing fuels in marine engines, the sector has also seen growing interest from the renewable diesel and ethanol industries as well.
Given the somewhat open-ended language already in the proposed rule on transportation fuel, Kovarik said the agency should move even further to include forms of heating oil in the final rule.
“In that same vein, we ask that Treasury also include renewable heating fuels (e.g., Bioheat fuel) as an additional example of ‘transportation fuel’ that are ‘suitable for use as a fuel in a highway vehicle or aircraft,'” Kovarik said.
But Cooper said the decision to broaden the definition of “suitable for use” in the proposed rule errs from Congressional intent for the program to limit eligibility to solely fuels for transportation or industrial use.
Instead of taking a more open-ended approach to the provision, Cooper recommended that Treasury should instead clearly define all transportation and industrial fuel uses, including marine and heating oil, that would be eligible for a credit.
“Treasury could also make clear in the final regulations that all non-transportation and non-industrial fuel uses are ineligible,” Cooper said.
Other groups criticized the Prevailing Wage and Apprenticeship (PWA) guidelines in the rule, as Monte Shaw, executive director for the Iowa Renewable Fuels Association (IRFA), said the requirements need to be altered so that they are “workable in the real world.”
“Unfortunately, IRFA has received nearly universal reports that the administrative burden and cost to comply with PWA requirements are crippling the benefit of the program,” Shaw said.
Bliley also took issue with the PWA guidelines, noting that the “unique geography of biofuels production” results in issues with wage determinations from the Department of Labor (DOL).
With much of the nation’s biofuel production spread throughout the Midwest, Bliley said “biofuels producers are encountering situations where there is no DOL-issued prevailing wage determination or labor classification in the county in which their facilities are situated despite there being such determination/classification in an adjacent county.”
He said the final rule should allow producers to claim the relevant wage determination from the nearest locality to avoid issues with the DOL, which Bliley noted is in line with other guidance on PWA that the agency offers to offshore facilities.
And Cooper said the agency needs to clarify the definitions of alteration or repair under the final rule.
“For taxpayers in the clean fuel industry, certainty as to whether an activity is a ‘repair’ or ‘maintenance’ is crucial, as failure to comply with the applicable requirements for repairs will prevent taxpayers from accessing the full credit amount,” Cooper said.
IRFA also called out the lack of clarity on what the agency considers maintenance, noting that “if the [tax] experts cannot agree on what the rules mean, then IRS should provide clearer guidance.”
“Anything currently classified as a ‘repair’ that does not enhance the production level or emissions rate of the plant should be reclassified as maintenance,” Shaw said.
Somewhat outside of the scope of this rulemaking, several groups also noted in their comments that the Treasury and Department of Energy should move as quickly as possible to release the version of the Greenhouse Gas and Regulated Emissions and Energy Use in Technologies (GREET) model developed by the DOE’s Argonne National Laboratory for the 45Z program, otherwise known as 45ZCF-GREET.
The last version of that model offered to the public included determinations for indirect land use change (ILUC), which was later excluded from the program in the proposed rule in February.
“Given the statute’s direction to exclude ‘any’ emissions attributed to indirect land use change, it is unclear how and whether Treasury and DOE will remove ILUC emissions only, or all indirect emissions associated with modeled land use changes,” Cooper said.
Jennings also called out the alleged reluctance from certain DOE officials to include a specific version of the USDA’s Feedstock Carbon Intensity Calculator (FD-CIC) in the next update to 45ZCF-GREET.
“This reluctance is unwarranted, would cost rural communities billions annually, and should not be allowed to stall the significant progress scientists at DOE and USDA have made to calculate the value of low-carbon farming practices,” Jennings said.
Cooper ultimately called on both the Treasury and USDA to bifurcate the process for offering both offerings, arguing that the Treasury should release 45ZCF-GREET now and offer the FD-CIC module that should be included in it at a later date.
Reporting by Patrick Newkumet, pnewkumet@opisnet.com; Editing by Jordan Godwin, jgodwin@opisnet.com