Treasury Releases 45Z Guidance, Excluding ‘Qualified Sale’ Restrictions
The Treasury Department on Tuesday morning released proposed guidance for implementation of the 45Z Clean Fuel Production tax credit (CFP) this year, which comes without previous restrictions on qualified sales of fuels while also accounting for changes to the scheme from this summer’s One Big Beautiful Bill Act (OBBB).
Stakeholders have keenly awaited Tuesday’s guidance for months now, as the agency is tasked under the Inflation Reduction Act (IRA) of 2022 with providing annual guidance on emissions rates and calculations for emissions factors so that participants in the program can calculate the relative carbon intensity (CI) of their products to claim the scaling tax credit.
That regulatory lag has offered significant uncertainty for a variety of participants in the scheme whose CI score could shift depending on the final emissions rates and factors utilized by the agency.
The Clean Fuels Alliance America (CFAA) noted in a release on Tuesday that, “while the credit has been available since January 2025, producers and farmers have struggled to capitalize on it with only minimal guidance.”
The CFP, as revised last summer by the OBBB, rewards fuel producers on a scale of 20cts to $1/gal based on CI scores below a threshold of 50 kilograms of CO2-equivalent per million BTUs (kgCO2e/mmBTU).
The agency last offered interim guidance on the credit in the waning weeks of former President Joe Biden’s administration. Several months later, Treasury heard from stakeholders in public comments on its proposal — in which a variety of participants stressed the need for guidance as soon as possible while also delineating several concerns with the regulation as written.
Namely, many stakeholders took issue within comments last spring with the definition of a “qualifying sale” for credit accrual in 2025. Others noted the lack of clarity on prevailing wage and apprenticeship guidelines that were last updated in June 2024.
Treasury noted the pushback from stakeholders on the issue of qualified sales in this week’s proposal and said it would alter the language to avoid potentially excluding intermediaries from participating in the program.
The chain of custody for most U.S. ethanol, for example, includes a variety of parties — the American Coalition for Ethanol (ACE) noted in comments on the proposed regulation in April 2025 — as intermediaries “play a critical role in ensuring a functioning ethanol market because they enable price discovery, provide liquidity, and facilitate efficient distribution of ethanol.”
“[Stakeholders] noted that in the fuel industry, many producers sell to related or unrelated intermediaries, such as wholesalers or dealers, rather than directly to unrelated final purchasers,” Treasury said in its guidance.
The agency said on Tuesday that it ultimately decided to remove the language from last year’s proposed regulation that defined “sold for use in a trade or business” to exclude sales for further processing, thus allowing for sales for those that use the product as a primary feedstock to produce another fuel.
Tuesday’s guidance did not, however, offer any further clarity on the prevailing wage and apprenticeship guidelines, electing to retain the language from June 2024. That decision will likely draw concern from those in the renewable fuels industry that have long sought clarity on the requirements when the regulation is put up for public comment in the spring.
The regulation also incorporates changes to the credit from last summer’s OBBB, which extended the scheme for two years and removed the higher credit tier for sustainable aviation fuel (SAF) of up to $1.75/gal.
Treasury noted in the guidance on Tuesday that the scheme will no longer account for emissions attributed to indirect land use change (ILUC), in line with changes from OBBB.
ILUC has long drawn the ire of many in the ethanol industry, who feel the method for measuring CI lacks accuracy and unfairly punishes producers of first-generation renewable fuels.
The guidance was largely praised on Tuesday morning by proponents for the renewable fuels industry.
Geoff Cooper, president and CEO of the Renewable Fuels Association (RFA), said the regulation is “a step in the right direction toward providing the clarity and certainty that ethanol producers are seeking.”
“The proposal appears to resolve some of the previous confusion around what constitutes a ‘qualified sale,’ and begins to integrate the important improvements to 45Z that resulted from the One Big Beautiful Bill Act, such as removal of indirect land use change emissions from the carbon intensity scoring framework,” Cooper said.
And Kurt Kovarik, CFAA’s vice president of federal affairs, said “the agency responded to many taxpayer concerns and resolved some uncertainties from the guidance issued a year ago.”
“We anticipate this proposal will provide additional market certainty for biodiesel and renewable diesel producers,” Kovarik said.
Emily Skor, CEO of Growth Energy, noted that, “a strong, well-implemented 45Z credit can unleash lower-cost fuels, rebuild farm income, and open long-term market opportunities for American manufacturing.”
“We applaud the Department of Treasury and the Trump administration for working to advance this rulemaking to chart a clear path for billions of dollars in new investments in U.S. energy leadership,” Skor said.
Brian Jennings, CEO of ACE, said the group is grateful, “that Treasury’s proposed rule begins to provide ethanol producers and others more certainty and answers about how to claim the 45Z credit going forward, and we look forward to additional clarity on how ethanol producers can monetize low-carbon farming practices through the tax credit.”
“Since ag-based feedstocks represent about half of ethanol’s carbon intensity, ethanol producers need to have the opportunity to monetize low-carbon feedstocks to fully unlock the value of 45Z,” Jennings said.
The agency said it will hold a public hearing on the guidance on May 28.
Reporting by Patrick Newkumet, pnewkumet@opisnet.com