In response to a request from the House Ways and Means Committee, ethanol groups last week provided input on the 45Z Clean Fuel Production Tax Credit, which was authorized under the Inflation Reduction Act and is scheduled to go into effect next year.
Renewable Fuels Association President and CEO Geoff Cooper told the committee that, with the right implementation, 45Z could could create important new market opportunities for farmers, lower fuel prices for consumers, enhance energy security, and reduce emissions.
RFA called on the committee to consider extending the existing suite of biofuel tax credits—including the second-generation biofuel producer credit—while guidance is developed for 45Z and as potential modifications are debated in 2025. In addition, a more streamlined approach for registering for 45Z and securing IRS approval would help ensure biofuel producers are immediately ready when final rules are promulgated.
RFA also urged the committee to ensure that any modifications to 45Z take a broad approach to climate-smart agriculture practices and not adopt ‘bundling’ provisions that require farmers to adopt multiple CSA practices simultaneously.
Finally, RFA suggested changes in the 45Z program’s treatment of sustainable aviation fuel “in order to truly stimulate investment in, and expansion of, SAF production.” To sustain and promote new investment in SAF, the base value of the 45Z credit for aviation fuels must be enhanced to improve the economics of SAF production and send the right market signal to SAF financers.
American Coalition for Ethanol (ACE) CEO Brian Jennings shared similar suggestions for the committee, including extending the 45Z tax credit beyond its current sunset in 2027. “The three-year lifespan is insufficient for biofuel producers and farmers to fully realize the benefits of adopting new technologies and climate-smart agricultural practices. ACE recommends a total lifespan of 7 to 10 years to provide the certainty necessary for long-term investment and innovation.”
ACE also highlighted a need to address guidance delays and modifications, as seen in the 40B SAF Tax Credit. “For example, the “all-or-none” bundling requirement for agricultural practices was impractical and undervalued individual ag practice contributions to carbon intensity (CI) reductions. ACE advocates for regular updates to 45Z guidance based on the best available science and empirical data from the ACE-led Regional Conservation Partnership Program (RCPP) projects.”
ACE advocates for the inclusion of emerging practices and feedstocks in the guidance and uges Treasury and USDA to routinely update eligibility criteria to reflect advancements in agricultural technologies and practices.
The USDA is reportedly ready to issue its technical guidelines for climate-smart agriculture crops used for biofuel feedstocks under the 45Z tax credit, and the Biden U.S. Treasury department confirmed last week that preliminary 45Z guidance will be issued before the new administration takes over.