U.S. Treasury Issues Preliminary Regulations for Biofuel Production Tax Credit

On January 10, the U.S. Department of the Treasury issued its long-awaited, preliminary regulations implementing the Section 45Z Clean Fuel Production Tax Credit, which took effect on January 1, 2025.

The 45Z Credit, which was enacted under the Inflation Reduction Act of 2022, provides a credit of up to $1.00 per gallon for the production of over-the-road biofuels (e.g. biodiesel, renewable diesel), and a credit of up to $1.75 for the production of sustainable aviation fuel. The precise value of the credits is calculated based on the environmental attributes of the fuel.

The Section 40A Biodiesel Tax Credit, which accrued to fuel blenders, expired on December 31, 2024.
Today’s “Notice of Intent to Propose Regulations” partially implements an extraordinarily complex, untested new credit. Some aspects of the guidance were left to the incoming Trump Administration, including rules governing “climate smart agriculture” practices.

Treasury also released a notice providing the annual emissions rate table for the new credit. In conjunction with today’s proposal, the Department of Energy will release the 45ZCF-GREET model for use in determining emissions rates for 45Z in the coming days. Treasury will accept comments on the proposal through April 10, 2025.

SIGMA is reviewing the proposal closely to ensure it aligns with statutory requirements established by Congress, and will provide additional analysis on the regulations in the coming weeks.

Despite the issuance of partial regulations, the 45Z Credit is likely to face persisting implementation challenges in 2025. SIGMA continues to urge lawmakers to extend the Biodiesel Blenders’ Tax Credit to avoid disruptions to the fuel supply in the coming year.

Note: this original story was published by SIGMA on January 10