Policy Update

Summary of proposed IRA 45Z Clean Fuel Production credit

Proposed rules for Clean Fuel Production Tax Credit published by the U.S. Department of the Treasury and Internal Revenue Service

Reference: "U.S. Department of the Treasury Releases Guidance on Clean Fuels Production Credit" 

Background

Section 45Z of the US Inflation Reduction Act (IRA) provides an income tax credit to produce qualified clean fuels produced after December 31, 2024, and sold by December 31, 2027.

Which fuels qualify?

Covered are qualifying transportation fuels only, and for liquid and gaseous fuels and does not include electricity:

1. Sustainable aviation fuels (SAFs), which receive a higher tax credit than others. SAFs must meet the respective standards and should not be derived from palm fatty acid distillates or petroleum.
2. Following low GHG fuels, with GHG emissions < 50 kg-CO_2,e per mmBTU:

• • Biodiesel
  • Butanol
  • Diesel (e.g. renewable diesel)
    • More scrutiny will be given to imported used cooking oil (UCO) given the concerns around lack of transparency in the feedstocks and the resulting lifecycle GHG. More guidance to come on this topic.
  • Ethanol
  • Gasoline (i.e. renewable gasoline)
  • H₂
  • LPG – includes propane
  • Methanol
  • Conventional or alternative natural gas (CANG, e.g. renewable natural gas)

Lifecycle emissions

Lifecycle GHG emissions will be determined using the 45ZCF-GREET model. (“GREET” = Greenhouse gases, Regulated Emissions, and Energy use in Technologies, a model developed by Argonne National Lab). The “45ZCF-GREET” model will be available for download at: https://www.energy.gov/eere/greet

Eligibility Requirements

• Must be a transportation fuel, with lifecycle GHG emissions < 50 kg-CO₂ / mmBTU
• Fuel must be produced in the US at qualified facility
• Must be registered as a producer of clean fuel
• Sell the fuel to unrelated person in a qualifying manner during the taxable year

Related reading:

Summary of section 45V of the IRA for clean hydrogen

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