Clean Fuels Urges Treasury to Immediately Issue §45Z Guidance and Safe Harbors

August 28, 2024

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(Clean Fuels Alliance America) Today, Clean Fuels Alliance America sent a letter to Treasury Secretary Janet Yellen, urging the agency to issue guidance, including safe harbors, to the §45Z Clean Fuels Production Credit by September 1. The new producer credit becomes available on January 1, 2025, as the existing blender credit expires. Clean Fuels’ letter emphasizes the difficulties that farmers, producers, and fuel marketers are facing in making the transition without guidance on the rules.

“We appreciate that Treasury understands the importance of having guidance for the section 45Z Clean Fuel Production credit well in advance of January 1, 2025, so farmers, producers and fuel customers have the certainty to continue to produce, sell, and use low-carbon biomass-based diesel,” Clean Fuels writes. “U.S. biodiesel, renewable diesel, and sustainable aviation fuel (SAF) producers are facing difficulties finalizing feedstock contracts, securing capital flows, and meeting project deadlines without knowing the value of the credit. The need for policy certainty is urgent.”

Clean Fuels is requesting Treasury issue safe harbor provisions allowing taxpayers to rely on existing carbon life-cycle assessments – from the most recent R&D GREET model, or the federal RFS, or California’s LCFS – to calculate the §45Z credit until a final rule is in effect. Clean Fuels also asks for clarity on multiple issues, including climate smart ag practices and clean fuels used in home heating.

Kurt Kovarik, Clean Fuels Vice President of Federal Affairs, added, “Farmers, fuel producers, and marketers need to know the new tax policy rules now to successfully navigate the transition at the start of the year. The industry must negotiate feedstock contracts and fuel offtake agreements at least a quarter year in advance. By September, the entire industry could come to a standstill without the ability to reliably calculate the tax credit value. Ongoing delays could undermine production of biodiesel, renewable diesel, and sustainable aviation fuel, sacrificing jobs, economic opportunities for farmers, and near-term carbon reductions.”

The letter is available for download.

ABOUT CLEAN FUELS ALLIANCE AMERICA

Made from an increasingly diverse mix of resources such as recycled cooking oil, soybean oil, and animal fats, the clean fuels industry is a proven, integral part of America’s clean energy future. Clean Fuels Alliance America is the U.S. trade association representing the entire biodiesel, renewable diesel and sustainable aviation fuel supply chain, including producers, feedstock suppliers and fuel distributors. Clean Fuels receives funding from a broad mix of private companies and associations, including the United Soybean Board and state checkoff organizations. READ MORE

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Excerpt from DTN Progressive Farmer: Members of Congress and several agriculture interest groups are pressing the Biden administration to release guidance on the 45Z Clean Fuel Production tax credit by the end of the year, in particular looking for federal support for domestic feedstocks to produce biofuels including sustainable aviation fuel.

Last week 39 bipartisan members of the U.S. House of Representatives asked U.S. Treasury Secretary Janet Yellen to release that guidance by Jan. 1, 2025.

"Finalizing this rule in a timely manner and prioritizing domestic feedstocks will provide farmers, renewable fuel producers, end-users, and other biofuels stakeholders with the certainty and clarity they need to make planting, business and investment decisions," the letter said.

"While the use of foreign feedstocks can play an important role in producing domestically manufactured ethanol, biodiesel, renewable diesel, and sustainable aviation fuel, Treasury must be clear that 45Z only applies to biofuels produced from domestic feedstocks by domestic fuel producers."

...

The lawmakers told Yellen that state low-carbon fuel standards and the federal 40B Sustainable Aviation Fuel tax credit are "driving demand for foreign 'waste' feedstocks" instead of domestically produced corn, soybeans and canola.

"These programs are built on carbon intensity modeling that does not account for the full lifecycle of these 'waste' feedstocks," the letter said.

"As a result, imports of used cooking oil from China have increased from around 45 kilo metric ton in 2022 to more than 600 KMT in 2023. Imports of tallow have increased 400% over the last five years and there is also significant concern around future imports of Brazilian safrinha corn crops, which reached record levels of production in 2023. This market dynamic is unsustainable. Treasury must ensure that the 45Z tax credit is only applicable to fuels produced domestically with domestic feedstocks, so American farmers, processors, businesses, investors, and end users can benefit from the 45Z tax credit and the long-anticipated promise of new biofuels markets."

At the end of July, a group of 16 U.S. senators sent a similar letter to Yellen asking for the same feedstock restrictions for 45Z.

Kailee Tkacz Buller, president and CEO of the National Oilseed Processors Association, said in a statement that such a feedstock restriction was critical to U.S. farmers.

"Making certain that 45Z is limited to domestic feedstocks will ensure that this important tax credit is implemented as intended in support of the American farmer, processor and the U.S. taxpayer," Buller said.

"Failing to do so will only incentivize continued use of foreign feedstocks to the detriment of those produced by American farmers and put the significant investments to expand U.S. crush capacity by 30% in doubt." READ MORE

Excerpt from Brownfield Ag News: U.S. Ag Secretary Tom Vilsack says he’d like to see guidance from his agency on the 45Z tax credit issued before the end of December.

During this morning’s Growth Energy Biofuels Summit, Vilsack said he’s pressing his agency to finish its standards for what qualifies in the credit as soon as possible.

“I think there’s just a genuine effort and interest on behalf of the administration to get this done done before January 20th,” he says. “It’s on the top of my list.”

The input will be used as part of the U.S. Treasury’s final guidance to the 45Z tax credit taking effect in 2025.

Vilsack says 260 comments were received during the request for information on Procedures for Quantification, Reporting, and Verification of Greenhouse Gas Emissions Associated With the Production of Domestic Agricultural Commodities Used as Biofuel Feedstocks.

When asked about possible restrictions to foreign feedstocks used in aviation fuel production, Vilsack said a complete ban is not the answer when considering possible trade implications.

“If you want to ban something and say you can’t use this, you need to know what the reaction is going to be and whether you’re ok with that reaction,” he says. “Because if that reaction is we’re not going to buy your corn, we’re not going to buy your soybeans. We’re not going to buy your ethanol. We’re not going to buy your pork. We’re not going to buy your beef. Are you ok with that?”

A bipartisan letter from more than 40 members of the U.S. House are calling on the U.S. Department of Treasury to limit the credit to domestic producers to protect U.S. farmers and processors.

The letter is supported by American Farm Bureau Federation, National Farmers Union, National Oilseed Processors Association, American Soybean Association, National Corn Growers Association, Growth Energy, Scoular, and Louis Dreyfus Company.

A similar letter was sent by members of the U.S. Senate in July. READ MORE

Excerpt from Reuters: The program would provide credits for the production of lower-emission transportation fuels, including sustainable aviation fuel (SAF).

"I’m confident that we’re going to get ‘er done," Vilsack said at a summit in Washington, D.C., hosted by the biofuels trade group Growth Energy.

An April guidance for a SAF tax credit disappointed ethanol producers for requiring corn farmers to bundle a set of climate-friendly farming practices, meaning little to no ethanol would qualify.

The USDA is hoping to make more feedstocks and individual farming practices eligible for the credit and is in conversation with the energy and transportation departments about how to do so, Vilsack said.

"We are acutely aware of the calendar. To the level it can be, it's on a fast-track," Vilsack said. READ MORE

Excerpt from American Ag Network: Renewable Fuels Association head Geoff Cooper, in a wide-ranging press call, slammed the EPA’s tailpipe emissions rule and delays in issuing new RFS volumes and 45z tax credit rules.

Cooper’s group joined other Ag-related groups in suing the Environmental Protection Agency over its stringent tailpipe emission rule and isn’t buying the agency’s denial the rule is a ‘mandate’. Cooper said, “You can call it whatever you want, but if it looks like a duck and walks like a duck, it’s a duck. The only way automakers can comply with these standards, long-term, is to dramatically increase the production of electric vehicles and dramatically reduce the production of internal combustion engine vehicles.”

Thereby, forcing two-thirds of new-light duty vehicle sales to be EVs by 2032.

Meantime, Cooper says RFA’s members are still waiting for Treasury rules and guidance on 45z tax credits due next year and crucial for the success of sustainable aviation fuel. Cooper said, “What will the carbon intensity modeling look like, how will climate-smart ag practices be integrated into carbon intensity scoring and just so many other questions.”

Cooper is confident the 45z final rules will unbundle and expand climate-smart practices and fertilizer use. Also unresolved are year-round E15 sales outside of eight Midwest states, an RFA appeal to the Supreme Court on Small Refinery Exemptions, and new Renewable Volume Obligations due on November 1st.

He said, “EPA has already made clear that they won’t make that deadline. We don’t think we’ll see a proposal until well after the election, but won’t see a final rule until this time, next year.”

And Cooper says RFA is pressing the EPA to restrict tax credits going to mislabeled cooking oil and tallow from China and Brazil, now used to make one in every six gallons of U.S. biodiesel. READ MORE

Excerpt from Bloomberg Law: Companies waiting on guidance for new clean fuel credit; Climate-friendly investments delayed amid rule uncertainty

Renewable fuel producers say the lack of rules for a new clean-fuel tax credit is stifling demand to the point of threatening plant shutdowns and delaying climate-friendly investments.

Trade associations and lawmakers have pleaded with the Treasury Department to release the rules for the 45Z clean fuel production credit, which bases the value of the tax breaks on a fuel’s carbon intensity score, rather than a specific type of fuel. The rules will include the different factors producers should consider when calculating carbon intensity.

Fuel producers say their customers are waiting on purchases for next year until the value of ... READ MORE