IRS Gives 45Z Registration Guidance: New IRS Guidance Urges Biofuel Producers to Register for 45Z Tax Credit by July

Aviation Fuel/Sustainable Aviation Fuel (SAF)BioRefineries/Renewable Fuel Production Business News/Analysis certification Federal Agency/Executive Branch Federal Regulation Feedstocks Field/Orchard/Plantation Crops/Residues Infrastructure Internal Revenue Service Manure Marketing/Market Forces and Sales Methane/Biogas Not Agriculture Opinions Policy Sustainability Treasury Department

June 03, 2024

Print This Article Share it With Friends

by Todd Neeley (DTN Progressive Farmer) The IRS released guidance on Friday (May 31, 2024) on how to register for the 45Z Clean Fuel Production Credit, including a list of feedstocks that could qualify for the $1-per-gallon credit.

The 45Z credit takes effect on Jan. 1, 2025, and the IRS said that the highly anticipated guidance is yet to come on issues including modification to the Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation, or GREET, model.

Corey Lavinsky, a biofuels consultant and attorney with S&P Global, told DTN it was important for biofuel producers to register soon.

"Companies will not be allowed to capture the credit until they are fully registered," Lavinsky said. "Treasury suggests that producers get their applications for registration in by July 15 to give the IRS sufficient time to process them by Jan. 1, 2025 -- the start of the program."

The credit is considered a key part of the future of sustainable aviation fuel and will be given to any biofuel with a carbon intensity score of 50% lower than petroleum-based fuel.

"Producers should list the feedstock(s) that are sourced from one or more separate entities or facilities as the main input(s) to their fuel production process," the document said.

"For example, an alcohol-to-jet producer that imports ethanol from one or more separate ethanol production facilities may list ethanol as the feedstock, whereas an integrated ATJ facility with on-site ethanol production should list the feedstock used to produce the ethanol. Renewable natural gas producers with on-site anaerobic digestion should list the inputs to the digester (for example, manure or food waste) as feedstocks, whereas RNG producers that import biogas from a separate site should list biogas as the feedstock."

The document includes a long list of the types of feedstocks that may be eligible for 45Z. That includes ethanol produced using corn grain, which could be considered a qualifying feedstock if used to produce sustainable aviation fuel. The same is true for ethanol produced using sugarcane and other sugar and grain crops.

Also potentially eligible are a variety of agriculture residues such as barley straw, corn stover, cotton field residues, oats straw, rice straw, sorghum stubble, sugarcane bagasse and wheat straw.

The IRS document said that to qualify for the credit, taxpayers have to be registered as a clean fuel producer at the time of production. When it comes to SAF, such producers must be certified by a third party when it comes to supply-chain traceability.

With the tax credit launching in 2025, farmers and biofuel producers can expect to see several key things. READ MORE

Related articles

Treasury, IRS issue guidance on Clean Fuel Production Credit (Internal Revenue Service)
45Z Tax Credit: Farm Windfall or Bust? Farmers Consider Future of Sustainable Farming During Topsoil Summit (DTN Progressive Farmer)
SAF Tax Credit Rules for Biofuels: Climate-Smart Practices Offer Jet-Fuel Market Opportunity for Corn, Soybean Farmers (DTN Progressive Farmer)
Some Groups Pan SAF Rules for Farmers: Groups Criticize Cover Crop Requirement for Sustainable Aviation Fuel Modeling (DTN Progressive Farmer)

Excerpt from DTN Progressive Farmer: The word "massive" came up often when officials with Continuum Ag spoke about the potential for biofuels producers and farmers to cash in on the upcoming 45Z tax credit, at the company's annual topsoil summit in Riverside, Iowa, on Monday.

The question of how -- or if -- agriculture will see a payout from the $1 per-gallon Clean Fuel Production Credit, however, puts many producers in a position they're familiar with: cautious optimism.

...

In the meantime, a growing number of farmers are calculating their individual carbon-intensity scores and making on-farm adjustments to lower those scores -- with hope their efforts will pay off.

Others are considering it.

...

Southeast Iowa farmer Ryan Oberman said during a farmers panel at the event attended by hundreds of farmers and biofuels producers for his 1,200-acre corn and soybean farm he saw the need to improve soil health when he started delving into regenerative ag a few years ago.

If someday farmers are paid for their conservation practices, Oberman said that too would be beneficial.

"You know, I think it's still up in the air," he said when asked about the potential of the 45Z credit.

"We started doing this for the soil health side of things. So, I was going to do it either way. And if we can get paid for it, great. And if it doesn't turn anything, we're still gonna have better soil."

Giltner, Nebraska, farmer Brandon Hunnicutt is on the board of directors for Field to Market: The Alliance for Sustainable Agriculture. The group is a collaboration of farmers, researchers and others who explore ways of improving sustainable practices.

The idea of adapting farm practices to reduce carbon emissions on the farm, to improve soil health, with the idea of farmers eventually cashing in on those efforts, has been met with skepticism in some circles.

The release of the 40B tax credit guidance that included a list of just three farm practices that qualify, for example, brought attention to a need to include a wide variety of practices to suit farmers' needs across the country -- essentially pitting farmers against farmers.

"Really, I don't think it does (pit farmers against farmers) and it just changes the way we have to think about farming," Hunnicutt said.

"You know, a lot of us don't want to change it. We've always done something the same way and there's always a way to do it better. I think what this will do is just speed up that process. It's that incremental change, whether it's no-till, whether it's strip till, cover crops. But I think if this is what the industry wants and this is what the industry is asking for, we have to make the changes necessary to get to what they want."

...

Jackson (Dana Jackson, a partner at RSM US LLP in Sioux Falls, South Dakota) said another option is for ethanol producers to sell 45Z credits for cash. So, if they receive the hypothetical $30 million in cash for a sale, she said, ethanol producers can then distribute the money to farmer members.

"That is a non-taxable event and the farmer now has cash versus a tax credit that they may not be able to use," Jackson said.

Ethanol producers also have asked Jackson about whether they should pay farmers premiums for corn produced using climate-smart practices and delivered to plants.

"If that is the case and that's how they want to monetize the 45Z credits to their farmers via premium on the corn," she said, "that is going to be taxable to a farmer. So, if they're getting paid an increased amount for their corn that they're delivering that will be taxable."

To receive a 45Z tax credit, a biofuel plant must show its fuels have a CI score at least 50% lower than petroleum. Beyond that, every point of CI reduction is worth 2 cents a gallon. A 60% reduction compared to petroleum is worth 20 cents a gallon.

...

Monte Shaw, executive director of the Iowa Renewable Fuels Association, told farmers Monday he's concerned 45Z guidance will be as limited as the requirements for the 40B tax credit were for the sustainable aviation fuel industry.

So, for corn ethanol-to-jet fuel 40B provides a greenhouse gas reduction credit only if the combination of no-till, cover crops and enhanced-efficiency fertilizer practices are adopted by farmers who provide feedstocks to plants.

If the 40B experience is any indication of where the IRS will go with 45Z, Shaw said, then many farmers will be left out.

So even if farmers are calculating their carbon-intensity scores based on the GREET model now, Shaw said it doesn't mean it will be the score used for 45Z purposes.

"So, if anyone out there is telling you this is your carbon score, it might be your carbon score in the GREET model but that may have nothing to do with what it's worth under the federal tax credit under the 45Z," he said.

The practices credited in the 45Z credit, Shaw said, need to be enough to allow biofuels producers and farmers across the country to benefit.

"So, we do need to figure out what the rules are, so we are pushing for more flexibility," he said.

...

The 45Z credit is in effect only through Jan. 1, 2028. The timespan, Shaw said, probably isn't enough for biofuels producers and farmers to acquire loans for various projects centered on the credit.

"No bank or institutional investor is going to invest in a billion-dollar SAF plan for a three-year tax credit," he said.

"We need to see an eight- or 10-year extension of that to get real money off the ground or off the sidelines to really make this industry grow. So, I think we have to be realistic about the growth opportunities and what it will take."

Shaw said U.S. agriculture has moved into a new period of overproduction in corn with a growing scarcity of new markets.

Carbon markets sparked by 45Z represent "literally the largest potential new market" in the history of American agriculture, he said. READ MORE

Tags

wheat straw Treasury Department Transportation Fuels Policy tax credits Sustainability sugarcane sorghum stover rice straw/paddy straw Regulations-Federal regenerative farming oat straw market forces manure Jetfuel (Sustainable Aviation Fuel (SAF)) IRS (Internal Revenue Service) GREET Greenhouse Gases Regulated Emissions and Energy Use in Transportation Model grains food waste farmers ethanol/bioethanol environmental policy cover crops cotton stalk corn stover corn ethanol climate smart/conservation agriculture 45Z Clean Fuel Production Tax Credit Carbon Intensity (CI)/Carbon Footprint BioRefineries/Renewable Fuel Production barley straw bagasse Aviation Fuel/Sustainable Aviation Fuel (SAF) anaerobic digester/digestion alcohol-to-jet (ATJ)/ethanol-to-jet (ETJ) Agricultural waste/residue Agricultural Policy

Comments are closed.