House Tax Draft Includes Extension, Alteration of 45Z Tax Credit

The budgetary package that House Republicans are hoping to pass before Memorial Day includes significant alterations to a tax credit scheme that rewards producers of renewable fuels, according to a version of the bill released on Monday.

Under the latest draft of House Speaker Mike Johnson’s massive tax measure, the 45Z Clean Fuel Production tax credit that was created as part of the Inflation Reduction Act of 2022 would be extended by several years and altered to exclude foreign entities from participating — among other changes.

45Z replaced a long-running $1/gal blenders tax credit that expired at the end of 2024, but the agencies tasked with administering it have yet to issue final guidance despite the fact that it was supposed to be offered beginning Jan. 1, 2025. Under the new scheme, producers will be awarded a per-gallon credit ranging from 35cts to $1.75/gal for SAF and 20cts to $1/gal for all other fuels
dependent on relative carbon intensity.

Despite agency delays, House Republicans would nonetheless like to see more of the program according to Monday’s draft — which would extend it from the current horizon of Dec. 31, 2027, to Dec. 31, 2031.

Further, the bill would rid 45Z of language that accounts for indirect land use change (ILUC) when assessing emissions from producers. ILUC has long been a bane for producers of corn-based ethanol, as stakeholder groups representing the industry have argued in recent months that it relies on speculative science and unfairly punishes domestic producers for practices likely shared overseas.

The draft would also seek to bar overseas sources from participating entirely, as it would exclude both “direct foreign” or “foreign-influenced” entities from accrual and require that producers source their feedstocks from the U.S., Mexico, or Canada.

The draft also contains language restricting transferability of the credit after Dec. 31, 2027.

Paul Winters, director of public affairs and federal communications for Clean Fuels Alliance America, told OPIS on Monday that the group is looking forward to working with members to improve upon the draft — noting that transferability is, “essential to many Clean Fuels members – especially smaller producers who aren’t able to claim the full income credit value.”

“The limit on transferability beyond 2027 could make the credit extension less valuable to small producers,” Winters said.

The package included in the Monday budget largely mirrors the Farmer First Fuel Incentives Act, which was introduced to both chambers of Congress last month.

Reporting by Patrick Newkumet, pnewkumet@opisnet.com 
Editing by Jordan Godwin, jgodwin@opisnet.com 

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