The Clean Fuel Production Credit
The Clean Fuel Production Credit is part of the Inflation Reduction Act passed in 2022. The Act includes substantial provisions for climate initiatives including the aforementioned credit, and multiple provisions regarding EV incentivization.
The Clean Fuel Production Credit, also known as 45Z, would provide a tax credit for qualifying clean transportation fuels produced domestically at approved facilities. The credit category is divided into two subcategories, with sustainable transportation fuels being one portion, and sustainable aviation fuels being the second. The credit is set to take effect January 1, 2025 and would replace the expiring Biodiesel Blender Tax Credit. How much of a credit a varying product carries is based on the assessed carbon intensity of the product.
Industry groups as well as feedstock producers, brokers, and other members along the biofuel supply chain have expressed serious concern in letters to the Treasury Secretary, the IRS, the EPA, and the legislature regarding a concerning lack of clarity on how exactly the Clean Fuel Production Credit will operate in practice. The lack of clarity is hampering the ability of retailers to contract supply using accurate pricing information, and making projections for producer suppliers difficult, as the lack of uniformity on the credit makes calculations difficult where they are known at all.
By way of contrasting example, the current Blender Credit treats gallons of biofuels uniformly at a uniform reimbursement level, which means that pricing and cost can be calculated out in a straightforward manner. The new credit would vary based on the fuel category and its carbon intensity, and strict guidance on what products from what suppliers equal how much of a credit is still not published.
Once final clarification is published, we will all have a better understanding of exactly what the potential benefits or costs to consumers and end users will be. Also of note is the pending legislative consideration of an extension of the Biodiesel Blenders Tax Credit. Depending on how both items come out in finalized form, we could either see a lot of benefits in the market, or a lot of confusion and at the pump cost fluctuations. Stay tuned!
