Internal Revenue Service Provides 45Z Registration Guidance

The Internal Revenue Service (IRS) released guidance on Friday, May 31, 2024, explaining 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 shared that it was important for biofuel producers to register as soon as possible. “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. At least some ethanol plants will seek to qualify for 45Z based on their efforts to reduce emissions. That means plant operators will want to know more about farming practices on crops used for feedstocks in 2024-25.

Farmers should expect biofuel plants to offer a premium for reductions in carbon intensity using no-till practices or nutrient management plans that reduce fertilizer inputs. Farmers will need to share more data about their farming practices, and more companies will be signing contracts with farmers based on practices.

Read the IRS guidance here.

Originally shared by Progressive Farmer, May 31, 2024. Updated for purpose and clarity.

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