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Biofuels Groups Ask IRS to Get Carbon Scoring Right in Implementing Clean Fuel Tax Credit

Todd Neeley
By  Todd Neeley , DTN Environmental Editor
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Biofuels groups asked the IRS to focus on accurate carbon scores in drafting a rule for the new clean fuel production credit. (Photo by David Boeke (CC BY-SA 2.0)

LINCOLN, Neb. (DTN) -- A new clean fuel production tax credit created by the Inflation Reduction Act could pave the way for significant growth in biofuels including ethanol, sustainable aviation fuel and biodiesel, if the IRS takes steps to adopt the right greenhouse gas lifecycle emissions model.

The new credit has been touted as a technology-neutral credit under Section 45Z. It applies to fuel sold from Dec. 31, 2024, to Dec. 31, 2027, and is granted to fuel that meets a certain emissions-reduction factor.

The Inflation Reduction Act provides a credit of 20 cents per gallon and up to $1 per gallon if certain requirements are met. When it comes to sustainable aviation fuel, the act provides a base credit of 35 cents per gallon or up to $1.75 under certain conditions.

The amount of the tax credit granted would depend on a fuel's individual GHG emissions score.

American Coalition for Ethanol CEO Brian Jennings said in comments submitted to the IRS last Friday that the tax credit would be good for agriculture.

"Proper implementation of the new 45Z tax credit will incentivize U.S. ethanol companies and farmers to invest in production processes and practices to reach these net-zero carbon intensity goals in a meaningful timeframe to address the current climate challenges," ACE said in its comments.

ACE said although the tax credit is new, the ethanol industry's work in greenhouse gas emissions reductions is not. In particular, the group said the industry's participation in California's low-carbon fuel standard has set the tone for the industry's readiness to take advantage of the new tax credit.

"When individual emission rates are determined by treasury and IRS for implementation of 45Z, many producers will have CI (carbon intensity) scores that reduce GHGs compared to gasoline by as much as 70%," ACE said in the comments.

Jennings said in the comments ACE supports the use of the GREET model to make determinations about emission rates as directed in the Inflation Reduction Act. However, he said certain emissions factors related to feedstock production (i.e., corn farming for corn-based ethanol) are not yet fully incorporated in the model and should be considered.

Jennings wrote in the comments that scientific evidence supporting the benefits of "climate-smart" agricultural practice need to be considered by the IRS when implementing the new tax credit.

"Demonstrating scientific rigor of GHG benefits related to climate-smart farming practices at relevant landscape scale," Jennings said in the comments, "is critical to increase confidence levels in existing models and enable farmers and ethanol producers to monetize the farm-level GHG reductions in regulated low-carbon or clean fuel markets and through the new 45Z tax credit."


Renewable Fuels Association President and CEO Geoff Cooper, said in comments that if correctly implemented the tax credit could lead to "transformative investments" in carbon-reduction technologies in the ethanol sector.

Cooper and the RFA also advocate for the use of the GREET model for lifecycle assessment related to the tax credit, including for sustainable aviation fuels.

"Using Argonne GREET for SAF would ensure that the same, consistent methodology is used for both aviation and non-aviation fuels," RFA said in its comments.

"Using two different models for the purposes of tax credit generation under 45Z (i.e., one model for SAF, and a separate model for non-aviation fuels) could create administrative challenges for both industry and regulators, and it could also create perverse incentives or disincentives for the production of certain low-carbon fuels in the marketplace."

RFA said in its comments it was important for the IRS to make "timely publication" of final rules, inclusion of upstream (i.e., farm-level) carbon-reduction practices in carbon scoring, using existing schemes to inform certification, and ensuring flexibility in certain definitions and interaction of various tax credits.

In separate comments, RFA said carbon capture, utilization and sequestration, or CCUS, tax credits are an important tool for ethanol producers as they work toward their net-zero carbon emissions pledge.

RFA also said the IRS also should allow flexibility between years and recognize that based on the "sequence of technology investments," ethanol producers will also be considering the value of credits under the Clean Fuel Production Credit in tandem with CCUS credits.


Clean Fuels Alliance America, formerly the National Biodiesel Board, said in comments it was important to adopt the GREET model to measure GHG emissions of sustainable aviation fuel. The group asked the IRS to allow producers to petition for "provisional-emissions reduction rates" based on scores from California's low-carbon fuel standard.

"It is imperative that Treasury work with the U.S. Department of Energy and the U.S. Department of Agriculture to implement the carbon-based incentives using the best and most up-to-date agricultural and biofuel-process information in its emissions-rate methodology," Clean Fuels Vice President of Federal Affairs Kurt Kovarik wrote in comments.

"The International Civil Aviation Organization's CORSIA model unfairly penalizes fuels produced from U.S. crop-based feedstocks and will prevent them from participating in the SAF market if that is the only model available to producers when the statute is implemented."

Clean Fuels said in its comments that the latest update of the GREET model in October estimates the average gallon of biodiesel and renewable diesel reduces emissions by about 72%.

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