Ethanol Blog

The long-awaited proposed rule for the 45Z Clean Fuel Production Credit has been sent by the Treasury Department to the White House Office of Management and Budget (OMB) for review.

The OMB is the last stop before an agency releases a rule for public comment, though it can often take months for OMB to complete its review. About one-third of agency proposals have been at OMB longer than 90 days.

The 45Z rule went from Treasury to OMB on Dec. 17. The OMB posting was first reported by Ethanol Producer Magazine.

Biofuel groups declined to comment to DTN on the proposed 45Z rule because they do not know the specific details sent from Treasury to the White House.

Initially created in the Inflation Reduction Act, the One Big Beautiful Bill Act extended the tax credit to the end of 2029 and modified qualifications for it as well.

The tax credit uses the Greenhouse Gases, Regulated Emissions and Energy Use in Technologies Model -- known as the GREET model -- to calculate carbon intensity scores of biofuels. The model is also being adjusted because the OBBBA eliminated the calculation of international indirect land-use changes from the model when establishing carbon scores.

Also. under OBBBA, feedstocks used for 45Z must come from the U.S., Canada or Mexico, which shuts out products such as used cooking oil from China.

The OBBBA cuts the top rate for 45Z from $1.75 a gallon to $1 a gallon. Transportation fuels developed from animal manure would also qualify for the credit.

Along with Treasury, USDA will eventually be expected to finalize or require the interim Technical Guidance for "Climate-Smart Agriculture Crops Used as Biofuel Feedstocks" issued in the final days of the Biden administration. An analysis by the American Farm Bureau Federation noted, "USDA has largely turned away from labeling conservation practices as 'climate-smart.'"

While the tax credit is for biofuel producers, the 45Z is expected to help boost incomes for farmers using practices that help a biofuel plant lower its CI score.

AFBF noted in its analysis, "It is also important to reiterate that there is no requirement for biofuel producers to pass any of their earning from 45Z on to the farmers who produced their feedstocks."

That was actually some of the basis behind the Partnership for Climate-Smart Commodities and IRA conservation funds under the Biden administration. Those programs were expected to help incentivize farmers to adopt practices that would then sell into more valuable commodities because of lower carbon footprints.

AFBF's Market Intel report on the 45Z from July:

https://www.fb.org/…

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Note: DTN is part of one of the Partnership for Climate-Smart Commodities projects, "Farmers for Soil Health," which is focused on increasing long-term cover crop adoption and creating a marketplace to generate demand for climate-smart commodities. The partnership involves farmers in at least 19 states who grow corn and soybeans. The USDA program has been renamed into Advancing Markets for Producers (AMP).

Chris Clayton can be reached at Chris.Clayton@dtn.com

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