As a new Republican administration prepares to take office, many stakeholders in the sustainable fuel sector are asking how I.R.C. § 45Z might fare. While some anticipate potential changes, a complete repeal seems less likely than a reworking to fit Republican priorities. § 45Z, which incentivizes domestic production of renewable fuels like Sustainable Aviation Fuel (SAF) through tax credits, could appeal to Republicans by supporting energy independence, the agricultural sector, and fiscal efficiency.

Republican Values: Energy Independence and Agricultural Support

Historically, Republicans have championed policies that reduce reliance on foreign energy sources and strengthen the domestic economy. The incentives within § 45Z for U.S.-based production of renewable fuels, including SAF, align with these goals by promoting domestic energy sources over imports. Given the heavy reliance on imported fossil fuels for aviation and other sectors, an emphasis on U.S.-produced SAF could contribute to national energy security.

The agricultural component of § 45Z also aligns with Republican focus, especially as the credit benefits states that produce biofuel feedstocks, such as corn and soy. States with strong agricultural industries, many of which have Republican-leaning constituencies, stand to gain from the expansion of renewable fuel markets. By fostering demand for domestically sourced feedstocks, § 45Z could support local economies and create jobs, aligning with conservative economic principles.

“An extension of § 45Z could bolster national energy security, fostering long-term resilience against foreign energy reliance.”

 

Skepticism Over § 45Z’s Fiscal Impact

Skeptical View: Some Republicans may argue that, even as a tax credit, § 45Z could lead to revenue losses for the government if it scales up too much. Critics often point out that energy-related tax credits can result in unanticipated fiscal impacts, especially given the rapid demand growth for clean energy.

Response: To address these concerns, § 45Z could incorporate performance-based eligibility criteria, limiting credits to projects that achieve clear benchmarks in production efficiency or emissions reduction. This approach ensures that only high-impact, fiscally responsible projects receive support, minimizing fiscal exposure while advancing the goals of energy independence and lower emissions. Additionally, since § 45Z applies only to projects that would otherwise be economically unfeasible without the credit, the program is inherently structured to limit unnecessary costs.

Targeted Reworking Instead of Repeal

A reworking of § 45Z, rather than a repeal, might be the most likely course of action under a Republican administration. Modifications could involve refining eligibility to prioritize American-made fuels and feedstocks, thus aligning more closely with “America First” energy policies. A targeted reworking might also address Republican concerns over imported feedstocks, such as foreign-sourced used cooking oil (UCO) and animal fats, which have lower carbon intensities but often come from outside the U.S.

Limiting § 45Z eligibility to U.S.-based production and feedstocks could support American agriculture and increase demand for local commodities. This shift would underscore the program’s alignment with conservative principles of bolstering U.S. industry and reducing reliance on foreign imports.

Potential for Extension to Strengthen Energy Independence

While some speculate that a new administration might allow § 45Z to expire, the potential for extension is real if it’s shown to contribute significantly to energy independence. With energy resilience as a consistent Republican priority, a longer-term tax credit could empower the SAF and renewable diesel sectors to make sustained investments, achieving scale and cost reductions over time. An extended timeline would provide domestic energy producers with certainty, reducing dependency on foreign energy sources.

Such an extension would ensure that the policy continues to serve national security interests by encouraging U.S.-based renewable fuel production. This approach aligns with Republican goals by advancing private-sector-led energy resilience and protecting the nation from global market fluctuations.

Structured for Fiscal Efficiency

Another advantage of § 45Z is its tax-credit-based structure. Unlike direct grants, which involve upfront government spending, § 45Z’s credits incentivize production only after a company proves its output, thus offering a lower-risk method of promoting renewable energy. Because § 45Z supports production that is otherwise economically unfeasible, it limits fiscal costs to essential, goal-driven projects rather than speculative initiatives.

Additionally, the credit’s emphasis on performance ensures that only high-impact, efficient projects benefit. Republicans could refine this further by incorporating stricter criteria that target the highest-performing U.S.-based projects, ensuring fiscal responsibility without sacrificing energy policy goals.

Conclusion: A Conservative Path for § 45Z

I.R.C. § 45Z’s future under a Republican administration seems reasonably secure, given its alignment with key conservative values. By promoting U.S.-produced renewable fuels, supporting domestic agriculture, and enhancing national energy security, § 45Z offers a viable path to sustainable energy that aligns with conservative goals. While the tax credit might face a reworking, this could ultimately strengthen its alignment with Republican objectives, making § 45Z a bipartisan tool for energy independence.

An extended, targeted approach to § 45Z could provide a lasting impact on U.S. energy resilience, secure domestic jobs, and foster a more sustainable aviation industry—all without compromising fiscal responsibility.