WASHINGTON, D.C. — The Senate Finance Committee, chaired by Senator Mike Crapo (R-Idaho), unveiled its portion of the “One Big Beautiful Bill Act” on June 17, 2025, outlining critical updates to the 45Z Clean Fuel Production Tax Credit, a cornerstone of the Inflation Reduction Act (IRA) designed to support low-carbon transportation fuels like Sustainable Aviation Fuels (SAF). The proposed changes, which extend and modify the credit through 2031, signal a strategic pivot toward bolstering domestic SAF production while imposing new restrictions to address environmental and trade concerns. For industry stakeholders, these proposals present both opportunities and challenges as the Senate navigates negotiations ahead of a potential floor vote.

Extension of the 45Z Credit

The Senate’s draft extends the 45Z credit from its original expiration date of December 31, 2027, to December 31, 2031. This four-year extension provides long-term certainty for SAF producers, enabling sustained investment in production capacity and infrastructure. Geoff Cooper, President and CEO of the Renewable Fuels Association, praised the extension, noting that it “gives farmers and ethanol producers the freedom and flexibility to deliver for the American people.” The extended timeline aligns with industry goals to scale SAF production to meet global blending mandates, such as the European Union’s 6% SAF requirement by 2030.

Adjustments to Credit Value for SAF

A significant change in the Senate’s proposal is the equalization of credit values across eligible fuels. Under current law, SAF can qualify for a credit of up to $1.75 per gallon, while other clean fuels are capped at $1.00 per gallon, reflecting SAF’s higher production costs and environmental benefits. The Senate’s draft proposes to harmonize these values, potentially reducing the SAF-specific incentive. This adjustment has sparked debate, as it may reduce financial support for SAF producers, particularly those reliant on higher credits to offset the cost of advanced feedstocks like waste oils or cellulosic biomass. Industry analysts suggest this could slow SAF market growth unless offset by other incentives or cost reductions.

20% Credit Reduction for Imported Feedstocks

To prioritize domestic production, the Senate proposes a 20% reduction in the 45Z credit for fuels made from feedstocks grown or produced outside the United States. This contrasts with the House version of the bill, which restricted the credit to fuels derived exclusively from feedstocks sourced in the U.S., Canada, or Mexico. The Senate’s approach, described as a “softer penalty” by industry observers, aims to discourage reliance on imported feedstocks like used cooking oil from Asia while maintaining flexibility for producers. Posts on X reflect mixed sentiment, with some stakeholders viewing the 20% reduction as a balanced compromise, while others argue it could disrupt global supply chains critical to SAF scaling.

Emissions Calculation Refinements

The Senate’s draft introduces two key changes to how lifecycle greenhouse gas (GHG) emissions are calculated for the 45Z credit:

1. Exclusion of Indirect Land Use Change (ILUC): The proposal mandates that emissions calculations exclude ILUC, which accounts for potential land use changes (e.g., deforestation) caused by feedstock production. This change, to be guided by regulations from the Treasury Secretary in consultation with the EPA and USDA, aims to simplify emissions modeling and reduce penalties for biofuels with complex supply chains. However, environmental groups may criticize this as weakening the credit’s climate integrity.

2. Distinct Emissions Rates for Animal Manure: For fuels derived from animal manure (e.g., dairy, swine, or poultry), the draft requires specific emissions rates for each feedstock type. This provision, highlighted by industry observers on X, explicitly allows negative carbon intensity for manure-derived biofuels, potentially unlocking significant credits for renewable natural gas (RNG) used in SAF production. This could incentivize dairy and livestock sector integration into SAF supply chains.

Transferability and Foreign Entity Restrictions

Unlike the House bill, which proposed eliminating transferability for 45Z credits after 2027, the Senate’s draft does not include this restriction, a move welcomed by smaller producers who rely on selling credits to monetize projects. However, the legislation introduces restrictions on credits for projects involving “prohibited foreign entities” (e.g., those with ties to China, Russia, Iran, or North Korea) starting in 2026. This could complicate supply chains for SAF producers sourcing components or technology from affected regions, particularly in Southeast Asia.

Industry Implications

The Senate’s proposals aim to balance domestic economic priorities with environmental goals, but they raise several considerations for SAF stakeholders:

• Domestic Feedstock Push: The 20% credit reduction for imported feedstocks strengthens incentives for U.S.-based agriculture and waste streams, potentially benefiting farmers and rural economies. However, it may challenge producers reliant on global feedstock markets, where used cooking oil and other wastes are often cheaper.

• SAF Credit Equalization: Aligning SAF credit values with other fuels could strain producers’ margins, particularly for non-HEFA (Hydroprocessed Esters and Fatty Acids) pathways like alcohol-to-jet or gasification, which require significant capital investment. Industry leaders may advocate for restoring the $1.75 SAF credit in Senate negotiations.

• Emissions Modeling: Excluding ILUC and specifying manure-derived emissions rates could streamline certification processes and enhance credits for RNG-based SAF, but it risks scrutiny from environmental advocates who prioritize rigorous lifecycle assessments.

• Market Stability: The extension to 2031 provides planning certainty, but the lack of clarity on transferability post-2027 (pending further Senate revisions) and foreign entity restrictions could deter investment in large-scale SAF projects.

 

“The extension of the clean fuels credit gives farmers and ethanol producers the freedom and flexibility to deliver for the American people.” — Geoff Cooper, President and CEO, Renewable Fuels Association

 

Stakeholder Perspectives

Senator Chuck Grassley (R-Iowa), a vocal advocate for biofuels, has emphasized the 45Z credit’s importance to farmers, criticizing prior Biden-era implementation of the 40B SAF credit as disconnected from agricultural realities. Cooper’s Renewable Fuels Association statement reflects optimism about the extension but urges clarity on qualified sales provisions, a concern echoed by over a dozen trade groups in a June 6 letter to Senate leaders. Meanwhile, environmental groups remain cautious, particularly regarding the ILUC exclusion, which could undermine the credit’s alignment with net-zero goals.

Next Steps

The Senate’s draft is now under negotiation, with a floor vote expected by late September or early October 2025, given the bill’s inclusion of a $5 trillion debt ceiling increase. The Senate’s version diverges from the House’s H.R. 1, passed on May 22, 2025, setting the stage for reconciliation talks. SAF producers and industry groups are likely to lobby for restoring the $1.75 SAF credit and clarifying transferability to ensure market viability.

Source

• Senate Finance Committee, “One Big Beautiful Bill Act” draft text, June 17, 2025.

• Ethanol Producer Magazine, “Senate version of ‘big, beautiful bill’ aims to extend, alter 45Z tax credit,” June 17, 2025.

• Renewable Fuels Association statement, May 13, 2025.

• Posts on X from @biofuelslaw, @HvBCapital, @cole_n_martin, June 16-17, 2025.