
WASHINGTON – The U.S. Department of the Treasury and Internal Revenue Service released comprehensive guidance for Section 45Z of the tax code on January 10, 2025. The Clean Fuels Production Credit aims to accelerate the transition to low-carbon transportation fuels, providing a robust framework for the production of sustainable aviation fuel (SAF) and other clean fuels.
Section 45Z offers a per-gallon or gallon-equivalent tax credit based on the lifecycle GHG emissions reductions of eligible fuels. This guidance is the result of extensive collaboration between federal agencies, expert stakeholders, and public feedback.
“This guidance will help put America on the cutting-edge of future innovation in aviation and renewable fuel while also lowering transportation costs for consumers.” – Deputy Secretary of the Treasury Wally Adeyemo
Key Highlights of the Guidance
- Eligibility Criteria
Treasury has clarified that the credit will only apply to producers of eligible clean fuels. Compressors, blenders, and other intermediaries are not eligible to claim the credit.
Eligible fuels must demonstrate “practical or commercial fitness” for use in vehicles or aircraft, either as standalone fuels or when blended into fuel mixtures. Notably, marine fuels like diesel and methanol are eligible if suitable for use in highway vehicles or aircraft. - Lifecycle Emissions Calculations
A core component of Section 45Z is its lifecycle emissions-based structure, which rewards lower-carbon fuel production.- For non-SAF fuels: Taxpayers must use the 45ZCF-GREET model, developed by the Department of Energy.
- For SAF: Taxpayers can use either the 45ZCF-GREET model or methodologies approved by the International Civil Aviation Organization (ICAO).
A Provisional Emissions Rate (PER) process will be introduced to address unique pathways not covered in existing emissions models.
- Climate-Smart Agriculture Practices (CSA)
Recognizing the role of agriculture in the clean energy economy, the guidance emphasizes integrating CSA benefits into lifecycle emissions calculations. Feedstocks such as corn, soybeans, and sorghum cultivated with CSA practices could unlock additional tax credit opportunities.- Treasury will release detailed rules for CSA practices, ensuring alignment with emissions benefits.
- The U.S. Department of Agriculture (USDA) has committed substantial resources to CSA projects, supporting over 225 million acres with improved practices by 2030.
Economic and Environmental Significance
Deputy Secretary of the Treasury Wally Adeyemo emphasized the guidance’s dual impact: “This guidance will help put America on the cutting-edge of future innovation in aviation and renewable fuel while also lowering transportation costs for consumers.”
John Podesta, White House Senior Advisor, highlighted the vital role of farmers: “Climate-smart agriculture not only lowers GHG emissions but also provides economic opportunities for America’s farmers through advanced biofuels.”
The U.S. Deputy Energy Secretary, David M. Turk, reiterated the global significance of this initiative, stating: “This tax credit is essential to U.S. competitiveness and to reduce emissions in the transportation sector with more affordable, cleaner fuel.”
Buy-Out Mechanism and Compliance Flexibility
To provide flexibility, Section 45Z includes a buy-out mechanism for fuel suppliers unable to meet their obligations. This mechanism sets a maximum cost for the program while incentivizing the production of clean fuels.
Treasury has also committed to ongoing updates to ensure the guidance reflects advancements in fuel technology and market trends. Formal reviews will be conducted every five years, with the first review scheduled for 2030.
Broader Implications for SAF and Renewable Fuels
Section 45Z replaces previous credits for biodiesel, renewable diesel, and SAF, consolidating these incentives into a streamlined framework. It supports the aviation industry’s decarbonization goals, aligning with international initiatives like ICAO’s CORSIA framework and the U.S. commitment to achieving net-zero aviation emissions by 2050.
The SAF-specific provisions provide clarity for fuel producers aiming to capitalize on the growing demand for cleaner aviation fuels. By utilizing advanced methodologies like the GREET model and incorporating CSA benefits, the credit is expected to drive investment in innovative SAF pathways, such as Power-to-Liquid (PtL) technologies.