The US Senate tax-writing committee is proposing cutting a tax credit's extra subsidy for low-carbon jet fuels over road fuels and introducing less-restrictive limits on foreign biofuel feedstocks, major shifts from current law and the House version of the bill.
Republicans have planned to use a far-reaching budget bill this year to alter climate policies from the Inflation Reduction Act, which created a new tax credit for clean fuel producers known as "45Z". The House passed its version of the bill last month, which would have kept the general structure of that incentive — upping fuel subsidies as emissions fall — and extended the incentive by four additional years through 2031. The credit took effect this year.
But the Senate Finance Committee in draft language released Monday floated its own changes, suggesting that Republican lawmakers are not yet aligned on how to alter the subsidy just weeks before President Donald Trump has pushed lawmakers to pass the major bill into law.
The Senate draft proposes offering a maximum subsidy of $1/USG for all fuels based on their carbon intensities starting next year. The House made no changes to that part of the law, which currently offers road fuels up to $1/USG and sustainable aviation fuel (SAF) up to $1.75/USG, plus inflation adjustments for all types of fuel.
That change would reduce the incentive's upfront costs — potentially alleviating concerns among some conservative lawmakers that the bill would add to the budget deficit — but could reduce alternative fuel availability for airlines and upend many refiners' plans to convert more renewable diesel output to SAF.
"We have always supported tech-neutral biofuel incentives and at first blush the Senate draft seems to be moving toward making 45Z truly tech-neutral," said David Fialkov, executive vice president of government affairs at the National Association of Truck Stop Operators, which had opposed treating aviation fuels differently than road fuels.
The Senate proposal would also scrap a provision in the House bill that starting next year would restrict eligibility to fuels derived from North American feedstocks. Instead, the Senate committee has proposed cutting subsidies for fuels from foreign feedstocks by 20pc while still allowing them some credit. That change would provide more flexibility than the House bill to refineries that have scaled up biofuel production in recent years by relying on foreign inputs like used cooking oil and tallow.
The Senate draft is just a proposal and could be changed. Both bills notably would extend 45Z and prevent regulators from considering indirect land use change emissions.
