News
03/02/26
US biofuel tax rule may help resellers, farmers: Update
Updates with details from draft regulations, industry reactions New York, 3
February (Argus) — President Donald Trump's administration expects to update the
rules around a low-carbon fuel tax credit to allow more types of fuel sales to
qualify and to encourage farmers to grow crops more sustainably. The US
Department of Treasury on Tuesday released a long-awaited proposal spelling out
how to qualify for the "45Z" tax credit, which kicked off in 2025 and was
extended by Republicans' tax and energy bill last summer. The general structure
of the credit — which offers a sliding scale of subsidies to alternative fuel
producers based on greenhouse gas emissions — is known, but industry has been
pushing for more clarity on thorny eligibility questions. The proposed
regulations Tuesday clarify, for instance, that producers can claim 45Z tax
breaks for fuel that is sold to intermediaries. Sales to wholesalers or traders
are common in fuel markets, but lawyers interpreted partial guidance issued in
the waning days of former-president Joe Biden's term as potentially requiring
that fuel must be sold to end users to qualify. The fuel sale question had left
many refiners unclear as to how to qualify for an incentive crucial to their
margins and had snarled logistics in key biofuel markets. Major biofuel
producers idled facilities last year too, in part because of the lack of final
rules around what was then a new and unfamiliar tax break. Producers of biofuels
such as ethanol, biodiesel and sustainable aviation fuel have been closely
watching for the 45Z tax guidance, especially since the Trump administration is
late setting new biofuel blend mandates and Congress has punted on a proposal to
allow a higher-ethanol gasoline blend year-round. The proposed regulations,
which will go through a public comment period that includes a 28 May public
hearing, will still need to be finalized. But they signal how the Trump
administration is thinking about the complicated incentive and will allow
producers to rely on existing guidance when preparing their tax returns until
final regulations are available. "I think there is going to be a significantly
greater sense of certainty going forward — obviously not absolute certainty —
but I think people will be willing to start negotiating these contracts assuming
the proposed regulations get finalized in substantially the same form," said Liz
McGinley, chair of the tax department at law firm Bracewell. More certainty from
the proposed rules could lead to "more successful and economically reasonable"
tax credit transfer sales too, McGinley said. Some biofuel makers have already
signed multimillion-dollar deals to sell their 45Z credits at a discount to
their book values, promising revenue from the incentive even before tax season.
Others have waited for more clarity. Soil to subsidy Some details still depend
on final rules, however. The proposal signals that the Trump administration
expects to eventually credit more on-farm emissions reductions, which would
effectively reward biofuel producers that source sustainably grown crops with
larger subsidies. The Biden administration had released an initial calculator so
that corn, soybean and sorghum farmers could track the climate benefits of
practices like cover crops and no-till agriculture. But it was unclear whether
Trump, a skeptic of climate science, would continue the effort at all. The
Tuesday proposal was unexpectedly far-reaching in those plans for rewarding
sustainably grown crops, suggesting that the agriculture program could mean
larger tax breaks not just in the future but for fuel sold last year. A tool for
incorporating carbon reductions from farm practices will "likely" be added to a
Department of Energy emissions tracking model this year, the Tuesday proposal
said. Treasury expects to issue additional recordkeeping and verification
requirements too. "We have a seat at the table, but we do not have the details
yet," said Mitchell Hora, an Iowa farmer and the chief executive of soil health
tracking platform Continuum Ag. Biofuel and farm groups were encouraged by the
proposal — particularly the clarity around fuel sales — but said they needed
more information too, including an updated version of the Department of Energy
(DOE) emissions tracking model. A Treasury official told Argus that DOE was
working on model updates "in the near term". DOE did not immediately respond to
requests for comment. The Department of Agriculture said that fuel producers
should treat the farm emissions tracking tools issued under the Biden
administration as "preliminary and should not rely upon them". Legislation
signed by Trump in 2025 already restricts the 45Z credit starting this year to
US producers of fuels sourced from North American feedstocks, and the Tuesday
proposal signals that the administration could require additional recordkeeping
for feedstocks imported from Canada and Mexico. The law also changed how
regulators track land use emissions, effectively hiking subsidies this year for
crop-based fuels even before accounting for on-farm practices. By Cole Martin
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