Updates with details from draft regulations, industry reactions
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.
