The “One Big Beautiful Bill” budget reconciliation legislation recently passed by Congress and signed into law by President Trump on July 4 includes some significant updates and changes to the 45Z clean fuel production tax credit (Section 45Z) for biofuels. The 45Z provision was initially scheduled to expire at the end of 2027, but the new law extends the availability of the credit until the end of 2029. However, it also eliminates the enhanced rates for sustainable aviation fuel on fuel sold after December 31, 2025. The transferability of the credits remains in place, despite initial efforts to eliminate the transferability option.
In addition, the new provisions require that eligible feedstock must be produced or grown in the United States, Mexico or Canada for fuel produced beginning in 2026. Further, the legislation updates emissions determinations as follows:
- Indirect land use emissions are excluded for purposes of greenhouse gas emissions rate as determined consistent with forthcoming regulations or methodology for fuel produced after 2025;
- No negative emissions rate for fuel produced after 2025, except for manure feedstocks;
- Directs the Treasury Department to provide emissions for fuel produced from animal manure after 2025;
- Permits the Treasury Department to issue guidance regarding related party sales of qualifying fuels.
The legislation also makes changes to eligible entities to restrict participation by foreign entities. Beginning in the tax year after enactment (i.e. 2026), specified foreign entities are not eligible, and beginning the tax year that is two years after enactment (i.e. 2028), foreign-influenced entities are not eligible.
The changes to 45Z outlined above reflect the strong support garnered for continuing to incentivize renewable and bio-based fuels, which led to the extension of the credits. At the same time, there was significant focus on ensuring that, going forward, the credits accrue to U.S. growers and U.S. based companies, thus the restriction on feedstock sources and eligible entities. In the coming weeks, rulemaking and implementation guidance will be issued by governing agencies, including the Departments of Treasury and Energy.
