Treasury Releases Notice on the Section 45Z Clean Fuel Production Credit

On May 31, 2024, the Department of the Treasury (“Treasury”) and the Internal Revenue Service continued to churn out Inflation Reduction Act of 2022 (“IRA”)¹ guidance by releasing Notice 2024-49 (the “Notice”) regarding the clean fuel production tax credit (the “45Z Credit”)² available under new section 45Z of the Internal Revenue Code of 1986, as amended.

The main thrust of the Notice is to strongly encourage any taxpayer that intends to claim the 45Z Credit to register as a clean fuel producer under section 4101 as soon as possible because taxpayers must be registered as clean fuel producers under section 4101 to be entitled to any 45Z Credits. The Notice encourages taxpayers to submit their registration applications as soon as possible. While the IRS intends to timely process completed registration applications it receives by July 15, 2024, so that applicants can receive their letters of registration by January 1, 2025, the IRS cautions that applications received after July 15, 2024 may not receive a letter of registration until after January 1, 2025. As such, registrants who submit registration applications after July 15, 2024 may lose out on a portion of the 45Z Credit that they would otherwise generate during 2025.

Pursuant to section 45Z, Treasury is required to provide a table setting forth the emissions rates for similar types and categories of transportation fuels that might be eligible for the 45Z Credit. The Notice does not provide this table, but it does provide the first insight into the types and categories of fuels that Treasury expects to be eligible for the 45Z Credit by virtue of having an emissions rate below 50 kgCO2e per mmBTU. The preliminary list includes:

• Non-aviation fuels such as:
  • Biodiesel;
  • Butanol;
  • Diesel;
  • Dimethyl ether;
  • Ethanol;
  • Gasoline;
  • Hydrogen;
  • Liquefied petroleum gas;
  • Methanol; and
  • Natural gas
• Sustainable aviation fuels such as:
  • Liquid fuels that meet the specifications of one of the annexes of ASTM D7566, including various synthesized paraffinic kerosenes, alcohol-to-jet fuels and catalytic hydrothermolysis jet fuels; and
  • Biomass-based Fischer-Tropsch liquid fuels, described more fully in section A1.2.2.2 of ASTM D1655 Annex A1

The Notice also provides a list of almost 100 feedstocks (reproduced below) for clean fuel production, giving taxpayers some insight into the feedstocks that Treasury is focused on and the detailed lifecycle analysis approach that Treasury appears to be taking.

Stay tuned for further updates as we anxiously await further guidance in this space.

Appendix A – Table of Feedstocks* Used to Make Fuels that May Be Eligible for the § 45Z Credit

* Appendix A identifies primary feedstocks used to make transportation fuels that may be eligible for the § 45Z credit for purposes of applications for registration. Producers should list the feedstock(s) that are sourced from one or more separate entities or facilities as the main input(s) to their fuel production process. For example, an alcohol-to-jet (ATJ) producer that imports ethanol from one or more separate ethanol production facilities may list ethanol as the feedstock, whereas an integrated ATJ facility with on-site ethanol production should list the feedstock used to produce the ethanol. Renewable natural gas (RNG) producers with on-site anaerobic digestion should list the inputs to the digester (for example, manure or food waste) as feedstocks, whereas RNG producers that import biogas from a separate site should list biogas as the feedstock.

** For purposes of Appendix A, “dedicated” means woody biomass grown for the purpose of being harvested for biofuel production.

¹ Our full coverage of IRA matters can be found here.

² The 45Z Credit succeeds several fuel production credits that expire in 2024 (e.g., the credits provided in sections 40, 40A, 40B and 6426) and will be available for certain clean fuels produced and sold between January 1, 2025 and December 31, 2027. Unlike its predecessor credits, the 45Z Credit is “tech-neutral,” providing a tax credit for any fuel with an emission rate below 50 kgCO2e per mmBTU and a higher credit for clean fuels with lower emission rates. Emission rates for various types and categories of fuels will be set forth in an “emissions table” that, pursuant to section 45Z, Treasury must publish no later than January 1, 2025.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.