U.S. Treasury Releases Guidance on Clean Fuel Tax Credits

The U.S. Treasury Department and Internal Revenue Service on Jan. 10 released guidance on the section 45Z Clean Fuels Production Credit, which is in effect in 2025 and is available for transportation fuels with lifecycle greenhouse gas emissions below certain levels.

The guidance consists of a notice of intent to propose regulations for the 45Z tax credit and a notice providing the annual emissions rate table for section 45Z, which claimants can use to calculate the fuel’s lifecycle greenhouse gas emissions. The tax credits will help to boost investment in clean transportation, lower costs for vehicles and transportation fuels, and strengthen U.S. energy security.

The Clean Fuels Production tax credit applies to clean fuels such as Sustainable Aviation Fuel, SAF, and non-SAF transportation fuels. The credit will require the Treasury to propose rules for measuring the carbon intensity of production based on lifecycle GHG emissions defined in the Clean Air Act.

The guidance expands on and clarifies the type of fuels and producers that are eligible for the 45Z credit, and how to determine lifecycle GHG emissions. The guidance also states that the Treasury aims to propose rules for including the emissions from climate-smart agriculture practices for crops used as feedstocks in SAF and non-SAF transport fuels. Following the Treasury guidance, the U.S. Energy Department will also soon release the 45ZCF-GREET model to calculate emissions rates for the credit.

The department also issued proposed rules on the credit for Qualified Commercial Clean Vehicles. Taxpayers may qualify for the 45W credit for qualified commercial clean vehicles by purchasing and operating clean vehicles such as certain battery electric vehicles, plug-in hybrid EVs, fuel cell electric vehicles, and plug-in hybrid fuel cell electric vehicles. The credit can either be 30 percent of the vehicle’s basis or incremental cost in excess of a gasoline or diesel-powered vehicle comparable in size or use. This would be 15 percent in the case of plug-in hybrids. Taxpayers may claim up to $7,500 for a single qualified light-duty commercial clean vehicle such as a car or $40,000 for heavy-duty clean vehicles such as electric buses and semi-trucks.

The proposed rules for 45W include different methods to determine the incremental cost of a qualifying commercial clean vehicle to calculate the credit value. The rules further clarify eligibility and requirements for vehicles. Following the release of the proposed rules, the Treasury will consider feedback from the public and stakeholders for the next 60 days before finalizing the rules. A public hearing will be held on April 28.