If you’re still confused by the uncertainty that was brought on by the delayed and clunky rollout of the 45Z Clean Fuel Production Tax Credit, then you’ve come to the right place, because guess what? I’m still confused, too.&nbsp;At the Clean Fuels Conference in San Diego in January—just days after the tax guidance was finally released—there was a standing room-only panel discussion where seasoned federal tax experts were going through the facts and everything the federal government had released up to that point. But instead of coming to a consensus on 45Z and walking out of the packed room with a sense of clarity, we heard conflicting interpretations of the policy and how it might ultimately be implemented. “It left us with a few answers, but a lot of questions,” Clean Fuels Alliance America CEO Donnell Rehagen said at the event. “Our feedstock producers and fuel producers deserve clarity on how the tax credit will impact them.”&nbsp;Let’s review what we know. On Jan. 10, the Treasury Department and Internal Revenue Service released an 83-page notice of intent to propose regulations addressing 45Z, which is a tax credit available to producers of domestically produced clean transportation fuel sold from Jan. 1, 2025, through Dec. 31, 2027. Treasury and the IRS also released a 15-page interim guidance, seeking comments by April 10.&nbsp;The main takeaway from the release of that guidance was that the Biden administration, in its final days in office, decided to release the long-awaited 45Z guidelines as merely “interim guidance” rather than a final rule, meaning it would be up to the Trump administration to finalize the rule.&nbsp;Biofuel industry leaders said they were “deeply disappointed,” and that it was “too little, too late.” Renewable Fuels Association CEO Geoff Cooper said, “We do not believe this guidance alone will spur the investment, innovation and job creation in the clean fuels sector that Congress and the administration intended. It simply isn’t bankable, investible or otherwise actionable for the vast majority of biofuel producers.”&nbsp;Later in January, the U.S. DOE released a 45ZCF-GREET model for use in determining emissions rates, and the USDA released its interim guidance on climate-smart agriculture practices. If finalized, such practices could be used to garner the 45Z tax credit, which rewards fuel producers with a credit that increases in value based on the producer's ability to reduce the carbon intensity of their product below the 50 kg of CO2 per MMBtu baseline established in the Inflation Reduction Act of 2022.Under the model, the “applicable amount” of 45Z for SAF is a base amount of 35 cents per gallon, up to $1.75 per gallon. It’s unclear how many SAF producers—current or prospective—might be able to capitalize on the full amount of the tax credit, but at this point, it’s pretty safe to say this isn’t the pivotal catalyst for growth in the U.S. SAF industry that it was hailed to be when it was included in the IRA. And very few industry sources have expressed optimism that 45Z will help achieve the SAF Grand Challenge goals put forth by the Biden administration in 2021, with an aim to produce 3 billion gallons per year in the U.S. by 2030.&nbsp;Since the release of the interim guidance, we’ve had a bill introduced in Congress to extend 45Z for an additional 10 years, through 2037. On the flip side, we’ve also had a bill introduced to completely repeal 45Z. While neither of these bills are likely to go very far this year, it’s clear that there are very conflicting feelings around 45Z that aren’t going anywhere.Darling Ingredients, which operates joint-venture Diamond Green Diesel with Valero Energy to produce biofuels like SAF and renewable diesel, discussed 45Z on a February earnings call. “We have thoroughly reviewed the 45Z Clean Fuel Production Credit guidance with third-party auditors and are aligned in determining that it provides a clear safe harbor for the company's accounting treatment of the tax credit,” Darling CEO Randall Stuewe said. "As a result, we are confident in our ability to book the credit and fully realize its value. While there are a few details to iron out regarding feedstock options and certification by product and destination, DGD’s strategic location, logistical flexibility and capability to process a diverse range of feedstock positions us well to maximize the value of this credit.”Stuewe touts DGD’s SAF project as the largest in the world that’s “under budget and ahead of schedule.” Stuewe said that with clarity around 45Z and California’s Low Carbon Fuel Standard, which just wrapped up a major rulemaking aimed at ramping up the state’s greenhouse gas emissions reduction targets, that Darling believes “the market is stabilizing.”&nbsp;In the month following the release of the 45Z guidance, OPIS has seen LCFS credit prices somewhat choppy but largely holding just under $75 per credit. D4 biomass-based diesel renewable identification number (RIN) credits, however, rallied nearly 25% to 88 cents per RIN on Valentine’s Day. To that point, RINs haven’t hit $1 since September 2023. Similarly, LCFS credit prices haven’t hit $100 per credit since June 2022.&nbsp;For SAF to really start taking off in 2025, it’s going to need more help from RINs and LCFS credits beyond the 45Z credit. A November 2024 report from the DOE said 3 billion gallons of annual domestic production capacity by 2030 is possible, but it’s going to take $44 billion of investment to get there. The report also pointed out that the biggest barrier to SAF’s scale up is cost.&nbsp;Whether 45Z can be the motivating factor to help incentivize that growth for the SAF industry still remains to be seen and is clouded by uncertainty—just like its rollout.&nbsp;OPIS, a Dow Jones Company, is a price-reporting agency that offers daily price assessments for renewable diesel and SAF with an aim to provide the growing markets with accurate, fair and transparent price discovery that utilizes bids, offers and trades in the spot market.Author: Jordan Godwin&nbsp; Director of Biofuels Markets, OPIS&nbsp;&nbsp; jgodwin@opisnet.com

2025-03-10 - US SAF Market Still Digesting Uncertainty of 45Z Clean Fuel Production Tax Credit (SAF Magazine)

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Whether 45Z can be the motivating factor to help incentivize that growth for the SAF industry still remains to be seen and is clouded by uncertainty—just like its rollout. 

US SAF Market Still Digesting Uncertainty of 45Z Clean Fuel Production Tax Credit

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