Major Concerns Raised Over IRS Clean Fuel Production Tax Credit Proposal by Industry Associations

Industry Associations Address Clean Fuel Tax Credit Proposal

On January 10, 2025, several major industry associations including NATSO, SIGMA, and the National Association of Convenience Stores (NACS) publicly voiced their concerns regarding the Department of Treasury's preliminary proposal to implement the Clean Fuel Production tax credit, also dubbed the "Section 45Z" credit. This proposal has sparked significant trepidation among stakeholders within the fuel retail and biofuel consumer sectors.

The associations, which collectively represent a wide range of fuel retailers, highlight that the preliminary proposed rules overlook critical elements necessary for stabilizing the biofuels market. David Fialkov, Executive Vice President of Government Affairs at NATSO and SIGMA, articulated that the current proposal serves as a classic example of being "too little, too late" for a supply chain craving clear and decisive guidance for several months. He mentions that without the certainty needed to attract new investments, the potential for advancements in clean fuel will be severely limited.

Fialkov emphasized the need for Congress to promptly extend the $1 per gallon biodiesel blenders' tax credit as a vital strategy to maintain market stability. He criticized the proposed changes, explaining that they represent an anti-consumer shift in tax incentive policies for biofuels. According to Fialkov, the limited scope of the Section 45Z credit will likely exclude a significant number of ethanol producers, undermining any chance of lowering retail gasoline prices. Furthermore, he contended that it creates a diminished incentive for renewable diesel and biodiesel utilization.

One of the more contentious points raised is the potential for imported used cooking oil from China to qualify for the 45Z credit if it’s processed into renewable jet fuel, while failing to extend similar credits to renewable diesel. Fialkov expressed that such a situation is both environmentally and economically unjustifiable, predicting that it could result in increased diesel prices and elevated fuel emissions.

LeeAnn Goheen, Senior Director of Government Affairs for NATSO and SIGMA, echoed these sentiments, asserting that it’s imperative for Congress to extend the biodiesel blenders' tax credit promptly. She noted that the clean fuel supply chain has made continuous requests for the administration to clearly define how the credit is intended to function. Allowing the clarification process to drag on until the dawn of a new administration indicates a troubling outlook involving higher fuel prices and potential job losses in the agricultural sector.

The American Trucking Associations (ATA) has also chimed in, underscoring the necessity of reliable and affordable fuel sources for the trucking industry. Henry Hanscom, Senior Vice President of Legislative Affairs for the ATA, expressed concern that the new guidance does not provide the assurances necessary for trucking companies reliant on biodiesel and renewable diesel supplies to remain competitive.

David Heller, Senior Vice President of Safety and Government Affairs at the Truckload Carriers Association, added that the biodiesel blenders' tax credit plays a crucial role in lowering the cost of diesel fuel for truck drivers. If the Section 45Z credit fails to deliver the same relief, it risks heightening transportation costs, which could, in turn, lead to increased prices for goods transported across the nation.

Doug Kantor, General Counsel at NACS, also weighed in, indicating that this preliminary proposal barely alleviates the uncertainties plaguing the biofuels supply chain. Extending the biodiesel tax credit remains the most effective way to ensure that fuel prices don’t escalate in the year ahead.

Despite a legal obligation mandating that the Treasury provide final guidance by January 1, 2025, the biofuels supply chain continues to find itself in a state of uncertainty due to the preliminary proposal. The Department of Energy has yet to release an updated model essential for evaluating greenhouse gas emissions and energy utilization in connection with clean fuel technologies. The agricultural sector is also awaiting further guidance concerning "climate smart agriculture" practices from the Department of Agriculture.

The role of biodiesel and renewable diesel as low-carbon fuel options remains paramount for various sectors including commercial trucking, home heating, and rail transportation. The biodiesel blenders' tax credit has been foundational in cultivating a robust renewable diesel industry in the United States, driving production from approximately 100 million gallons in 2005 to around 4 billion gallons by 2023, alongside significant reductions in transportation-related carbon emissions.

In light of these developments, the collaborative voices of NATSO, SIGMA, NACS, ATA, and TCA illustrate a concerted effort to seek stability and clarity in the clean fuel sector amidst ongoing legislative and regulatory challenges.