OMAHA (DTN) -- Biofuel groups are pressing the IRS and Treasury Department to finalize a rule for the 45Z Clean Fuel Production Tax Credit as USDA's still-unfinished feedstock carbon calculator leaves farmers and ethanol producers without clear guidance heading into another planting season.

Monday marked the close of the comment period for IRS's update of the rule, which includes changes from the One Big Beautiful Bill Act (OBBBA) to eliminate issues around indirect land use change and foreign feedstocks from outside North America, among other issues.

The proposed IRS rule generated 448 public comments on the Regulations.gov website.

The 45Z tax credit was in the Inflation Reduction Act, originally as one of the incentives to help spur production of sustainable aviation fuel. However, the Biden administration did not finalize rulemaking on how the tax credit would work. Congress then updated the tax credit in the OBBBA last summer.

The tax credit for non-aviation fuel is 20 cents a gallon. The tax credit for sustainable aviation fuel is 35 cents a gallon.

At the same time, biofuel producers could see the tax credit increase fivefold if they follow prevailing wage and apprenticeship requirements. Those issues are among those that should be adjusted in a final rule, the Iowa Renewable Fuels Association stated in its comments.

"Unfortunately, IRFA has received nearly universal reports that the administrative burden and cost to comply with PWA requirements are crippling the benefit of the program," IRFA stated.

Biofuel groups such as the American Coalition for Ethanol (ACE), Growth Energy and the Renewable Fuels Association (RFA) said the 45Z is critical to the ethanol industry, the rural economy and U.S. energy security.

"If effectively implemented, the 45Z tax credit has the potential to stimulate domestic energy production, strengthen U.S. energy security, bolster rural economies, and support increased investment and innovation in the renewable fuels and agriculture sectors," RFA stated.

ACE noted both ethanol producers and farmers have a lot at stake with the rule. "U.S. corn farmers continue to experience painfully high input costs and low market prices," ACE stated. "Most corn farmers are forecast to suffer their fourth consecutive year of net profit losses in 2026."

For all of that to happen, biofuel groups pressed Treasury and the IRS to move quickly to finalize the regulations around 45Z.

One change in the proposed rule praised by biofuel groups is updating the Greenhouse Gases, Regulated Emissions and Energy Use in Technologies (GREET) model to comply with changes made in the OBBBA last year. The law removed indirect land use as part of the calculation for emissions under the GREET model. RFA called for the Department of Energy (DOE) to more quickly release an updated GREET model for the 45Z.

The OBBBA also ensured feedstocks for the 45Z are limited to the U.S., Canada and Mexico, which will effectively shut down high volumes of imported used cooking oil from China and other countries. Those imports had disrupted the use of soybean oil and other domestic feedstocks by renewable diesel producers.

WAITING ON USDA'S FEEDSTOCK CALCULATOR

The proposed rule includes several layers and steps to recognize farm practices, which includes USDA finalizing its "Feedstock Carbon Intensity Calculator." Once USDA finalizes that, then DOE will adopt a 45Z version of the calculator within the GREET model, and then the IRS would publish additional guidance.

The IRS noted USDA's feedstock calculator is "undergoing testing, peer review and public comment," but USDA has not issued a notice on when that will happen.

Growth Energy pressed the IRS to "adopt reasonable interim measures to allow taxpayers to access emissions reductions from farm practices swiftly and without unnecessary administrative delays."

ACE pointed out farm practices represent about half of ethanol's carbon intensity. With that, biofuel facilities "must have the opportunity to monetize low-carbon farming practices such as reduced tillage or precision fertilizer to fully unlock the value of 45Z." ACE added, "If Treasury allows low-carbon farming practices to qualify toward emissions rates it could mean billions of dollars annually for clean fuel producers and farmers, providing a market-based opportunity to dramatically increase rural and farm income."

USDA has published final technical guidance to quantify, report and verify emission reductions from farm practices. Those technical guidelines were released in January 2025 in the final days of the Biden administration.

The focus of USDA's feedstock calculator is to demonstrate carbon sequestration and lower emissions from farm practices that support no-till or reduced tillage, increase cover crops and reduce fertilizer applications.

A spokesperson for USDA stated the rule is currently open for interagency review. "USDA will compile feedback and issue a final rule in the coming weeks."

RFA stated the group generally supports "regenerative feedstock cultivation practices," but the group also raised concerns that USDA's final feedstock calculator "could disadvantage clean fuel producers and farmers in certain regions based solely on their location and uncontrollable geographical factors."

Auditing based on USDA's technical guidelines also "may be overly complex and may discourage" farmers and biofuel producers. RFA called for "simplified and straightforward protocols" to certify and audit farm practices.

Along with that, the slow process of finalizing regulations will once again carry into the start of another crop season. RFA noted spring planting is already underway, and farmers have already made cropping decisions for the year. Farmers and biofuel producers "lacked the information, modeling tools and clear protocols" to leverage regenerative feedstocks for the 45Z credit, RFA stated. "Crops being planted now will be used as feedstock for clean fuel production later this year and well into 2027."

Given those factors, RFA and Growth Energy both called for Treasury to consider using "safe harbor" provisions for biofuel producers making efforts to apply the rules and calculation tools.

ACE has been using a USDA Regional Conservation Partnership Program (RCPP) grant to specifically look at regenerative farm practices and how they are undervalued in different locations in existing models, including USDA's feedstock calculator.

ACE noted Treasury doesn't need to "reinvent the wheel" to deal with verification and recordkeeping for farm practices because USDA agencies already have the tools. ACE pointed to USDA rules for conservation compliance to qualify for government payments. ACE stated Treasury should leverage USDA's existing tools when finalizing 45Z rules.

Growth Energy noted there are other farm practices that reliably quantify emission reductions which could be included in the feedstock calculator, citing the IRS and USDA should look at "biostimulants, biofertilizers and biopesticides" that "enhance soil health, improve nutrient uptake, and increase crop yields."

"It is therefore critical that farmers have flexibility to apply those farm practices that work best for their unique operations, leading to greater incentive and participation."

At the same time, the Trump administration has emphasized a broader effort to end what the president frequently calls "Green New Scam ideologies" and projects. President Trump's new 2027 budget plan details ending "Green New Scam" programs 21 times across the federal government, including USDA and the Energy Department.

Groups representing truck stops, convenience stores and other fuel marketers also weighed in on the 45Z rule with multiple criticisms. Current high gas prices at the pump "should serve as the regulatory North Star of biofuel policy." The groups stated the 45Z does not address affordability challenges for consumers or businesses. The groups called on Congress to reinstate the Biodiesel Blenders' Tax Credit to both bolster soybean demand and help stabilize diesel prices.

"The truth is, '45Z' has failed to help American farmers and American consumers of fuel. Treasury can begin to address these failures by finalizing rules that require transparent disclosure of credit values throughout the fuel supply chain, enabling the economic benefit of the '45Z' Credit to flow to consumers at the pump rather than disappearing in the margins of fuel producers," the fuel marketer groups stated in a joint news release.

Chris Clayton can be reached at Chris.Clayton@dtn.com

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