TL/DR –
The U.S. Department of the Treasury and IRS have issued initial guidance on the clean fuels production tax credit (PTC) under Section 45Z of the Internal Revenue Code. The guidance includes a notice of intent to propose regulations on the Section 45Z credit and an annual emissions rate table for the same. Under Section 45Z, a PTC, which could amount to $1 or $1.75 per gallon depending upon the fuel type, is available for each gallon of transportation fuel produced after Dec. 31, 2024, and sold before Jan. 1, 2028, with reductions if prevailing wage and apprenticeship requirements are not met.
Initial Guidelines on Clean Fuels Production Tax Credit Issued
On Jan 10, 2025, the U.S. Department of Treasury and IRS unveiled initial guidance on the Production Tax Credit (PTC) for clean fuels under Section 45Z of the Internal Revenue Code, a provision of the Inflation Reduction Act (IRA). Included in the guidance are a notice proposing regulations for the Section 45Z credit, and a notice detailing the annual emissions rate table for Section 45Z. The latter directs taxpayers to suitable methodologies for calculating fuel’s life cycle greenhouse gas emissions. The U.S. Department of Energy (DOE) is scheduled to launch the 45ZCF-GREET model for Section 45Z soon.
Details of the Available Production Tax Credit
Section 45Z offers a PTC for each gallon or gasoline gallon equivalent of transportation fuel produced post-Dec. 31, 2024, and sold before Jan. 1, 2028. The credit amount is $1 per gallon, or $1.75 for sustainable aviation fuel, but may vary based on the fuel’s emissions factor.
Condition for Availing Full Credit Amount
If prevailing wage and apprenticeship requirements aren’t met, the credit amount reduces to one-fifth of the otherwise available amount. For more details, see “Understanding IRA Prevailing Wage and Apprenticeship Requirements,” published on July 8, 2024.
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