US Biofuel Tax Rule To Benefit Resellers, Farmers

President Donald Trump's administration expects to update the rules around a low-carbon fuel tax credit to allow more types of fuel sales to qualify and to encourage farmers to grow crops more sustainably.

The US Department of the Treasury on Tuesday will release a long-awaited proposal spelling out how to qualify for the "45Z" tax credit, which kicked off in 2025 and was extended by Republicans' tax and energy bill last summer. The general structure of the credit — which offers a sliding scale of subsidies to alternative fuel producers based on greenhouse gas emissions — is known, but industry has been pushing for more clarity on thorny eligibility questions.

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The proposed regulations Tuesday will clarify, for instance, that producers can claim 45Z tax breaks for fuel that is sold to intermediaries, according to Treasury officials. Sales to wholesalers or traders are common in fuel markets, but lawyers interpreted partial guidance issued in the waning days of former-president Joe Biden's term as potentially requiring that fuel must be sold to end users to qualify.

The fuel sale question had left many refiners unclear how exactly to qualify for an incentive crucial to their margins and snarled logistics in key biofuel markets. Major biofuel producers idled facilities last year too, in part because of the lack of final rules around what was then a new and unfamiliar tax break.

45Z tax guidance has been closely awaited by producers of biofuels like ethanol, biodiesel and sustainable aviation fuel, especially as the Trump administration is late setting new biofuel blend mandates and Congress has punted on a proposal to allow a higher-ethanol gasoline blend year-round.

The proposed regulations, which will go through a 60-day public comment period after publication in the Federal Register, will still need to be finalized. But they signal how the Trump administration is thinking about the complicated incentive, and will allow producers to rely on existing guidance when preparing their tax returns until final regulations are available.

Some details will depend on final rules, however. The proposal will signal that the Trump administration expects to eventually credit more on-farm emissions reductions, which would effectively reward biofuel producers that source sustainably grown crops with larger subsidies, Treasury officials said.

The Biden administration had released an initial calculator so that corn, soybean and sorghum farmers could track the climate benefits of practices like cover crops and no-till agriculture. But it was unclear whether Trump, a skeptic of climate science, would continue the effort at all.

Treasury expects to publish additional guidance on recordkeeping and verification requirements and will also need to coordinate with other agencies to fully incorporate new data on agricultural practices into a government model for tracking emissions.

Legislation signed by Trump last year already restricts the 45Z credit starting this year to US producers of fuels sourced from North American feedstocks. The law also changed how regulators track land use emissions, effectively hiking subsidies this year for crop-based fuels.