- The new guidance confirms that marine fuels such as marine diesel and methanol are eligible for the Clean Fuels Production Credit (45Z) if they are suitable for use in highway vehicles or aircraft.
- Taxpayers must use the 45ZCF-GREET model to determine carbon intensity for non-SAF transportation fuels.
- Future regulations will integrate CSA practices into lifecycle greenhouse gas emissions calculations for SAF and non-SAF fuels.
The U.S. Department of the Treasury and the Internal Revenue Service (IRS) have issued new guidance on the Clean Fuels Production Credit (45Z), set to take effect in 2025. This tax credit incentivizes the production of low-carbon transportation fuels, including marine fuels, by providing per-gallon credits based on lifecycle greenhouse gas (GHG) emissions. The guidance aims to clarify eligibility criteria, emissions calculation methods, and the role of climate-smart agriculture (CSA) in clean fuel production.
Marine Fuels Eligible for 45Z Credit
Marine fuels, including marine diesel and methanol, qualify for the 45Z credit if deemed suitable for use in highway vehicles or aircraft.
This eligibility aligns with the Treasury’s intent to broaden the scope of clean transportation fuels while promoting innovation in marine fuel technology.
Lifecycle Emissions Assessment Key to Credit Amount
Taxpayers must calculate the carbon intensity of their fuels to determine the credit amount:
- Non-SAF transportation fuels: 45ZCF-GREET model.
- SAF: Either the 45ZCF-GREET model or methodologies from the International Civil Aviation Organization (CORSIA Default or Actual).
Taxpayers can also use the Provisional Emissions Rate (PER) process for feedstock and fuel pathways not listed in the emissions table, with future guidance to clarify the process.
Role of Climate-Smart Agriculture in Marine Fuels
The guidance highlights CSA practices as integral to reducing GHG emissions in fuel production. Marine fuels derived from CSA-compliant feedstocks, such as corn or soybeans, could benefit from these practices.
Key CSA advantages include improved soil health, better water quality, and lower lifecycle GHG emissions.
Future Regulations and Market Implications
Regulations on CSA integration and updates to the 45ZCF-GREET model will further define the scope of the credit.
As marine fuel producers adapt to these standards, they may explore CSA feedstocks to enhance their environmental credentials and credit eligibility.
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Source: U.S. Department of the Treasury
