The Trump administration is preparing to update the rules for the US 45Z tax credit, a key measure for low-carbon fuels that took effect in 2025 and was extended by tax and energy legislation passed last summer. The proposal, to be published by the US Department of the Treasury, seeks to expand the types of eligible sales and strengthen incentives for more sustainable farming practices.

Among the most significant changes, the regulations will clarify that producers can claim the 45Z credit for fuel sold to intermediaries, such as wholesalers and retailers, and not just to end users. This clarification eliminates one of the main uncertainties that had affected refineries and biofuel producers, complicating logistics and impacting the sector’s margins over the past year.

The 45Z credit offers variable subsidies based on greenhouse gas emission reductions and is especially relevant for producers of ethanol, biodiesel, and sustainable aviation fuel (SAF). Its importance has increased given the lack of new biofuel blending mandates and the legislative delay in authorizing gasoline blends with higher ethanol content year-round.

The proposal also indicates that the government expects to recognize greater emission reductions at the agricultural level in the future, which could translate into greater incentives for producers who use crops grown using sustainable practices, such as cover crops or no-till farming. To this end, the Treasury plans to issue additional guidance on emissions recording, verification, and modeling, in coordination with other federal agencies.

The regulations will be subject to a 60-day public comment period after publication in the Federal Register and will be finalized thereafter. In the meantime, they will serve as a basis for producers to prepare their tax returns until the final rules are published.

The legislation signed last year already limits the 45Z credit to US producers using North American-sourced raw materials and adjusts the methodology for assessing emissions from land use, increasing the subsidy level for crop-based fuels starting this year.

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