US Proposes Clean Fuel Tax Credit Rules to Boost Low-Carbon Biofuels

The U.S. Treasury Department has unveiled a proposed rule that lays out how biofuel producers can qualify for a $1-per-gallon clean fuel tax credit, a move welcomed by the bioenergy industry as a step toward greater regulatory clarity.

The incentive, known as the 45Z credit, is designed to support low-carbon transportation fuels, including sustainable aviation fuel, ethanol, biodiesel, and other advanced biofuels. Originally created under former President Joe Biden’s Inflation Reduction Act, the program was amended last year through President Donald Trump’s “One Big Beautiful Bill,” introducing changes that broaden eligibility while reshaping how emissions are calculated.

Under the proposed rule, fuels produced using feedstocks grown in Canada and Mexico would be eligible for the credit, reflecting the integrated nature of North American agricultural and fuel supply chains. The Treasury Department also revised the methodology for assessing land-use emissions associated with feedstocks, a key factor in determining whether fuels meet the low-carbon threshold required to claim the credit.

Biofuel trade groups said the proposal could provide long-sought certainty for producers planning investments in new capacity and cleaner technologies. “This is a step in the right direction toward providing the clarity and certainty that ethanol producers are seeking,” said Geoff Cooper, president and CEO of the Renewable Fuels Association.

He cautioned, however, that questions remain around the design of an updated climate model that will ultimately determine fuel eligibility, as well as how restrictions on foreign feedstocks might be applied.

Agricultural groups also welcomed the move. The American Soybean Association praised the proposal for supporting soy-based biofuels, saying updated federal policies could help strengthen domestic markets for U.S. soybeans.

The proposed rule will now undergo a public comment period, with final guidance expected to shape investment decisions across the U.S. clean fuels sector.

Clean-fuel tax credit rules change biofuel and low-carbon-fuel production economics, and they affect capital allocation for producers, refiners and industrial offtakers who priced their planning around the previous framework. Our energy-transition and supply-chain-and-operations teams help clients evaluate what these credits mean for biofuel strategy and disclosure.