Summary:

The Clean Fuel Transferable tax credit applies to certain transportation fuel produced and sold. The IRS Section 45Z tax credit replaces previous tax credits related to IRS Section 40B. The new credit provides incentive linked to the domestic production of clean transportation fuels, including sustainable aviation fuels. Fuels that would qualify include hydrogen, ethanol, etc.
Only qualified facilities are eligible for the credit and are not permitted to combine with any other clean energy credit (IRS Section 45V or Investment Tax Credits IRS Section 48). A Greet Model analysis is required, and the producing facility must have a Carbon Intensity Score of at least 50 to qualify.

Date in Effect:

January 1, 2025 – December 31, 2027

Calculation details:

IRS Section 45Z transferable tax credit has two tiers of calculations available. In order to reach the base credit, prevailing wage and apprenticeship requirements must be met. A multiplier of the credit is available if certain fuel emission standards are met. To reach the multiplier rates, a facility must emit less than 75 kilograms CO2 (kg-CO2) per one million British Thermal Units (MMBtu).

Base Credit

$0.20/gallon of non-aviation fuel produced

$0.35/gallon of aviation fuel produced

=IF[(non-aviation fuel = True, THEN(Total gallons produced * $0.20), ELSE(Total gallons produced * $0.35)]

*Prevailing wage and apprenticeship requirements are assumed in both

Multiplier Credit

$1.00/gallon for non-aviation fuel produced

$1.75/gallon for aviation fuel produced

=IF[(non-aviation fuel = True, THEN(Total gallons produced * $1.00), ELSE(Total gallons produced * $1.75)]

*Prevailing wage and apprenticeship requirements are assumed in both as well as facility emissions thresholds below 75 kg-CO2/MMBtu.

Filing Requirements:

• Register and obtain unique identifier number from the Internal Revenue Service

• File tax return for self, or if transferring the credit for cash, then reflect the sale of both buyer and seller’s tax return

• Determine the carbon dioxide emission factor of the fuel (necessary for calculating the credit)

• Complete GREET Model Analysis

Direct Pay:

Direct Pay is an election that allows the taxpayer to sell directly to the Internal Revenue Service. Section 45Y transferable tax credits allow the following entities to make this election:

• Tax-exempt organizations

• States

• Political subdivisions

• The Tennessee Valley Authority

• Indian Tribal governments

• Alaska Native Corporations

• Rural electricity co-ops.