The Section 45Z clean fuel production tax credit (PTC) under the Inflation Reduction Act of 2022 (IRA) was created to incentivize the production of low-carbon transportation fuels in the U.S. With the signing of the One Big Beautiful Bill Act (OBBBA) into law on July 4, the program’s framework has shifted to align with this administration’s priorities and begun to show signs of stabilization. It now offers a longer timeline, more favorable parameters for crop-based fuels, and greater clarity, though further guidance is still forthcoming.&nbsp;The tax credit, originally set to expire in 2027, has been extended through 2029. The new law also eliminates indirect land-use change (ILUC) penalties from carbon scoring, which is good news for corn-ethanol, soy-based biodiesel, and other crop-based fuels. For biofuel producers, this means more credit value, more time to claim it, and an open path forward.Uncertainty Has Faded, and Action is Now RequiredWhile final Internal Revenue Service (IRS) guidance is still pending, the foundation of the program is well defined. Clean fuel producers should no longer be waiting; they can now move forward with critical planning and preparation. The structure of the tax credit is based on carbon intensity (CI) scoring through the 45ZCF-GREET model, third-party validation, and tax credit transferability. The emerging market signals are clear, where credit value will be closely tied to lifecycle emissions data, audit-ready documentation, and proactive engagement with qualified validators, brokers, and advisors.Facilities that update their CI modeling, verification planning, and documentation preparation now will be in a much stronger position to monetize early 2025 production and secure value. This includes establishing a defensible life-cycle analysis (LCA), aligning internal compliance requirements, and vetting how prevailing wage or apprenticeship requirements may affect credit eligibility. Delaying action could mean missing early monetization opportunities and losing a competitive edge in the low-carbon fuel market. The time for action is now.Tips to Prepare and ExecuteExecution starts with building a clear, facility-specific tax credit roadmap. Producers should analyze how their current operations score under the required CI modeling and identify technical and operational upgrades being considered to achieve lower CI scores and, hence, higher credit value. Proactive modeling, real-time CI monitoring, and third-party CI reviews are important steps to gaining assurance. Investments in carbon capture and sequestration (CCS), renewable electricity, heat recovery, and energy efficiency can all improve CI scores and increase Section 45Z value.Equally important is systematizing compliance documentation. IRS rules will require proof, not assumptions. That means aligning your finance, operations, and compliance teams now to collect verifiable data, track labor requirements tied to prevailing wage rules, and prepare supporting documentation for LCA filings and potential credit transfers. This process starts with an understanding of the required documents, which can be done through engagement with verification bodies and tax preparers. Don’t underestimate obtaining training for key team members responsible for compliance, or consider hiring an advisory firm for support when in-house expertise is not available.&nbsp;Monetizing the Section 45Z Credit: Be Ready to TransactThe Section 45Z credit is transferable, meaning it can be sold to buyers with tax liability, unlocking immediate cash flow. But in this emerging market, buyer confidence is key. That confidence comes from well-documented carbon scores, verified models, and clean audit trails that demonstrate compliance with IRS expectations. Buyers will prioritize credits backed by rigorous third-party validation, clear LCA submissions, and accurate documentation of CI reductions. Facilities that can present a complete, auditable compliance package will be first in line for competitive offers and smoother transactions. Just like in renewable energy markets, the ability to execute with precision and transparency will directly affect pricing, speed of transfer, and demand from credit purchasers. Building that level of readiness now will position producers to monetize quickly and at maximum value.Now is the time to engage LCA experts, brokers, tax advisors, and insurance partners. The most competitive buyers will look for facilities that are “execution ready” with clear documentation, validated modeling, and third-party signoff already in place. Facilities that are prepared will be first in line for the highest offers and fastest monetization timelines.Think Beyond Section 45Z: Stackable OpportunitiesSection 45Z is a powerful incentive on its own, but its impact grows when combined with other programs. Biofuel producers engaged in CCS, for instance, will be eligible for either Sections 45Z or 45Q. Determining which tax credit is most valuable depends on an individual producer’s CI reduction roadmap. A lower CI score boosts credit value under Section 45Z, and California’s Low Carbon Fuel Standard (CA-LCFS) or Canada’s Clean Fuel Regulation (CFR) programs concurrently. Stacking incentives isn’t just possible, it’s a smart strategy. Facilities should assess where credits overlap and ensure they’re maximizing value across federal, state, and export programs.Policy Engagement and Internal ReadinessAs Section 45Z rules are deployed, producers should remain engaged in policy discussions and advocacy. Participation in technical working groups, trade associations, and regional initiatives helps ensure that your facility’s perspective is represented. Staying connected to the rulemaking process not only gives early visibility into program requirements but also creates opportunities to influence guidance in ways that support your business model.Internally, now is the time to build your Section 45Z execution team. Whether it’s in-house or supported by external experts, success will require cross-functional coordination between engineering, finance, compliance, and legal stakeholders. Clear ownership of documentation, modeling, and tax strategy across departments will be essential to streamline credit generation, validation, and monetization once the program goes live. Adding staff to support carbon-reduction initiatives or teaming with the right advisory partner may be options worth evaluating.The Bottom LineSection 45Z is an actionable tax credit with strong bipartisan backing and a favorable runway through 2029. The incentives are meaningful, the framework is coming into focus, and the execution path is much clearer. Clean fuel producers who prepare now by modeling their CI, validating documentation, and aligning stakeholders will be positioned to claim the credit without delay, monetize it efficiently, and outpace the competition.The opportunity is real. The direction is clear. It’s time to execute. Let’s go!About the Expert<a href="https://www.linkedin.com/in/mccord-pankonen-32032411/">McCord Pankonen</a> is the managing director of North America Biofuels at EcoEngineers. Mr. Pankonen has a rich history of achieving success by advancing renewable energy and agriculture business initiatives. He has more than 22 years of experience leading ethanol production facilities, assembling high-performing teams, and sustaining operational excellence. Mr. Pankonen is a recognized talent who can innovate and penetrate developing markets with profitable technologies that offer sustainable solutions for end users. He possesses an executive presence and can create critical relationships at all levels that are paramount to achieving organizational goals.&nbsp;Pankonen can be reached at <a href="mailto:mpankonen@ecoengineers.us">mpankonen@ecoengineers.us</a>.

2025-07-25 - Section 45Z is here: Act fast, monetize smart (4 publications)

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While final IRS guidance is still pending, the foundation of the 45Z program is well defined. Clean fuel producers should no longer be waiting; they can now move forward with critical planning and preparation, according to EcoEngineers. 

Section 45Z is here: Act fast, monetize smart

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