The 45Z Clean Fuel Production Tax Credit presents renewable fuel producers with a valuable opportunity to capitalize on their low-carbon fuel production while incentivizing further reductions in carbon intensity (CI).Recent guidance issued in January 2025 by the Internal Revenue Service and the United States Department of Agriculture outlines the compliance requirements for claiming and maximizing the credit, highlighting the critical role of third-party verification to ensure accuracy and traceability. Additionally, the guidance provides pathways for producers to increase their credit value through further reductions in carbon intensity. &nbsp;This article unpacks the verification requirements based on the IRS guidance for transportation fuel and the USDA’s Climate-Smart Agriculture (CSA) program as they relate to the 45Z tax credit.Verification for Transportation Fuel Under 45Z&nbsp; For transportation fuels other than sustainable aviation fuel (SAF), third-party verification is not required to claim the 45Z tax credit. However, voluntary market demands—such as buyers requiring assurance under transferability provisions—may lead producers to seek verification.&nbsp;For non-SAF fuels utilizing the 45ZCF-GREET model, a Safe Harbor provision is available for those claimants who choose to substantiate their emissions rates. To qualify for this provision, taxpayers must provide the certifier with all inputs into the 45ZCF-GREET model, along with the specific fuel type and category from the applicable emissions rate table and supporting data consistent with SAF certification requirements.&nbsp;For SAF claimants, third-party certification is mandatory. The IRS requires certification from an independent, qualified certifier to ensure compliance, traceability and accurate lifecycle greenhouse gas (GHG) emissions assessments. The SAF certification process includes:Production and Sales Statements:&nbsp; • A statement confirming the accuracy of the SAF production process and inputs used to determine lifecycle GHG emissions.• Verification of the number of SAF gallons sold in a qualifying sale.Conflict of Interest Declarations:&nbsp; • The certifier must confirm they have no financial interest in the value of the 45Z credit, no involvement in SAF transactions and no familial or employment ties to the taxpayer.Qualified Certifier Statement:&nbsp; • This includes the certifier’s name, contact information, qualifications and a description of their accreditation. If the certifier acts as part of an organization, additional organizational details are required.Facility Information:&nbsp; • Information about the qualified facility, including data on metering devices and confirmation of their calibration and accuracy.• Emissions rate accuracy must be within ±5% or 2 grams of CO2e per mmBTU, whichever is higher.Supporting Documentation:&nbsp; • Any additional documentation required by the certifier’s accrediting body and circumstances of the facility. &nbsp;45Z Transportation Fuel Certifier Accreditations&nbsp; While certification is mandatory for SAF producers utilizing the 45ZCF-GREET model to determine their emissions rate, non-SAF producers who opt for certification must also use entities accredited by the American National Standards Institute National Accreditation Board or the California Air Resources Board Low Carbon Fuel Standard (CARB LCFS) program.Alternatively, SAF producers using the CORSIA or CORSIA Actual model to determine their emissions rate must engage a certifier accredited by International Sustainability and Carbon Certification (ISCC), The Roundtable on Sustainable Biomaterials (RSB), or other International Civil Aviation Organization (ICAO)-approved sustainability schemes.USDA’s Interim Rule On Climate-Smart Agriculture&nbsp; The USDA’s interim rule provides guidelines for quantifying, reporting and verifying GHG reduction benefits from CSA practices. By integrating third-party verification into the biofuel feedstock supply chain, renewable fuel producers can unlock new opportunities to reduce the fuel’s overall carbon CI, resulting in greater value from the 45Z tax credit.Verification standards for CSA practices ensure the authenticity of net GHG emissions reductions, bolstering credibility and trust, expanding market opportunities for U.S. farmers cultivating biofuel feedstocks.Verification Requirements&nbsp; The USDA’s CSA guidelines aim to establish a transparent and accountable system that rewards sustainable practices, further driving the adoption of climate-smart agricultural methods in biofuel production.Under these guidelines, third-party verification is required at every stage of the supply chain once feedstock leaves the farm. The responsibility for initiating the audit process falls on the first point of aggregation—the first location where the crop is collected after leaving the farm. This could be a storage facility, a processing facility (such as a soybean crushing plant) or a biofuel refinery. From that point onward, audits are mandated at every subsequent transfer of ownership.&nbsp;Annual Audits:&nbsp; • All first points of aggregation, intermediary entities and biofuel refiners must undergo annual audits by accredited third-party verifiers.Farm Audits:&nbsp; • Farms supplying reduced-CI crops may be selected for audits by the first point of aggregation’s verifier. Selection criteria includes geographic location, crop type, quantity supplied and associated CI values.Mass Balance and Traceability:&nbsp; • The CSA process follows ISCC principles, incorporating mass balance, traceability, chain of custody and verification protocols.• Each entity in the supply chain relies on sustainability declarations and audits of mass balance data and forward-looking certificates.First Point of Aggregation Responsibilities:&nbsp; • These entities must provide detailed farm producer information to third-party verifiers, enabling sample selection and verification. Information includes the number of farms supplying feedstock, geographic location, crop types, amounts and CI data.45Z CSA Certifier Accreditations&nbsp; USDA guidance specifies that certification bodies conducting CSA audits must be accredited to ISO 14065, a globally recognized standard for validating and verifying environmental information. While few verification bodies currently meet this rigorous standard, ISO 14065-certified verifiers can operate throughout the supply chain, serving as the auditor for storage facilities, processing facilities and biofuel refiners.For farms selected for audit, third-party verifiers ensure CSA practices, recordkeeping and farm-level crop-specific CI calculations comply with the rule. Farms audited under these standards may be exempt from additional audits if they provide prior audit results to the verifier at the first point of aggregation, which determines the need for further review. Farms can also proactively hire ISO 14065-accredited verifiers to coordinate audits with their schedules.Intermediary entities must have third-party verification for their mass balance systems and recordkeeping of reduced-CI crops or products.&nbsp;Biofuel refiners must verify CI tracking systems and adhere to additional audit standards if acting as first points of aggregation. Facilities processing reduced-CI feedstock must ensure accurate calculations of reduced-CI product quantities and maintain records supporting mass balance compliance.The 45Z Clean Fuel Production Tax Credit offers biofuel producers a compelling opportunity to enhance revenue and market positioning. However, success depends on navigating stringent third-party verification requirements, particularly for SAF and CSA practices. Beyond regulatory compliance, these verifications enhance transparency, build stakeholder trust and open doors to voluntary markets.By proactively embracing these requirements, biofuel producers can optimize their 45Z credit eligibility and demonstrate their commitment to sustainability and innovation in renewable fuels. Authors: Danielle Anderson, Senior Government Policy and Advocacy Manager&nbsp; Christianson PLLPKari Buttenhoff, Partner&nbsp;&nbsp; Christianson PLLP

2025-05-01 - Claiming the 45Z Tax Credit (Ethanol Producer Magazine)

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Here is what you need to know about third-party verification.

Claiming the 45Z Tax Credit

Claiming the 45Z Tax Credit

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Claiming the 45Z Tax Credit