The 45Z clean fuel production credit was one of the few Inflation Reduction Act incentives spared in the House Ways and Means Committee budget reconciliation bill, and changes included in the expansion could benefit American biogas as well as traditional biofuels.
Other credits on electric vehicles and more would be repealed almost immediately or phased out in coming years. But 45Z, which benefits the biofuel and sustainable aviation fuel industries, would be preserved and expanded in the House bill.
Preserving and expanding the 45Z credit would reduce federal revenue by $45 billion over 10 years, according to the Joint Committee on Taxation.
Some in the biofuel space celebrated the proposal, including changes that would limit eligible fuels to those made with U.S., Canada or Mexico-grown feedstocks.
"These tax policies can help support expanded production of American energy, accelerate technology innovation, and boost rural economies by creating manufacturing jobs and opening new markets for America's farmers," said Geoff Cooper, president and CEO of the Renewable Fuels Association.
The bill would also create separate emission rates for different kinds of animal manure under 45Z, a major boost to the biogas sector.
Patrick Serfass, executive director of the American Biogas Council, said that under the Biden administration the IRA implementation fell short of what he thinks Congress intended and what the industry had hoped for.
Specifically, the updates to the animal manure calculation are significant for the biogas industry. While all organic material produces methane emissions, there can be variations.
“Different types of manure, based on where they are and what's actually in the manure, produce different kinds of emissions,” Serfass said.
He added the manure that produces the most emissions, often due to regulations on how it must be stored before nutrients can go back into the soil, typically comes from dairy cows and pigs. These have different emissions profiles from beef cattle and poultry.
Biogas systems are most typically developed on dairy and swine farms, which means the biogas industry is making the biggest impact on cutting methane emissions. But if the emissions calculations rely on an average of all different types of manure, it creates a less realistic score.
“It's just kind of more fair treatment of what actually happens,” Serfass said of calculating animal manure emissions separately. “It's closer to the real science of what happens with different manures, and as a result, that accuracy will help to get more projects developed, which means that we're going to be recycling more manure.”
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Most IRA credits did not fare as well as 45Z. Several other incentives, like the clean hydrogen and clean electricity investment credits, would be repealed or phased out by the House plan.
Hydrogen and electricity credits are also valuable to the biogas industry. Cutting these credits creates a more uneven playing field for regular market dynamics, Serfass said. The industry will be more constrained on how systems are developed but will still be able to build biogas systems to recycle organic material.
Serfass said the tax portion of reconciliation is the first glimpse of how this Congress plans to address renewable energy.
“I think we're all very curious to see how the Senate reacts. But from a biogas perspective, I would say I would expect continued favorable treatment, just because we all need biogas systems,” Serfass said. “The waste doesn't go away if we don't recycle it. It's still there."
Not everyone is pleased with the 45Z proposal.
Taxpayers for Common Sense, Environment America, U.S. PIRG, Friends of the Earth and the R Street Institute take issue with excluding emissions related to indirect land use change when calculating the credit's value. Biofuel industry groups have long called for this change, but the coalition said these emissions can be "significant." They also argue that subsidies for biofuel without these emissions factored in can contribute to food price hikes.
"Our nation is facing a fiscal crisis," the groups wrote in a joint letter. "Extending the 45Z tax credit and loosening eligibility requirements would only increase costs without providing commensurate benefits to taxpayers."
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