Republican lawmakers in the U.S. Senate have introduced a new tax bill aimed at extending a key clean fuel tax credit through 2031, while reducing its value for biofuels made from feedstocks produced outside the United States.
The proposal mirrors provisions in the House’s tax and spending bill passed in May, which also extends the so-called 45Z tax credit — first introduced under President Joe Biden’s Inflation Reduction Act but not finalised during his term. The credit could offer significant incentives to oil and biofuel producers that can demonstrate a lower carbon intensity for their fuels.
However, both the House and Senate versions would restrict the eligibility of foreign feedstocks, with the Senate bill proposing a 20% cut in credit value for those derived from non-U.S. sources. The House bill goes further by banning most foreign feedstocks outright.
Additionally, both bills propose the removal of indirect land use change (ILUC) emissions from the credit calculation. ILUC emissions, which account for environmental impacts from the expansion of agricultural land to grow biofuel crops like corn and soy, had been a central environmental safeguard in the original tax design.
Environmental campaigners warn the rollback could lead to negative outcomes. “This reckless proposal means dirtier fuel and higher food prices,” said Sarah Lutz, senior climate campaigner at Friends of the Earth, criticising the move to exclude ILUC calculations.
The proposed legislation would also make transportation fuels produced from farm animal manure eligible for the credit, a decision welcomed by biogas producers who argue that capturing methane from agricultural waste is an effective way to cut emissions from the transport sector. The differing approaches to foreign feedstock eligibility and environmental standards are expected to spark further debate as lawmakers seek to reconcile the House and Senate bills in the coming months.
