How to Claim the Blenders Tax Credit

The federal tax landscape for renewable fuels has shifted. The incentive previously known as the Alternative Fuel Mixture Credit expired at the end of 2024 and has been replaced by the Clean Fuel Production Credit, established by the Inflation Reduction Act of 2022.

This new credit, in effect from 2025 through 2027, provides a direct financial benefit to the producers of clean transportation fuels instead of the entity that blends them. The goal is to encourage the domestic production of fuels with low lifecycle greenhouse gas emissions.

Eligibility for the Credit

Under the Clean Fuel Production Credit, the eligible party is the producer of a qualifying clean fuel. A producer is the person or business that creates the fuel through a process that results in a product ready for use in transportation, a shift from the previous credit which was claimed by the fuel blender.

To qualify, the fuel produced must be a transportation fuel, meaning it is suitable for use in highway vehicles, aircraft, or trains. The producer must sell the fuel to an unrelated party for its intended purpose of use in transportation.

The credit is technology-neutral, so eligibility is determined by the fuel’s carbon footprint instead of specific types like biodiesel or renewable diesel. Any transportation fuel that meets the required low level of lifecycle greenhouse gas emissions can qualify for the credit.

Calculating the Credit Amount

The calculation for the Clean Fuel Production Credit is not based on a flat per-gallon rate. Instead, the credit amount is directly tied to the lifecycle greenhouse gas (GHG) emissions of the fuel produced.

The specific credit amount is determined by multiplying a base credit by an emissions factor assigned to the fuel. This emissions factor is calculated based on the fuel’s lifecycle GHG emissions rating, which accounts for the carbon intensity of the entire production process. The lower the fuel’s carbon emissions, the higher the credit amount the producer can claim.

For example, a producer of a transportation fuel with a very low emissions score will receive a larger tax credit per gallon than a producer of a fuel that only barely meets the minimum emissions standard. Producers must have their fuel’s lifecycle emissions rated to determine the applicable credit.

Required Registrations and Documentation

To claim the Clean Fuel Production Credit, producers must first register with the Internal Revenue Service (IRS). Producers must follow the current IRS procedures for clean fuel producers to be eligible.

The IRS requires producers to keep comprehensive records to substantiate every aspect of their claim. These records must prove that the business is a qualified producer and that the fuel sold meets the definition of a clean transportation fuel.

Producers must maintain detailed records that verify the fuel’s lifecycle greenhouse gas emissions score. This documentation often requires analysis and verification from a qualified third party and must be sufficient to prove the production volume, the date of sale, and the specific emissions factor used to calculate the credit.

How to Claim the Credit

The Clean Fuel Production Credit is claimed as a general business credit against the producer’s federal income tax liability. Producers will claim the credit when they file their annual income tax return.

The total calculated credit amount for all qualifying fuel sold during the tax year is reported on the appropriate tax forms and used to reduce the producer’s total income tax.

If the credit amount exceeds the producer’s tax liability for the year, provisions may allow for the unused portion to be carried forward to other tax years. The specific forms and procedures for claiming the new credit are outlined by the IRS, so producers should consult the latest instructions or a tax professional to ensure they meet all requirements.