Federal Tax Incentives:
Low Sulfur Diesel Fuel Credit Expired – Explore New Clean Fuel Incentives
Background
IRC § 45H, which was added to the Code by § 339(a) of the American Jobs Creation Act of 2004 (Public Law No. 108-357), provided a temporary credit for low sulfur diesel fuel produced by a qualified small business refiner. The credit equaled 5¢ per gallon of low sulfur diesel fuel produced during the taxable year at a qualifying facility. It applied to costs incurred during the applicable period (Jan. 1, 2003 – Dec. 31, 2009). Total credits for all years could not exceed the qualified cost limitation under IRC §45H(b)(1).
The Low Sulfur Diesel Fuel Production Credit under IRC §45H helped small refiners offset costs of meeting EPA’s ultra-low sulfur diesel requirements. However, this credit expired after December 31, 2009, and is no longer available for new claims.
Alternative Incentives for Refiners:
IRC §45Z Clean Fuel Production Credit (IRA 2022):
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Effective for fuel produced after 2024 through 2027.
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Provides a credit for clean transportation fuels based on lifecycle greenhouse gas emissions.
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Applies to domestic production facilities meeting emissions intensity thresholds
IRC §48 Investment Tax Credit:
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Available for advanced energy projects, including renewable diesel and sustainable aviation fuel facilities.
IRC §45Q Carbon Capture Credit
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For refiners integrating carbon capture and sequestration technologies.
Refiners should evaluate eligibility for §45Z Clean Fuel Credit and other IRA incentives to offset compliance and modernization costs.