Federal Tax Incentives:
Low Sulfur Diesel Fuel Credit Expired – Explore New Clean Fuel Incentives
Background – IRC § 45H Low Sulfur Diesel Fuel Production Credit (Expired)
IRC § 45H, enacted by § 339(a), American Jobs Creation Act of 2004, Pub. L. 108-357, 118 Stat. 1418 (2004).
Applicable to low sulfur diesel fuel produced at a qualifying small business refinery during taxable years beginning after December 31, 2002 and ending before January 1, 2010.
The Low Sulfur Diesel Fuel Production Credit under IRC §45H was created to help small oil refiners cover the costs of upgrading equipment to meet the EPA’s ultra-low sulfur diesel (ULSD) requirements. This credit provided 5 cents per gallon of qualifying low-sulfur diesel produced between 2003 and 2009. To qualify, a refiner had to meet certain “small refiner” rules and install EPA-compliant desulfurization equipment.
The §45H credit expired on December 31, 2009, and it cannot be claimed today. The IRS has not reinstated or extended it, and newer energy legislation did not revive the program. However, refiners today may qualify for several significant modern clean-energy incentives that replaced or expanded upon the original purpose of §45H.
Credit Mechanics & Limitations (Historical)
-
Credit Rate: 5¢ per gallon (§45H(a)).
-
Qualified Period: 1/1/2003–12/31/2009 (§45H(f)).
-
Qualified Facility: Small refiner ≤155,000 bbl/day with specific aggregation rules (§45H(c)(1)-(3)).
-
Credit Limitation: 25% of “qualified costs” related to desulfurization equipment (§45H(b)(1)).
-
Form: Historically claimed on Form 8906 (now obsolete).
-
General Business Credit: The §45H credit was part of the §38 general business credit.
-
Expiration: No credit allowed for fuel produced after 12/31/2009. The credit remains expired and has not been revived by subsequent legislation, including: The Inflation Reduction Act of 2022 (IRA 2022); Post-IRA technical guidance (2023–2025); The One Big Beautiful Bill Act of 2025 (OBBBA); Any Treasury or IRS administrative action.
Alternative / Replacement Incentives for Refiners:
If you’re a refiner looking for incentives today, the §45Z, §45Q, and §48 programs offer substantial new benefits for clean fuel production and carbon reduction as outlined below.
IRC § 45Z (Clean Fuel Production Credit)
-
This credit rewards producers of low-carbon transportation fuels based on lifecycle greenhouse gas emissions. It applies to domestic facilities producing fuels that meet emissions-intensity thresholds.
-
Under the Inflation Reduction Act (IRA), § 45Z provides a tax credit for domestic production of clean transportation fuels (post-December 31, 2024).
-
Effective for fuel produced after December 31, 2024 and sold before January 1, 2028.
-
The credit formula is based on lifecycle greenhouse-gas emissions, and the per-gallon rate varies (e.g., $0.20 up to $1.00 for non-aviation fuel, $0.35 up to $1.75 for sustainable aviation fuel) depending on wage/apprentice compliance.
-
Applies to “clean transportation fuel” as defined under §45Z(c).
-
IRS guidance requires registration under § 4101 and restricts stacking with other credits (e.g., § 45V, § 45Q).
IRC § 48 Investment Tax Credit (ITC)
-
Supports capital investment in clean fuel, renewable diesel, sustainable aviation fuel (SAF), hydrogen, and advanced energy production facilities.
-
§48(a)(3) and §48C(c) support advanced energy projects.
-
Available for certain “advanced energy” projects, including renewable diesel or sustainable aviation fuel-capable facilities.
IRC § 45Q Carbon Capture Credit
-
Offers incentives for refinery facilities that install carbon capture equipment to reduce or capture CO₂ emissions.
-
Expanded by IRA 2022 to include lower minimum capture thresholds (§45Q(a), (d)(2)).
-
Relevant if a refiner integrates CO₂ capture and sequestration technologies.