Reducing Risk in Clean Fuel Tax Credits
Sproule ERCE verified an ethanol facility’s compliance with the Inflation Reduction Act’s clean fuel tax credit. The assessment confirmed emissions below the threshold for the USD $1.00 / gallon 45Z credit. Our review validated data accuracy, IRS compliance, and internal controls, supporting insurance approval and reliable credit qualification.
Project Highlights
- Confirmed Emissions Rate at 11.30 kg CO₂e/mmBTU, Below Threshold
- Verified Robust Internal Controls to Prevent Data Errors
- Validated Compliance Through Independent Third-Party Audit
- Anticipated Legislative Changes to Increase Credit Value
Challenges:
Risk of Credit Recapture: The policy underwriting included a conditional exclusion for potential errors or inaccuracies in calculating the emissions factor or rate, creating a Section 45Z credit recapture risk for the ethanol facility.
Complex Regulatory Compliance: Ensuring compliance with the evolving rules under IRA Section 45Z and treasury notices (2025-10 and 2025-11) required detailed, accurate greenhouse gas lifecycle emissions modeling to qualify for the carbon credit.
Accuracy and Input Verification: The 45Z GREET model inputs covering production, feedstock, energy use, and carbon capture, required thorough validation to avoid data errors that could affect credit eligibility.
Complex Regulatory Compliance: Ensuring compliance with the evolving rules under IRA Section 45Z and treasury notices (2025-10 and 2025-11) required detailed, accurate greenhouse gas lifecycle emissions modeling to qualify for the carbon credit.
Accuracy and Input Verification: The 45Z GREET model inputs covering production, feedstock, energy use, and carbon capture, required thorough validation to avoid data errors that could affect credit eligibility.
Solutions:
Independent Technical Assessment: Sproule ERCE conducted a thorough technical review of project developers’ application of the 45ZCF GREET Model, confirming correctness of emissions factor and rate calculations, and compliance with all IRS and Treasury guidelines.
Robust Data and Audit Protocols: Project developer implemented comprehensive data collection systems and audit procedures, including independent quarterly reviews, ensuring all model inputs are supported by verifiable documentation such as metering data, contracts, and receipts.
Management Interviews: Sproule ERCE interviewed company leadership and consultants and found that the project team included experienced professionals in regulatory compliance, environmental law, and life cycle analysis. This expertise, combined with oversight from independent third-party validators, ensures ongoing accuracy and strict adherence to evolving legislative frameworks.
Robust Data and Audit Protocols: Project developer implemented comprehensive data collection systems and audit procedures, including independent quarterly reviews, ensuring all model inputs are supported by verifiable documentation such as metering data, contracts, and receipts.
Management Interviews: Sproule ERCE interviewed company leadership and consultants and found that the project team included experienced professionals in regulatory compliance, environmental law, and life cycle analysis. This expertise, combined with oversight from independent third-party validators, ensures ongoing accuracy and strict adherence to evolving legislative frameworks.
Values:
Reduced Insurance Policy Risk: With Sproule ERCE’s validation, Themis Underwriting can accept the removal of the conditional exclusion, lowering risk exposure related to emissions factor miscalculations or data inaccuracies.
Confidence in Tax Credit Eligibility: Project developer is better positioned to reliably qualify for the full Section 45Z carbon intensity-based production tax credit, enhancing the economic viability and competitiveness of their ethanol production facility.
Improved Carbon Compliance and Reporting: The rigorous verification and data management protocols support transparent and defensible greenhouse gas reporting, ensuring facility maintains compliance with federal clean fuel policies and benefits from ongoing and future legislative improvements.
Confidence in Tax Credit Eligibility: Project developer is better positioned to reliably qualify for the full Section 45Z carbon intensity-based production tax credit, enhancing the economic viability and competitiveness of their ethanol production facility.
Improved Carbon Compliance and Reporting: The rigorous verification and data management protocols support transparent and defensible greenhouse gas reporting, ensuring facility maintains compliance with federal clean fuel policies and benefits from ongoing and future legislative improvements.