What’s next for MI’s clean fuels tax credit?

As Congress debates cuts to offset tax-cut extensions, the future of the Clean Fuels Production Tax Credit remains uncertain, with potential impacts on Michigan’s growing clean-fuel industry. The Clean Fuels Production Tax credit was established under the 2022 Inflation Reduction Act. It offers 20 cents per gallon for nonaviation fuels and 35 cents for aviation fuels which cut emissions by 50% compared with petroleum. Michigan has six key clean-fuel and alternative-energy initiatives, including Sustainable Aviation Fuel.

Alex Muresianu, senior policy analyst for Tax Foundation, estimates that repealing the credit could net about $12.8 billion over a decade based on Treasury projections, although he questions the math.

“That was based on some estimates from Treasury. It doesn’t make sense to take a revenue cost estimate from Treasury and assume it will one-for-one translate into revenue raised from reversing a policy,” she said.

Critics call credit initiative costly, favoring big companies while possibly raising fuel prices and distorting the market. It started on January 1st and is slated to run through 2027 unless extended.

Congress is divided on the future of these tax credits. While some want to eliminate them altogether to offset tax cuts, others warn that doing so could harm energy investments and job growth.

Nan Swift, a resident fellow of the Governance Program at R Street Institute, believes that right now, Congress is likely far from debating the finer details, and the tax credit is just one of those specifics.

“Certainly, it’s on a a wish list for a lot of members, but we don’t even know yet if the House and Senate can find agreement between their two-bill or one-bill plans,” she explained.

Shortly after the Clean Fuels Production Tax Credit was enacted, debates arose about its cost, effectiveness and fairness over the broader economy.