Section 45Z clean fuel production credit
The section 45Z clean fuel production credit replaced prior renewable fuel incentives with a technology‑neutral credit aimed at incentivizing domestic production of lower carbon alternatives to petroleum‑based fuels. The credit was enacted as part of the Inflation Reduction Act of 2022. It was later extended and modified in 2025 by the One Big Beautiful Bill Act (OBBBA).
The credit is available for producers of qualifying transportation fuels—including sustainable aviation fuel (SAF), renewable diesel, ethanol, renewable natural gas, biodiesel and other liquid or gaseous fuels—provided the fuel meets strict lifecycle emissions thresholds and is produced and sold within specific statutory parameters.
Since enactment of section 45Z, the U.S. Department of the Treasury and the IRS have issued a series of notices with respect to this credit—including Notice 2024-49, Notice 2025-10 and Notice 2025-11.
Section 45Z proposed regulations
Long-awaited regulations under section 45Z—published Feb. 4, 2026—propose rules for determining the clean fuel production credit, including credit eligibility rules, emissions rates, and certification and registration requirements. The proposed regulations affect producers of clean fuel, including ethanol, biodiesel, renewable diesel, renewable natural gas, and sustainable aviation fuel.
The proposed regulations incorporate many of the rules in the prior guidance, with some changes and modifications. The proposed regulations include:
- Thirty-six definitions of key terms, including "transportation fuel," "producer," and "qualified facility.”
- General rules related to determining and calculating the credit, including rounding and timing rules.
- Rules related to the process for determining emissions rate, emissions factor, and the statutory requirements related to publication of an emissions rate table, as well as procedures for petitioning Treasury for a provisional emissions rate for certain fuels and feedstocks not covered by the table.
- Application of the Department of Energy’s 45ZCF-GREET (Greenhouse gases, Regulated Emissions, and Energy use in Technologies) model for determining lifecycle greenhouse gas (GHG) emissions of fuel for the tax credit.
- Procedures for certification of the lifecycle GHG emissions rates for sustainable aviation fuel.
- Special rules, including anti-stacking provisions, anti-abuse standards, and foreign feedstock restrictions.
- Detailed procedures for producer registration under section 4101.
- Procedures for filing a claim for the credit and recordkeeping requirements.
- Conforming amendments to the direct pay (section 6417) and transferability (section 6418) rules.
Effective dates: The section 45Z credit applies to fuel produced and sold from Jan. 1, 2025, through Dec. 31, 2029. With the exception of rules related to emissions table rate, the regulations—if finalized—are generally proposed to apply to qualified sales occurring, and persons producing, transportation fuel in taxable years ending on or after the date the final regulations are published in the Federal Register. The rules related to the emissions rate table are proposed to be effective for qualified sales occurring in taxable years ending on or after Jan. 10, 2025.
Regardless of effective dates, taxpayers may rely on the proposed regulations until final regulations are published in the Federal Register, provided they follow the regulations in their entirety and in a consistent manner.
Request for public comments: Treasury has invited public comment and scheduled a hearing for May 28, 2026. Industry stakeholders—including biofuel producers, airlines, energy developers, and agricultural suppliers—are expected to weigh in heavily as the government finalizes this guidance.
Key takeaways by RSM’s clean fuel team
Overall, our initial impression of the proposed guidance is favorable and contains few surprises. It incorporates prior guidance and clarifies many key issues the industry was most concerned about.
There are a few nuances to be ironed out in final regulations. Additionally, the industry is still in need of guidance from other agencies—particularly the U.S. Department of Energy and U.S. Department of Agriculture—to fully implement the section 45Z credit.
Qualified sale issue
As expected, Treasury and the IRS took to heart industry comments, clarifying rules related to the qualified sale issue. The proposed regulations provide that sales to intermediaries will qualify as meeting the use in a trade or business requirement. This clarification aligns the rules with real‑world marketing and blending practices and helps remove a longstanding question around multistep distribution chains.
Treasury also added a safe harbor for substantiation of qualified sales through the use of a certificate to help document these sales.
Emissions accounting rules and energy attribute certificates (EACs)
The guidance proposes rules for accounting for emissions associated with hydrogen (as a production input), natural gas alternatives (as a production input or as a transportation fuel produced), electricity, and carbon capture and sequestration. These rules propose to apply rules similar to the rules under the section 45V hydrogen production credit final regulations.
With respect to the incrementality rule for EACs, the guidance proposes a placed-in-service rule for clean fuel production facilities. It provides the facility is placed in service in the first year it produces a “transportation fuel” as that term is defined in the guidance.
This is important because many clean fuel producers (particularly those of ethanol) are purchasing EACs or renewable energy certificates (RECs) to reduce the emissions rate (i.e. carbon intensity score) of their fuel, and prior guidance was ambiguous about how to apply the section 45V incrementality rule to existing, established facilities. The guidance provides an example of the application of the placed-in-service date; however, more examples may be necessary to address other producer scenarios.
It is important to note that the incrementality rule for EACs has a distinct effective date. This rule is proposed to apply retroactively to qualified sales occurring in taxable years ending on or after Jan. 10, 2025.
Incorporating OBBBA changes
The proposed regulations incorporate several changes made by the OBBBA, including:
- Negative emissions rate: Under the OBBBA, in general, the emissions rate of a fuel produced after Dec. 31, 2025, may not be less than zero. An exception exists only for fuels made from animal‑manure feedstocks—these fuels may receive a negative emissions rate.
- Indirect land use change excluded: Additionally, the proposed regulations incorporate the OBBBA rule that for fuels produced after Dec. 31, 2025, the emissions rate of a fuel does not include any emissions attributed to indirect land‑use change.
- Related party sales: The guidance also clarifies how sales involving related parties can still qualify for the credit, expanding on the initial statutory provisions specific to C corporations.
- Foreign feedstocks: The guidance incorporates the OBBBA prohibition on the use of non-North American‑sourced feedstocks.
- Anti-abuse rules: The guidance proposes anti‑abuse rules to prevent producers from structuring transactions solely to generate credits.
Fuels and feedstocks
With respect to the types of fuels and feedstocks, the guidance clarifies that the list published in the emissions rate table is not exhaustive.
It also explained how the provisional emission rate process will work for fuels that are not listed on the IRS published table. We are still awaiting guidance from the DOE before this process can be implemented.
Climate smart agricultural (CSA) practices
The preamble discusses the U.S. Department of Agriculture “beta version” of the USDA Feedstock Carbon Intensity Calculator (FD-CIC), which is still undergoing testing, peer review, and public comment. Before CSA practices can be incorporated into the section 45Z credit calculation, the following conditions must be met:
- The USDA must publish a final version of its USDA FD-CIC
- A 45ZCF FD-CIC model needs to be published to incorporate the FD-CIC as an input
- The DOE must update the 45ZCF-GREET model to incorporate the results from the 45ZCF FD-CIC
- Recordkeeping requirements need to be established
While the guidance indicates the “Treasury Department and the IRS anticipate that 45ZCF FD-CIC may be used for fuel produced and sold in 2025,” it is unclear when the USDA will finalize its guidance. The only timeline provided in this guidance is that the “45ZCF FD-CIC likely will be published in 2026.”
Third-party verification of GHG emissions score
The guidance proposes to refine rules related to the safe harbor for substantiation of emissions rates through the use of a third-party verifier. This refinement eliminates some of the sticking points that verifiers have been wrestling with, particularly related to the verification of qualified sales.
Specifically, the proposed regulations no longer require the verifier to sign off that a “qualifying sale” occurred. Rather, a new “qualified sale” safe harbor has been established through the use of a certificate signed by the purchaser of the fuel.
Prevailing wage and apprenticeship requirements
No changes or amendments were proposed with respect to the prevailing wage and apprenticeship requirements for section 45Z. Taxpayers must continue to comply with these requirements in order to claim the enhanced credit.
Credit sale transfer market
Issuance of the guidance and clarification of key issues are expected to create more certainty in the tax credit transferability market. Expect to see more deals close in the next few months for the transfer of section 45Z credit sales now that rules have been published, clarifying issues that had been uncertain in the industry.
About RSM’s clean fuels practice
RSM has been engaged with the clean fuels industry since its inception. Over the years, our firm’s knowledge has deepened as the industry has evolved. We are tax, audit, and consulting advisors to clean fuel production facilities across a wide range of fuels, technologies, and feedstocks. For further questions or information on the section 45Z clean fuels credit or transfer market, consult your tax advisor.
