On February 3, the U.S. Treasury and IRS released proposed regulations for the Section 45Z Clean Fuel Production Tax Credit, incorporating updates from the One Big Beautiful Bill passed in 2025. The rules are intended to help domestic producers determine eligibility and to calculate credit value. A 60-day public comment period will follow publication of the proposal.
Currently, 45Z provides an income tax credit for qualifying fuels produced after December 31, 2024, and sold before December 31, 2029. Producers must be registered with the IRS using Form 637 at the time of production to claim the credit.
Under the proposed regulations, taxpayers must meet several requirements to qualify for the 45Z credit. Producers must manufacture a transportation fuel that satisfies sustainability, lifecycle emissions, coprocessing, and anti–double crediting standards. The fuel must be produced at a qualifying facility located in the United States or its territories, and the producer must be properly registered as a clean fuel producer under Section 4101 at the time of production. In addition, the fuel must be sold to an unrelated party in a qualified sale during the taxable year. For fuel produced after December 31, 2025, eligibility will be limited to fuels derived exclusively from feedstocks grown or produced in the United States, Mexico, or Canada. The proposed rules also clarify that the 45Z credit cannot be combined with the Section 45Q tax credit for carbon capture, utilization, and storage (CCUS).
For fuel produced through 2025, the base credit is 20 cents per gallon for non-aviation fuels and 35 cents for sustainable aviation fuel (SAF), with higher values available for facilities meeting prevailing wage and apprenticeship requirements. Beginning in 2026, the SAF premium is removed and credit values are capped at 20 cents per gallon or up to $1 per gallon depending on wage compliance, with annual inflation adjustments applied.
Eligible fuels must achieve lifecycle greenhouse gas emissions of 50 kg CO2e per mmBtu or less and cannot be produced through certain coprocessing methods or from previously credited fuels. Lifecycle emissions may be calculated using IRS emissions tables or provisional rates. Non-SAF fuels will rely on the Department of Energy’s GREET model, while SAF must follow CORSIA-based methodologies. Indirect land use change will be excluded from emissions calculations for fuels produced after 2025, and manure-based fuels may qualify for negative emissions beginning in 2026.
The credit is claimed by the fuel producer, not blenders or compressors, and electricity does not qualify. Producers must update emissions rates annually, as the proposal does not allow facilities to lock in rates based on construction year.
The American Coalition for Ethanol (ACE) described the proposal as a positive step forward but emphasized that additional clarity is still needed. “We are grateful that Treasury’s proposed rule begins to provide ethanol producers and others more certainty and answers about how to claim the 45Z credit going forward, and we look forward to additional clarity on how ethanol producers can monetize low-carbon farming practices through the tax credit,” said Brian Jennings, CEO of ACE. “Since ag-based feedstocks represent about half of ethanol’s carbon intensity, ethanol producers need to have the opportunity to monetize low-carbon feedstocks to fully unlock the value of 45Z. We urge the Treasury to continue working closely with the U.S. Department of Agriculture and the Department of Energy to develop and finalize the tools necessary to achieve full monetization of farming practices, such as USDA’s Feedstock Carbon Intensity Calculator (FD-CIC) and DOE’s 45ZCF-GREET model,” he added. “Last year, USDA asked ACE to help peer-review and beta-test the FD-CIC, and we submitted reams of data and feedback on the tool. We are encouraged Treasury expects the 45ZCF FD-CIC to undergo periodic updates, including incorporation of new data gathered from real-world activities such as the USDA Regional Conservation Partnership Program (RCPP) activity being led by ACE. This work is specifically designed to address the perceived need for more empirical data on the low-carbon benefits of farming practices to help improve the accuracy of modeling tools. We are hopeful the FD-CIC and 45ZCF-GREET model will reflect the feedback we provided and are finalized soon.”
Treasury and the IRS are seeking industry input on feedstock tracking and verification requirements, particularly for imported feedstocks such as used cooking oil. A public hearing is scheduled for May 28 as stakeholders continue to evaluate the proposal’s impact on clean fuel production and compliance strategy.
Stakeholders are encouraged to submit comments through the Federal e-Rulemaking portal using the reference “IRS” and “REG-121244-23.” A public hearing has also been scheduled, with details available in the “Comments and Public Hearing” section of the proposal. Written submissions may be mailed to: CC:PA:01:PR (REG-121244-23), Room 5503, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.
Additional details can be found on IRS.gov under the One Big Beautiful Bill provisions
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Disclaimer:
The information and referenced resources in this article are accurate as of the date of publication. Guidance related to the 45Z Clean Fuel Production Credit, IRS and Treasury rulemaking, and broader renewable fuel policy may change as regulations are finalized or updated. Readers should review current federal guidance and consult appropriate regulatory resources before making decisions based on this information.
