The U.S. Department of the Treasury and the Internal Revenue Service (IRS) recently released proposed regulations under section 45Z of the Internal Revenue Code of 1986, as amended (Section 45Z). Section 45Z provides a technology neutral production tax credit that was enacted in August 2022 as part of the Inflation Reduction Act, and subsequently amended in July 2025 by the One, Big, Beautiful Bill Act. It replaces a collection of technology-specific fuel credits to incentivize the domestic production and sale of transportation fuel with low greenhouse gas emissions (45Z Credit).
The 45Z Credit is allowable to a domestic taxpayer that is a producer of transportation fuel with an emissions rate below 50 kilograms of CO2e per mmBTU. The fuel must be produced at a qualified facility and sold in a qualified sale.
The proposed regulations address several questions raised by the clean fuels industry with respect to the proper interpretation of Section 45Z. The following is a summary of important guidance under the proposed regulations.
Producer
- The producer of alternative natural gas, including renewable natural gas (RNG), potentially eligible to claim 45Z Credits is the person that processes the untreated sources of alternative natural gas. A person that merely accepts conventional or alternative natural gas from a pipeline, compresses it, and sells it is not a producer for purposes of Section 45Z.
- A person that performs only minimal processing (i.e., producing a fuel mixture or otherwise engaging in activities not resulting in chemical transformation such as blending) is not a producer for purposes of Section 45Z.
Scope of Qualified Facility
- A “facility” is defined as the single production line (including all interdependently functioning components) that produces a transportation fuel, measured from the processing of the feedstock to the qualified sale.
- A facility includes carbon capture equipment if the carbon capture equipment contributes to the lifecycle greenhouse gas emissions rate of fuel utilized to compute the 45Z Credits. If carbon capture equipment is treated as part of the fuel production facility, the taxpayer may claim either 45Z Credits or credits under Code section 45Q for carbon oxide sequestration, but not both, in any taxable year.
Transportation Fuel
- Transportation fuel is suitable for use in a highway vehicle or aircraft if it has, or may be blended into a fuel mixture that has, practical and commercial fitness for use as a fuel in a highway vehicle or aircraft. It is not necessary for such use to be the predominant use of the fuel; however, it is not sufficient for use of the fuel in a highway vehicle or aircraft to be merely possible or a rare use of the fuel.
- Transportation fuel produced from, and having as a primary feedstock, a fuel for which 45Z Credits are allowed is not eligible for 45Z Credits. However, a fuel could still qualify for 45Z Credits if its production process uses transportation fuel solely as a process fuel or other non-primary feedstock input.
Emissions Rates
- Taxpayers must use the 45ZCF-GREET model (or the CORSIA Default or CORSIA Actual model for sustainable aviation fuel (SAF)) that is publicly available on the first day of the applicable taxable year to determine the emissions rates for fuels listed in the emissions rate table. Taxpayers may elect to use an updated version of the model if one is subsequently released during the taxable year. Use of the R&D GREET model is not permitted.
- Only if the type and category of fuel produced is not included in the applicable emissions rate table may a taxpayer request an emissions value, and subsequently a provisional emissions rate (PER). Taxpayers must first submit an emissions value request (EVR) to the U.S. Department of Energy (DOE). The DOE will then issue the taxpayer a calculated emissions value letter, which must be submitted to Treasury with the taxpayer’s PER determination request. The DOE will separately publish guidance and procedures for the EVR process. Outside of the potentially narrowly available PER process, the proposed regulations provide no guidance on how producers should calculate emissions rates when their actual operations deviate from the assumptions in the 45ZCF-GREET model.
- Negative emissions rates are permitted only for fuels derived from animal manure. Use of an emissions rate below zero is not allowed for any other fuel, including fuels used as production inputs.
- Code section 45V rules apply with respect to the use of energy attribute certificates in the 45ZCF-GREET model, as well for purposes of accounting for emissions associated with hydrogen (as a production input), natural gas alternatives (as a production input or as the transportation fuel produced), electricity production, and carbon capture and sequestration.
- If a taxpayer sells fuel that is held in common storage with other fuels that have different emissions rates, the taxpayer is treated as selling a pro rata portion of each fuel.
- For transportation fuel produced after December 31, 2025, the emissions rate of a fuel does not include any emissions attributed to indirect land use change.
Qualified Sales
- “Qualified sales” for use in a trade or business include sales to wholesalers, intermediaries, and resellers.
- New look-through rules treat certain sales made through related parties as qualified sales.
- 45Z Credits are properly claimed in the taxable year of the qualified sale, but not before production occurs.
Recordkeeping and Compliance
- Proposed regulations provide detailed recordkeeping and substantiation requirements, including model certificates for establishing safe harbor compliance with emissions rates and qualified sales requirements.
Applicability Dates
- Generally, the proposed regulations, as finalized, will apply to qualified sales that occur in taxable years ending on or after the date the final regulations are published.
- Rules relating to the emissions rate table under proposed regulations section 1.45Z-2(e) will apply to taxable years ending on or after January 10, 2025.
- Until final regulations are published, taxpayers may rely on the proposed regulations.
Initial Industry Response
The response to the proposed regulations from members of the clean fuels industry is generally positive because the rules address several commercial issues in a taxpayer-favorable manner. However, certain aspects of the proposed regulations may generate controversy. For example, the disqualification of clean fuels utilizing other clean fuels as primary feedstocks, and the potentially narrow availability of the PER process, may result in industry pushback from certain stakeholders. Agricultural groups are also anxious for the agricultural feedstock carbon intensity values to be incorporated into the 45ZCF-GREET model.
Treasury and IRS have set a 60-day comment period that will close on April 6, 2026, and subsequently will hold an in-person hearing on the proposed regulations in Washington, DC, beginning on May 28, 2026. If prior comment periods provide us with an expectation for the notice-of-proposed-rulemaking process, Treasury and IRS may receive thousands of comment letters and need several days to accommodate all in-person testimony.
