Section 45Z Clean Fuel Production Credit: IRS Notices 2025-10 & 2025-11

Section 45Z Clean Fuel Production Credit: IRS Notices 2025-10 & 2025-11

The IRS recently released Notices 2025-10 and 2025-11, containing draft text providing initial outlines and guidance for the IRC Section 45Z Clean Fuel Production Credit.

The Treasury Department stated intention to propose that any qualifying fuel that has either practical or commercial fitness for use in a highway vehicle or aircraft be eligible for the credit, allowing for a wider variety of clean fuels to qualify for the credit and thereby incentivizing increased development of clean transportation fuels by producers.

Although the initial guidance provided a broad overview of the proposed regulations for the 45Z credit, farmers and fuel producers remain uncertain about what practices should be implemented for optimal qualification.

What is the 45Z Credit?

The Section 45Z Clean Fuel Production Credit was established under the Inflation Reduction Act (IRA) to incentivize the production of transportation fuel with lifecycle greenhouse gas emissions levels below certain defined threshold values by providing a per-gallon, or gallon-equivalent income tax credit to fuel producers that meet qualifying requirements for clean fuel production. 45Z replaces the old 26 U.S. Code § 6426 Blender's Tax Credit (BTC), originally established as a credit for blending biofuels and diesel fuel, which expired January 1, 2025. The credit effectively replaces pre-2025 credits for second generation biofuel under Code Sec. 40, other biofuels and renewable diesel fuels under Code Sec. 40A, and SAF under Code Sec. 40B.

The Section 45Z credit encompasses the entirety of the fuel production process, rather than focusing on individual variables, to encapsulate the total lifecycle GHG emissions of a fuel to determine the credit amount.

To qualify for the Section 45Z credit, a taxpayer must:

Produce a transportation fuel that has a lifecycle greenhouse gas emissions rate (emissions rate) of not greater than 50 kilograms (kg) of CO2e per mmBTU2 and that satisfies certain suitability and coprocessing requirements;
Produce the fuel in the United States at a qualified facility;
Be registered as a producer of clean fuel under § 4101 at the time of production; and
Sell the fuel to an unrelated person in a qualifying manner during the taxable year.

Although the Treasury announced additional reductions in tax may be available to a taxpayer that incorporates climate smart agriculture (CSA)-grown feedstock, they did not provide more "rules for incorporating the emissions benefits from CSA practices for domestic corn, soybeans and sorghum as feedstocks for SAF [sustainable aviation fuel] and non-SAF transportation fuels."i However, the Treasury Department declared used cooking oil (UCO) ineligible for the credit until further guidance is provided due to concerns over mislabeling, misidentification, and demand outpacing supply.

As provided in Section 45Z(d)(4) and Section 1.45Z-1(b)(24) of the forthcoming proposed regulations, a qualifying facility would be defined as a single production line that is used to produce a transportation fuel and would include all components that function interdependently to produce a transportation fuel. The definition would also clarify the treatment of indirect, post-production, and multipurpose equipment. The definition of “facility” would also exclude CANG (low-GHG conventional or alternative natural gas) compression equipment as post-production equipment.

A qualifying facility would also have to satisfy the anti-stacking rules in Section 45Z(d)(4)(B) and Section 1.45Z-4 of the forthcoming proposed regulations.

A taxpayer calculates the Code Sec. 45Z clean fuel production credit by multiplying an applicable amount per gallon or gallon equivalent with respect to a transportation fuel by the emissions factor for such fuel. The applicable base amount per gallon is 20 cents, increased to 35 cents for SAF.

However, an enhanced credit of $1.00 per gallon ($1.75 for SAF) may apply if the qualified facility satisfies prevailing wage and apprenticeship (PWA) requirements. These requirements involve minimum prevailing wage requirements for laborers and mechanics (including employees, contractors, and subcontractors) engaged in repair and maintenance activities, as well as a minimum number of hours the taxpayer must employ apprentices from registered apprenticeship programs. These new and highly complex PWA requirements are stacking up to be the most important factor in the pricing of transferrable 45Z credits through brokered sales to third parties. It’s also becoming one of the top factors in the cost of insuring these credits against recapture.

All applicable amounts are adjusted for inflation after 2024. A transportation fuel’s emissions factor is a calculation of the fuel’s emission rate against the baseline emissions rate of 50 kg of CO2e per mmBTU.

Taxpayers claiming the credit can calculate emissions rates using the determinations under the most recent 45CZF-GREET (Greenhouse gases, Regulated Emissions, and Energy use in Technologies) model. The 45ZCF-GREET model will be used for the calculation of the lifecycle greenhouse gas emissions rates for non-SAF transportation fuel, and either the 45ZCF-GREET model or methodologies from the International Civil Aviation Organization for SAF. The Department of Energy released the initial 45ZCF-GREET model and guidelines for use on January 10, 2025.ii

The Section 45Z credit can be claimed on production of qualifying clean transportation fuel produced domestically after December 31, 2024, and sold to an unrelated party by December 31, 2027. The fuel must be produced at a qualifying facility, and the taxpayer claiming the credit must be registered as a producer of clean fuel under Section 4101 at the time of production. The credit can be claimed in the taxable year the fuel is sold.

Purpose and Background of the Notices

Notice 2025-10 announced the IRS and Department of the Treasury’s intent to propose regulations for the Section 45Z Clean Fuel Production Credit, including a draft of the proposed regulations. The notice provides details and definitions on important aspects of the credit, such as defining qualifying fuel through greenhouse gases emissions rates and other requirements. It also specifies requirements for domestic production at a qualifying facility, registration as a producer of clean fuel, and reiterates the timeline for qualifying fuel to be produced.

Notice 2025-10 provides that additional reductions in calculating emissions rates may be accessed by the taxpayer if the taxpayer meets certain requirements for climate smart agriculture (CSA) practices. By using domestically grown CSA corn, soybeans, and sorghum, the taxpayer claiming the credit may claim further reductions in emissions rates, resulting in a greater credit. These reductions will be available once the IRS and Treasury Department have proposed the full Section 45Z Credit regulations and accounting practices for calculating CSA crop emissions under the 45CZF-GREET model.

The forthcoming proposed regulations would also provide rules for unrelated party certification of emissions rates for sustainable aviation fuel (SAF) transportation fuel.

The guidance additionally clarifies that marine fuels that are otherwise suitable for use in highway vehicles or aircraft, such as marine diesel and methanol, are also 45Z eligible.

Notice 2025-11 provides the initial guidance on emissions rates for qualifying clean fuel, including the calculation of emissions factor for fuels, the instructions for calculating emissions rates, a preliminary emissions rates table, and the methodologies used to determine emissions rates.

Industry Reaction to the Notices

While many representatives of relevant industries were pleased that the initial guidelines were finally released, they also expressed concern that the regulations are incomplete and still leave questions that will be unanswered until they are finalized. These uncertainties make it difficult to prepare for compliance, particularly with an impending change in administration.

Geoff Cooper, president and CEO of the Renewable Fuels Association, remarked that the new guidance “is a potential step in the right direction, but much work remains to be done before clean-fuel producers, farmers, and consumers can fully benefit from the 45Z program.”iii With the lack of final clarity on the guidelines, Cooper expressed concerns that producers would not be willing to invest in the necessary production and infrastructure changes required to produce potentially qualifying clean fuel.

Other representatives of the clean fuel industry, such as CEO of Growth Energy Emily Skor, Executive Director of the Iowa Renewable Fuels Association Monte Shaw, President of the Advanced Biofuels Assocation Michael McAdams, and American Coalition for Ethanol CEO Brian Jennings expressed similar concerns that the guidelines were incomplete and lacked the clarity necessary for clean fuel producers to invest in the necessary production infrastructure for compliance.

In the agricultural industry, the American Soybean Association and the National Oilseed Processors Association said the proposal was a good first step.

Other representatives for the agricultural industry celebrated that the regulations prioritize domestic feedstock. American Farm Bureau Federation President Zippy Duvall demonstrated gratitude towards the proposed regulations, appreciating the “prioritization of America’s farmers over foreign importers in the proposed clean fuel production tax credit.”iv The American Farm Bureau also met with the Biden administration and advocated for the domestic feedstock requirement.

However, many still feel that the regulations are still unclear and do not provide producers with the information they need to guarantee compliance or develop their practices to ensure their practices and fuel qualify for the credit. National Farmers Union President Rob Larew lamented that, while the guidance reflects meaningful progress, much remains to be accomplished,” hoping that the “process will be finalized quickly to ensure the tax credit delivers optimal benefits for farmers and rural communities.”v Duvall added, “Unfortunately, Treasury’s announcement comes at the 11th hour and leaves uncertain whether and how the 45Z tax credit would ultimately be implemented to help America’s farmers assist fuel producers in the goal of increasing homegrown fuels.”vi

Wrapping Up

The IRS and Treasury Department recently issued Notices 2025-10 and 2025-11 regarding the Section 45Z Clean Fuel Production Credit of the Inflation Reduction Act. These Notices provided preliminary guidelines for qualifying clean transportation fuel production, including qualifying emissions rate guidelines and tables, and a notice of intent to propose forthcoming rules for the credit. Absent from the guidance released Friday are rules for incorporating emissions benefits from climate-smart agriculture practices, including for corn, soybeans and sorghum as feedstocks for sustainable aviation fuel and other fuels.

The IRS has requested public comment on the two notices, which they will leave open for comment until April 10, 2025.

To submit a written comment, the subject line for the comments should include a reference to Notice 2025-10 or 2025-11. Comments may be submitted in one of two ways:

Electronically via the Federal eRulemaking Portal at http://www.regulations.gov (type IRS-2025-0002 in the search field on the regulations.gov homepage to find this notice and submit comments); or

By mail to: Internal Revenue Service, CC:PA:01:PR (Notice 2025-10), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.

All commenters are strongly encouraged to submit comments electronically.

The Treasury Department and the IRS will publish for public availability any comment submitted electronically, or on paper, to its public docket on www.regulations.gov.

Sources

i. Voegele, E. (2025) Treasury releases initial 45Z clean fuel production credit guidance, Ethanol Producer Magazine. Available at: https://ethanolproducer.com/articles/treasury-releases-initial-45z-clean-fuel-production-credit-guidance.

ii. U.S. Department of Energy Releases 45ZCF-GREET, Bioenergy Technologies Office (2025), https://www.energy.gov/eere/bioenergy/articles/us-department-energy-releases-45zcf-greet

iii. Voegele, E. (2025) Treasury releases initial 45Z clean fuel production credit guidance, Ethanol Producer Magazine. Available at: https://ethanolproducer.com/articles/treasury-releases-initial-45z-clean-fuel-production-credit-guidance.

iv. Treasury releases Section 45Z Guidance, TheFencePost.com (2025), https://www.thefencepost.com/news/treasury-releases-section-45z-guidance

v. Treasury releases Section 45Z Guidance, TheFencePost.com (2025), https://www.thefencepost.com/news/treasury-releases-section-45z-guidance

vi. Treasury releases Section 45Z Guidance, TheFencePost.com (2025), https://www.thefencepost.com/news/treasury-releases-section-45z-guidance