The U.S. Department of the Treasury and the Internal Revenue Service have released proposed regulations outlining how domestic producers can qualify for and calculate the clean fuel production tax credit under the One, Big, Beautiful Bill, offering long-awaited clarity on the revamped 45Z credit.
The clean fuel production credit applies to qualifying clean transportation fuels produced in the United States after Dec. 31, 2024, and sold by Dec. 31, 2029. Businesses seeking to claim the credit must be registered with the IRS using Form 637 at the time of fuel production.
According to Treasury, the proposed rules address key questions raised by stakeholders and provide guidance on emissions rates, certification, registration requirements, and credit calculations, all aimed at increasing certainty for producers investing in clean fuel technologies.
The proposed regulations also reflect several major changes enacted under OBBB, which reshaped the clean fuel production credit to prioritize domestic supply chains and limit potential abuse.
Under the new framework, the credit:
- Is extended through Dec. 31, 2029;
- Limits eligible feedstocks to those grown or produced in the U.S., Mexico, or Canada;
- Adds restrictions related to prohibited foreign entities;
- Broadens sale attribution to include fuel sold through related intermediaries;
- Eliminates the special rate for sustainable aviation fuel;
- Includes an anti-abuse provision to prevent double crediting;
- Prohibits negative emissions rates, except for fuels derived from animal manure;
- Requires feedstock-specific emissions rates for manure-based fuels; and
- Excludes indirect land-use change from emissions rate calculations.
Treasury also confirmed that emissions calculations for the 45Z credit will rely on a U.S. Department of Agriculture model, now referred to as 45Z FD-CIC, rather than the Department of Energy’s GREET model, resolving months of uncertainty over which framework would be used.
American Farm Bureau Federation President Zippy Duvall welcomed the release of the proposed guidance, calling it a step forward for U.S. agriculture and biofuels.
“We appreciate the Treasury Department moving the needle by publishing proposed guidelines for the 45Z tax credit,” Duvall said. “It’s an important step to finalize improvements protecting access for domestic feedstocks and promote American biofuels demand.”
However, Duvall emphasized that additional work remains, particularly from USDA and the Department of Energy.
“The Departments of Agriculture and Energy must now finalize guidance and resources for calculating carbon intensity scores so that the full range of Congressionally mandated improvements to the credit can be realized,” he said. “This includes recognizing the many ways farmers across sectors promote stewardship through conservation practices that can reduce carbon intensity scores.”
Duvall added that expanding domestic biofuel production could provide much-needed support to farm country.
“Encouraging the production of homegrown biofuels will not only help meet renewable energy demand but also fortify a farm economy that desperately needs a boost,” he said.
Public comment period open
Treasury and the IRS are inviting public comments on the proposed regulations and have scheduled a public hearing. Stakeholders can submit comments through the Federal e-Rulemaking Portal by referencing REG-121244-23. Written submissions may also be mailed directly to the IRS.
As the rulemaking process continues, producers, commodity groups, and agricultural organizations are expected to closely examine how the final regulations will shape clean fuel markets and on-farm opportunities in the years ahead.
