IRS releases new proposed 45Z regulations

On February 3, 2026, the US Department of the Treasury and the Internal Revenue Service (IRS) released proposed regulations for the §45Z clean fuel production credit, which provides a production tax credit for eligible low-carbon transportation fuels produced in the US and sold between 2025 and 2029. The proposal addresses several key uncertainties that have affected clean fuel producers and tax credit buyers since the credit took effect in 2025.

The proposed regulations implement §45Z as amended by the One Big Beautiful Bill (OBBB), which extended the credit through 2029 and changed how lifecycle emissions, foreign feedstocks, and certain foreign entity restrictions are treated. The proposal also provides important clarification on qualified sales to intermediaries, transferability, provisional emissions rates (PERs), recordkeeping, and other issues affecting §45Z eligibility and transactions.

For clean fuel producers and tax credit buyers, several provisions could meaningfully reduce transaction uncertainty:

• Sales to intermediaries: The proposal confirms that certain sales to wholesalers and dealers that resell fuel can qualify, addressing an issue that had created uncertainty for renewable diesel and SAF transactions.
• Transferability: The proposal clarifies facility-level registration, transfer elections, and the ability to transfer credits to multiple transferees.
• Lifecycle emissions: §45Z credit values continue to depend on the applicable 45ZCF-GREET model and annual emissions-rate tables, with a PER process available for eligible fuels without an established emissions rate.
• Feedstock requirements: The proposal addresses OBBB restrictions on certain foreign feedstocks and seeks additional input on verification and recordkeeping for feedstocks imported from Canada and Mexico.

Crux estimates that roughly $1 billion in §45Z tax credits transacted in 2025, while industry estimates suggest $2–$3 billion in annual eligible tax credit generation. The proposed regulations address several issues that have affected how those credits are underwritten and transacted.

Download Crux's Ultimate Guide to §45Z Clean Fuels Tax Credits for the latest guidance on credit qualification, transactions, risk, and market trends.

Impacts to §45Z transferability

The proposed framework provides technical clarifications relating to transfer of the §45Z clean fuel production credit. Notable items include:

• Transferability is tied to the facility, not just the taxpayer. For §45Z, the relevant credit property is the qualified facility itself. 
• IRS pre-filing registration is required. Each facility must obtain an IRS registration number annually before a credit can be transferred, aligning §45Z compliance with other transferable credits.
• No retroactive elections. Transfers must be elected on the original filed return, with no amended-return flexibility, similar to other transferable credits. This requires producers to execute transactions by their tax-filing deadline (up to the extended annual filing deadline).
• Multiple transferees. Treasury clarifies that multiple transferees can benefit from the sale of a credit, supporting syndication and market liquidity.

Considering §45Z tax credits as a buyer? Learn what tax credit buyers should know about §45Z qualification, transaction risks, diligence, and insurance.

Key issues addressed in the proposed regulations

Lifecycle calculations

Under the statute, §45Z eligibility is tied to lifecycle carbon intensity calculations in the Greenhouse gases, Regulated Emissions, and Energy use in Technologies, or GREET, model. There are several different GREET models for specific tax credits, including the 45ZCF-GREET, which was published by the US Department of Energy (DOE) on January 15, 2025. The DOE updated the GREET model on June 1, 2025, to include certain corrections for biodiesel fuels. 

RNG producers have sought an update to the January 2025 45ZCF-GREET model, which sets an effective floor for manure RNG CI scores at around -31 kg of CO2e per MMBtu. Many RNG producers expect that updates to GREET will generate a lower CI score, which in turn produces a higher credit value per gallon of fuel. Alternatively, RNG producers may use the provisional emissions rate (PER) process discussed later in this post. 

The proposed §45Z rule does not include an update to 45ZCF-GREET. It makes clear that the emissions rate for the fuel is determined by the 45ZCF-GREET model and the emissions-rate table in effect when the fuel was produced, meaning that the emissions rate could change each year for the same fuel from the same facility when the Treasury Secretary publishes the annual update to the emissions-rate table. If the GREET model includes a pathway, the taxpayer must use the emissions rate associated with that pathway. 

Looking for the latest on 45ZCF-GREET? See what the June 2026 model update means for clean fuel producers.

Other GREET model specifications

One input into 45ZCF-GREET is the carbon intensity of agricultural feedstocks. The US Department of Agriculture (USDA) published a beta version of its USDA Feedstock Carbon Intensity Calculator (USDA FD-CIC) in January 2025 to calculate practices like no till, reduced till, cover crops, and nutrient management. The model is not expected to be finalized until later in 2026; however, the proposed rule states that Treasury and the IRS “anticipate that 45ZCF FD-CIC may be used for fuel produced and sold in 2025.” When the USDA’s model is finalized, the proposed rule indicates IRS expects to incorporate a version into 45ZCF-GREET.

Notably, for purposes of accounting for emissions associated with hydrogen, natural gas alternatives, electricity, and carbon capture and sequestration, the proposal states that rules similar to the rules under §45V apply (unless otherwise specified by the 45ZCF-GREET model). Similar treatment extends to energy attribute certificates (EACs), including the application of incrementality.

Provisional emissions rates (PERs)

45ZCF-GREET does not cover every pathway that could qualify.

For eligible fuels that do not have an emission rate established in 45ZCF-GREET, the proposal creates a process for taxpayers to file a petition with the Treasury Secretary for a PER based on the type and category of fuel. The DOE proposed a process for §45Z PER applications in July 2025, but this has not been finalized. As proposed, the PER process requires filing a petition with the Treasury Secretary. The taxpayer must first submit a request to the DOE for an emissions value for an eligible fuel. Once the DOE issues a calculated emissions value letter, the taxpayer can file a PER petition.

Although the proposal outlines the high-level process, additional guidance from the IRS and DOE will be required. The proposed guidance does indicate that sections of a Class 3 front-end engineering and design (FEED) study (or similar indicator of project maturity) will generally be required. 

Qualified sales to intermediaries

The proposed regulations specify that sales to fuel intermediaries — wholesalers and dealers that resell fuel — qualify as "sold for use in a trade or business.” This is a significant departure from the Notice 2025-10 draft that included "use as a fuel" language, which created uncertainty regarding whether sales to fuel intermediaries were qualified sales under the rule.

Prior to this rule clarification, tax insurers typically excluded coverage for the qualified sale issue, forcing sponsors to provide indemnities to tax credit buyers. The proposed rule explicitly states that sales to intermediaries "includes the sale of fuel to an unrelated person that subsequently resells the fuel in its trade or business," largely mitigating the uncertainty. The only carved-out exceptions are sales for blending and sales to retailers that place fuel directly in consumer tanks.

For renewable diesel and SAF producers that typically sell through trading desks and distribution networks rather than directly to end users, this provision removes an important source of deal uncertainty.

Transportation end use vs. “suitable use”

The proposed rule clarifies that fuel qualifies for the §45Z credit as long as it is “suitable for use as a fuel in a highway vehicle or aircraft,” but “[t]he proposed regulations would also clarify that actual use as a fuel in a highway vehicle or aircraft is not required.” A fuel would be suitable for use if it has practical and commercial fitness for use as a fuel in a highway vehicle or aircraft, 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. (Possible or rare use as a fuel alone does not qualify.)

Although the proposed rule would exclude electricity from the definition of “transportation fuel,” the definition of suitable for use would not disqualify otherwise eligible transportation fuel that is ultimately used to produce electricity.

Avoiding double-crediting

To prevent double-crediting of the same fuels, the OBBB amended §45Z to exclude from the definition of a “transportation fuel” any fuel “produced from a fuel for which a  section 45Z credit is allowable.” The proposed rule would define the term “produced from a fuel for which a section 45Z credit is allowable” to mean that a fuel has a primary feedstock that meets the definition of a transportation fuel under §45Z. 

This rule would mean that only the first transportation fuel in a production chain qualifies for the credit. Thus, if one fuel is used as a primary feedstock to produce a second fuel, and the first fuel qualifies as a transportation fuel for the purposes of §45Z, the second fuel would not qualify. However, a fuel could still qualify for a §45Z credit if its production process uses a transportation fuel solely as a process fuel or other non-primary-feedstock input. 

Feedstock verification

The statute covers a broad set of biomass- and waste-derived feedstocks but requests additional information from the public on verification standards.

In particular, Treasury and the IRS request comment on:

• Substantiation and recordkeeping requirements for feedstocks imported from Canada and Mexico. 
• Industry practices to track feedstock source(s) that would mitigate potential taxpayer burden while being administrable for the IRS (e.g., existing business records that demonstrate feedstocks exclusively produced in Canada or Mexico did not contain other feedstocks or additives that originated outside of Canada or Mexico). 
• Approaches to determine the underlying source(s) of used cooking oil (UCO) for purchases from aggregators of UCO (e.g., reliable methods that would indicate the geographic location where seeds originated or crops were grown as a precursor for use as cooking oil).

Producer and facility definitions

The proposed rule confirms that a taxpayer can claim the §45Z credit if the fuel is produced at a qualified US facility, by a registered producer, and sold in a qualifying sale. Treasury generally treats the “producer” as the taxpayer that produces the transportation fuel and is properly registered under the excise tax regime, and it ties credit determination and transferability to the qualified facility itself, requiring facility-level registration and treating the facility as the relevant unit for §6418 transfers. The guidance clarifies that the taxpayer is not required to own the facility, however, just “conduct the activities giving rise to the section 45Z credit." 

Additionally, the proposed guidance also allows a facility qualifying under §45Z to “be co-located with another credit-eligible facility, and that some production equipment may be located upstream or downstream from, or in a different building than, other equipment.”

Recordkeeping and safe harbors

The proposed rule lays out specific records and data that must be kept to verify the credit, and includes two safe harbors.

Producers must keep all records:

• Establishing that each fuel produced is a transportation fuel.
• Establishing any relevant information relating to the primary feedstock(s) used to produce each fuel.
• Establishing that each fuel meets any fuel-specific specifications.
• Substantiating how the emissions rate for each fuel was determined (including, if applicable, the specific type(s) and category(ies) under the applicable emissions-rate table).
• Relating to any fuel testing obtained by the taxpayer.
• Establishing that each facility used to produce fuel is a qualified facility.
• Establishing the date each facility was placed in service.
• Establishing that each fuel was sold in a qualified sale.
• Establishing any certification from an unrelated person and substantiating the information contained therein.
• Related to information and raw data used for or related to any petition for a PER.
• Establishing that the taxpayer satisfies the prevailing wage and apprenticeship requirements, if applicable.

Treasury and the IRS specifically request comments on the kind of documents that taxpayers can use, including to prove the proper determination of a fuel’s emissions rate.

Safe harbors include:

• Substantiating the emissions rate for a fuel using the 45ZCF-GREET model by obtaining a certification as described in § 1.45Z-5.
• Substantiating whether the sale of a transportation fuel is a qualified sale for purposes of §45Z by obtaining from the buyer of the fuel a certificate (model certificate provided in the credit under § 1.45Z4(g)(3)(ii)).

What happens next?

The public comment period for the proposed regulations closed on April 6, 2026, and Treasury and the IRS held a public hearing in May 2026. Treasury and the IRS will consider stakeholder input as they move toward finalizing the regulations. Crux will continue to provide updates and analysis as the §45Z rules move toward finalization.

Looking to buy or sell §45Z tax credits? Connect with Crux to explore the market.