The U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) have released a notice of intent to propose regulations and a notice providing the annual emissions rate table for the Clean Fuel Production Credit under Section 45Z of the Internal Revenue Code (45Z credit) outlining methodologies for determining the lifecycle greenhouse gas emissions of fuel.
The Inflation Reduction Act of 2022 provides an income tax credit pursuant to Section 45Z of the Code for clean transportation fuel that is produced in the United States after December 31, 2024, and sold before January 1, 2028.
To qualify for the 45Z credit, taxpayers must:
- Produce a transportation fuel that has a lifecycle greenhouse gas emissions rate of 50 kilograms of CO2e per mmBTU or less, and meet certain suitability and coprocessing requirements;
- Produce the fuel in the United States at a qualified facility;
- Register 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.
The Department of Energy plans to release the 45ZCF-GREET model to determine emissions rates for non-sustainable aviation fuel and sustainable aviation fuel (SAF), although taxpayers can instead use the latest CORSIA Default or CORSIA Actual methodologies to obtain the lifecycle emissions value of a sustainable aviation transportation fuel. Unlike the Section 45V hydrogen production credit, the 45Z credit requires using the most current model, which may change over time, creating uncertainty about the 45Z credit amount over an extended credit period.
For sustainable aviation fuel, taxpayers must certify compliance with selling fuel to unrelated parties including satisfaction of general requirements, supply chain traceability requirements, information transmission requirements and other information as required. The tax credit amount is higher for sustainable aviation fuel compared to non-SAF transportation fuel.
The 45Z credit is available to registered taxpayers for the year the transportation fuel is sold. It is calculated by multiplying the applicable amount per credit (or gallon equivalent) by the emissions factor for the fuel. A five-times multiplier is available for taxpayers that produce transportation fuel at a qualified facility that satisfies the prevailing wage and apprenticeship requirements.
Notice 2025-10 provides definitions of key terms used to determine eligibility for the 45Z credit, while Notice 2025-11 provides a helpful appendix table for fuel produced after 2024 to assist in determining the emissions rates for different types of fuel.
Notice 2025-10 further clarifies the government’s position on “credit stacking” by providing anti-stacking rules to prevent taxpayers from claiming multiple credits for a single production process. For example, claiming the Section 48(a)(15) investment tax credit election to treat clean hydrogen production facilities as energy property will permanently ban a taxpayer from claiming the 45Z credit on the same facility. However, taxpayers can alternate between claiming the credit for clean hydrogen production under Section 45V or carbon oxide sequestration under Section 45Q for different tax years.
The 45Z credit is intended to replace existing fuel credits and payments that specifically incentivize blending, including the sustainable aviation fuel credit under Sections 40B and the credit for alcohol fuel, biodiesel and alternative fuel mixtures under Section 6426(k).
Proposed Treasury Regulations for the 45Z credit are forthcoming, with a draft text included in an appendix to Notice 2025-10.
Although Notice 2025-10 and Notice 2025-11 are effective as of January 10, 2025, we note that it is subject to the Congressional Review Act, which allows Congress to overturn administrative guidance through a joint resolution within a certain window of time after publication, subject to presidential approval. In addition, President Trump’s regulatory freeze executive order raises questions about implementation. We will continue to monitor and provide updates.
Treasury and the IRS invite comments from the public by April 10, 2025.
