Key Takeaways In Treasury’s Proposed Regulations For The 45Z Clean Fuel Production Credit
On February 3, 2026, the Department of Treasury and the Internal Revenue Service (IRS) issued proposed regulations for the Clean Fuel Production Credit.
On February 3, 2026, the Department of Treasury and the Internal Revenue Service (IRS) issued proposed regulations for the Clean Fuel Production Credit (§45Z). The proposed regulations were published in the Federal Register on February 4, 2026, and are generally consistent with the prior guidance issued.
Noted below are key changes and additions, as well as clarifying or confirmatory guidance that was issued in the proposed regulations.
Jump to a section:
Sold for use in a trade or business
A taxpayer is eligible for the 45Z credit only if it produces transportation fuel and subsequently sells it to an unrelated person (i) for use by such person in the production of a fuel mixture, (ii) for use by such person in a trade or business, or (iii) such person sells such fuel at retail to another person and places such fuel in the fuel tank of such other person. The proposed regulations confirm that the term “sold for use in a trade or business” includes sales of fuel to an intermediary or reseller. The definitions in Section 3.03(7) and the "Appendix - Draft Text of Forthcoming Proposed Regulations" of Notice 2025-10 previously defined the term to mean fuel sold for “use as a fuel” in a trade or business. After stakeholders raised concerns that this language could prevent sales for resale, the proposed regulations removed the “use as a fuel” requirement from the definition of “sold for use in a trade or business.” The proposed regulations also conforms the definition for “sold for use in a trade or business” with the meaning under Internal Revenue Code Section 162.
Safe Harbor Certificates
The proposed regulations introduce two new safe harbors for substantiating the emissions rate for a transportation fuel as well as substantiation for qualified sales. For non-SAF transportation fuel, taxpayers may substantiate an emissions rate determined under the 45ZCF-GREET model by obtaining a certification in substantially the same manner required for sustainable aviation fuel (SAF) under proposed regulation §1.45Z-5. For qualified sales, taxpayers may obtain from the purchaser a certificate in substantially the same form as described in proposed regulation §1.45Z-4(g)(3)(ii). However, a key requirement is the taxpayer must obtain the certificate from the purchaser prior to or at the time of sale (or, for multiple sales, before or at the first covered sale). In addition, the proposed regulations state the Purchaser agrees to provide the person liable for tax with a new certificate if any information in the certificate changes.
Related Party Sales
The proposed regulations adopt a broader related-party “look-through” rule. Under Notice 2025-10, a taxpayer that is a member of a consolidated group is treated as selling fuel to an unrelated person if another member of the group (the related person) ultimately sells the fuel to an unrelated person. Under the broader related-party rules, a taxpayer that is not a member of a consolidated group is also treated as selling fuel to an unrelated person if and when a related person sells the fuel to the unrelated person.
Energy Attribute Certificates & Incrementality
Certain taxpayers may purchase energy attribute certificates (EACs) such as renewable energy certificates (RECs) to reduce their carbon intensity score and resulting emissions rate. The proposed regulations confirm that when incorporating EACs into the 45ZCF-GREET model, rules similar to final regulation §1.45V-4(d) apply. When applying the rules for purposes of the 45ZCF-GREET-Model, the facility is considered placed in service in the first taxable year it produces transportation fuel. The proposed regulations require the EAC-generating facility (or if the EAC facility uses carbon capture and sequestration technology) to have a commercial operations or placed in service date no more than 36 months prior to the first day of the taxable year in which the 45Z facility first produced transportation fuel.
Emissions Rate Table
The proposed regulations clarify that the applicable emissions rate table establishes the emissions rate for a fuel if the emissions rate table includes both the type and category of that fuel. The applicable emissions rate table for a taxpayer is the first publicly available emissions rate table that is in effect during the taxpayer's taxable year of production. However, if an allowed methodology is updated with respect to an included type or category of fuel and is publicly available after the first day of the taxable year of production (but still within such taxable year), then the taxpayer could choose to treat such updated version as the most recent version of such methodology. If an emissions rate table does not initially include a type or category of fuel but an allowed methodology is updated to add such type or category during the calendar year, then that fuel type or category will be considered included in such emissions rate table, and an impacted taxpayer must use this version as its the first publicly available version that includes its type and category of fuel.
Facility Ownership
The proposed regulations confirm the taxpayer is not required to own the qualified facility and credit eligibility is tied to the production of transportation fuel at a qualified facility and subsequent qualified sale.
Timing of Sale
The proposed regulations confirm that production of a transportation fuel may occur in a prior taxable year than the taxable year in which the qualified sale of the fuel occurs, but that a qualified sale may not occur before the date the fuel is produced.
Double Crediting
Code §45Z(d)(5)(A)(iv) states transportation fuel means a fuel which “is not produced from a fuel for which a credit under this section is allowable.” The proposed regulations clarify that the first transportation fuel in the production chain qualifies for the §45Z credit. However, a fuel could still qualify for the §45Z credit if its production process uses a transportation fuel solely as a process fuel or other non-primary-feedstock input.
Feedstock
The proposed regulations confirm that transportation fuel produced after December 31, 2025, must be exclusively derived from a feedstock that was produced or grown in the United States, Mexico, or Canada.
Negative Emissions Rate
Except for transportation fuel in which its primary feedstock is derived from animal manure, the proposed regulations confirm that the emissions rate may not be less than zero for any transportation fuel produced after December 31, 2025.
Indirect Land Use
The proposed regulations confirm that the emissions rate should exclude any emissions attributed to indirect land use change for transportation fuel produced after December 31, 2025.
Production
The proposed regulations clarify that the term production must involve substantial processing by the producer and does not include instances in which a person engages in minimal processing such as creating a fuel mixture or otherwise engaging in activities that do not result in a chemical transformation. For example, this definition of production would exclude any person that removes conventional or alternative natural gas (CANG) from a pipeline, compresses it further after removal, and then sells such further compressed CANG; compression of CANG that is already interchangeable with fossil natural gas would also not meet the proposed definition of production.
Carbon Capture Equipment
The proposed regulations confirm carbon capture equipment will be considered a part of the qualified facility if the equipment contributes to the lifecycle GHG emissions rate of the transportation fuel, which includes emissions from all stages of the fuel’s production and use, including feedstock production and transportation, fuel production and distribution, and use ofthe finished fuel.
Undenatued Ethanol
There was an open question if undenatured ethanol would qualify as transportation fuel as the previous guidance only referenced denatured ethanol. The proposed regulations clarify that undenatured fuel ethanol that meets the qualifications of ASTM D8651 for blending with gasoline and that has an emissions rate that is not greater than 50 kilograms of CO2e per mmBTU meets the definition of non-SAF transportation fuel.
Suitable Use
Code §45Z(d)(5)(A)(i) specifies transportation fuel means a fuel which “is suitable for use as a fuel in a highway vehicle or aircraft.” The proposed regulations clarify that actual use as a fuel in a highway vehicle or aircraft is not required.
Written or electronic comments must be received by April 6, 2026 and a public hearing will be held on May 28, 2026. Taxpayers may rely on the proposed regulations as long as they rely on them in their entirety and in a consistent manner.
.webp)
.png)