Overview: What Is Section 45Z?
Section 45Z provides a production tax credit (PTC) for clean transportation fuels produced in the U.S. and sold to unrelated parties. The credit amount is based on the fuel’s lifecycle greenhouse gas (GHG) emissions, rewarding lower-emission fuels with higher credits. The credit is available for fuel produced and sold after December 31, 2024, and through December 31, 2029.
Credit Value & Eligibility
- Base Credit Rate: $0.20/gallon for non-aviation fuel and $0.35/gallon for aviation fuel, multiplied by the CO₂e emissions factor.
- Maximum Credit: $1.00/gallon (non-aviation) or $1.75/gallon (sustainable aviation fuel), subject to emissions factor and prevailing wage & apprenticeship (PWA) requirements.
- Emissions Factor: Calculated proportionally to a maximum emission rate standard of 50 kg CO₂e per 1 million BTUs.
- Eligibility: Fuel must be produced and sold in the U.S. to an unrelated party. The credit is not retroactive and can only be claimed for fuel produced after December 31, 2024.
- Refundable/Transferable: Transferable; refundable only to tax-exempt entities.
- Filing: Pre-registration is required for refundability or transferability. Detailed documentation on facility attributes, wage, construction, and operational data is required. The credit is claimed via the annual federal tax return, starting the year the project is operational.
Legislative Updates: OBBB & 2025 Changes
Recent changes from the One Big Beautiful Bill (OBBB) and related executive orders have reshaped the 45Z credit:
- Extension: The credit is now available for fuel produced through December 31, 2029.
- Feedstock Restrictions: Starting in 2026, only feedstocks grown or produced in the U.S., Mexico, or Canada qualify.
- No Negative Emissions: Negative emissions rates are prohibited for most fuels after 2025, except for animal manure-derived fuels.
- No Double Credits: Fuels that already received a 45Z credit cannot be used to claim another.
- Foreign Entity Restrictions: Credits are denied to specified foreign entities and, after a phase-in, to foreign-influenced entities.
- Transferability: Transfer of credits to specified foreign entities is prohibited.
- Executive Order Impact: The Treasury is directed to rapidly implement these changes, eliminate market distortions, and enforce stricter “beginning of construction” rules for eligibility.
Compliance & Foreign Entity Rules
The OBBB and IRS guidance have introduced Foreign Entity of Concern (FEOC) rules:
- Prohibited Foreign Entities: Entities controlled by or with significant influence from China, Russia, North Korea, or Iran are ineligible for the credit.
- Material Assistance: If key components or technologies are sourced from a prohibited foreign entity, the credit may be denied.
- Effective Control: Financial arrangements or licensing agreements with prohibited entities can also disqualify a project.
- Guidance: The IRS is expected to issue further guidance on compliance, material assistance ratios, and safe harbor provisions.
Our 45Z Consulting Services
CFO Services offers a comprehensive suite of consulting solutions to help you maximize your 45Z credit value while ensuring full compliance with IRS, DOE, and Treasury requirements:
- Eligibility Assessment: Analyze your fuel production process and feedstock sourcing to determine 45Z qualification.
- Lifecycle Emissions Modeling: Calculate and document GHG emissions to maximize your credit.
- Regulatory Compliance: Stay ahead of IRS rules, OBBB updates, and reporting requirements.
- Credit Optimization: Identify opportunities to enhance your credit value and avoid disqualification pitfalls.
- Audit Readiness: Prepare robust documentation and compliance reports for each tax year.
- Monetization Support: Manage IRS pre-filing registration for direct pay or credit transfer elections.
Why Choose CFO Services?
- Proven Expertise: Decades of experience in federal, state, and local incentives, with deep knowledge of clean energy tax credits and compliance.
- Integrated Tools: Proprietary software and AI agents streamline data tracking, reporting, and lifecycle analysis.
- Scalable Solutions: Tailored support for single-site projects or multi-state portfolios.
- Up-to-Date Guidance: Our team actively tracks IRS updates, legislative changes, and executive orders to keep you compliant and competitive.
Claim Your 45Z Credit
The 45Z Clean Fuel Production Credit is a powerful opportunity—but only for those who act decisively and prepare thoroughly. Let us help you navigate the regulatory landscape, optimize your credit, and build a cleaner future.
Contact CFO Services today to schedule a consultation and begin your journey toward 45Z compliance and maximized incentives.
