In Brief
- IRS Proposed Regulations: The IRS announced forthcoming proposed regulations on the Clean Fuels Production Credit, including initial guidance on emission rates for newly produced clean fuel.
- Code Sec. 45Z: Provides a tax credit for clean transportation fuel with lifecycle greenhouse gas emissions under set levels, produced in the U.S. after December 31, 2024, and sold by December 31, 2027.
- 45ZCF-GREET Model: Required for substantiating emissions rates, designated as a successor to the R&D GREET model.
- Certification Requirements: Producers must register under Code Sec. 4101 and sell the fuel to an unrelated person in a qualifying manner. SAF producers need additional certifications.
- Comment Deadline: The deadline for comment submissions is April 10, 2025.
Detailed Article
Draft Regulations and Emissions Guidance on Clean Fuels Production Credit
The IRS has announced forthcoming proposed regulations on the Clean Fuels Production Credit, along with initial guidance regarding emission rates for newly produced clean fuel. This announcement was made through Notices 2025-10 and 2025-11, dated January 10, 2025.
Code Sec. 45Z: Enacted by the Inflation Reduction Act (P.L. 117-169), Code Sec. 45Z is a general business credit under Code Sec. 38. It provides a tax credit for clean transportation fuel with lifecycle greenhouse gas emissions under set levels, produced in the United States after December 31, 2024, and sold by December 31, 2027. For 2025, the Clean Fuels Production Credit applies to sustainable aviation fuel (SAF) and non-SAF transportation fuels.
Certification Requirements: To qualify for the credit, a taxpayer must register as a producer of clean fuel under Code Sec. 4101 and sell the fuel to an unrelated person in a qualifying manner during the taxable year. SAF transportation fuel producers are required to provide additional certifications to comply.
Proposed Regulations: Notice 2025-10 indicates that the IRS intends to issue proposed regulations incorporating key statutory definitions, setting credit calculation and timing rules, and clarifying which producers and types of fuel are credit eligible. The notice also discusses the Department of Energy’s 45ZCF-GREET model for determining Section 45Z emissions rates, designated as a successor to the R&D GREET model.
45ZCF-GREET Model: The forthcoming regulations would require the use of the 45ZCF-GREET model to avoid confusion with other “GREET” models like R&D GREET. The IRS explained that while the R&D GREET model is valuable for characterizing energy technologies, it is not suitable for analyses requiring high precision and certainty.
Safe Harbors: The proposed regulations include safe harbors for substantiating emissions rates and claiming credits upon reregistration application. One safe harbor allows taxpayers to substantiate emissions rates for non-SAF transportation fuel using the 45ZCF-GREET model by obtaining certification similar to SAF certification. Another safe harbor allows a person approved for reregistration to claim the credit from the date the IRS received the application, even if the approval is pending.
Comments Requested: The IRS seeks public comments on two specific matters: adapting the EPA’s Renewable Fuel Standard program for emissions rate tables and identifying clean fuel production processes currently in commercial use that may be eligible under Section 45Z but are not included in the 45ZCF-GREET model.
Initial Guidance: Notice 2025-11 provides initial guidance on emission rates under Code Sec. 45Z(b)(1)(B). It identifies the CORSIA program as an allowed methodology for determining emissions rates for SAF transportation fuel, offering two ways to obtain lifecycle emissions values: CORSIA Default and CORSIA Actual. The 45ZCF-GREET model is the second allowed methodology, with its first version expected to include the most commonly used fuel types and categories meeting Section 45Z eligibility requirements.
Credit Amounts: Under Section 45Z, a production tax credit (PTC) is available for each gallon or gasoline gallon equivalent of transportation fuel produced after December 31, 2024, and sold before January 1, 2028. The credit amount equals $1 per gallon (or $1.75 for SAF), but the actual credit amount may vary depending on the emissions factor of the fuel. The credit amount is reduced to one-fifth of the otherwise available amount if prevailing wage and apprenticeship (PWA) requirements are not satisfied.
Lifecycle Emissions Rate: To qualify for the Section 45Z credit, the transportation fuel must have a lifecycle greenhouse gas emissions rate of not greater than 50 kilograms of CO2e per MMBtu.
Comment Deadline: The deadline for comment submissions is April 10, 2025.
The IRS has requested general comments on the draft regulations and specific comments on the RFS program and clean fuel production processes.
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