The Internal Revenue Service (IRS) has issued an update on clean-fuel tax-credit provisions implemented under President Donald Trump’s One Big Beautiful Bill (OBBB).
Why It Matters
The proposal outlines how domestic producers of transportation fuels with lower life cycle greenhouse gas emissions can qualify for a per-gallon income tax credit through 2029, a policy intended to drive investment in lower-carbon fuels.
The rules would replace and consolidate prior biofuel incentives and provide clarity on issues such as emissions rate calculations, certification, and the definition of a qualified sale, areas that producers said were essential for market certainty, according to an IRS release.
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What To Know
The Treasury Department and the IRS have released new proposed rules that explain how U.S. companies producing clean transportation fuel can qualify for a federal tax credit created under the One, Big, Beautiful Bill.
They include “important changes” to the 45Z clean fuel production credit, detailing eligibility, calculation, and registration requirements under the OBBB.
The credit—commonly known as the 45Z clean fuel production credit—was changed by the new law, and the proposal lays out how producers can show they are eligible and how they should calculate the amount they can claim.
These rules apply to companies that make cleaner fuels for cars, trucks, and other transportation.
According to the agencies, the goal is to give producers a clear, consistent way to measure the environmental benefits of their fuel and determine the value of their credit.
The proposal is the next step in implementing the clean‑energy incentives written into the OBBB.
The OBBB made several changes to section 45Z. They include:
- Extending the credit through 2029;
- Limiting eligible feedstocks to those grown or produced in the United States, Mexico, or Canada;
- Adding restrictions related to prohibited foreign entities;
- Broadening sale attribution for related intermediaries;
- Eliminating the special rate for sustainable aviation fuel;
- Adding an anti-abuse provision to prevent double crediting;
- Prohibiting negative emissions rates except for fuels derived from animal manure;
- Requiring feedstock-specific emissions rates for fuels derived from animal manure;
- Excluding indirect land use changes from emissions rates
The proposal clarifies several technical points, including the treatment of qualified sales to unrelated parties that subsequently resell fuel in their trade or business, and confirms that denatured and undenatured ethanol qualify as transportation fuels for 45Z purposes.
What People Are Saying
The IRS says: “The Department of the Treasury and the Internal Revenue Service today issued proposed regulations for domestic producers of clean transportation fuel to determine their eligibility for and calculate the clean fuel production credit under the One, Big, Beautiful Bill. The new law made important changes to what is often referred to as the 45Z credit…
“The proposed regulations provide guidance on the determination of clean fuel production credits, emissions rates, and certification and registration requirements. They provide further certainty and clarity for taxpayers and address key issues raised by stakeholders.”
Emily Skor, CEO of Growth Energy, said: “A strong, well-implemented 45Z credit can unleash lower-cost fuels, rebuild farm income, and open long-term market opportunities for American manufacturing. We applaud the Department of Treasury and the Trump administration for working to advance this rulemaking to chart a clear path for billions of dollars in new investments in U.S. energy leadership.
“The proposed rule provides much-needed clarity around key issues, including how credits will be calculated and who is eligible. We are encouraged that Treasury’s latest draft reflects Growth Energy’s comments regarding the need to offer greater freedom and flexibility to producers around ‘qualified sale’, production of undenatured ethanol for export, and implementation of provisions from the One, Big, Beautiful Bill Act.
“However, some key questions still remain unresolved. Before the rule is finalized, we urge regulators to swiftly release an updated 45Z-CF GREET model that appropriately reflects the removal of indirect land use change and includes the use of farm practices to count toward carbon reduction goals.”
Brian Jennings, CEO of the American Coalition for Ethanol, said: “We are grateful that Treasury’s proposed rule begins to provide ethanol producers and others more certainty and answers about how to claim the 45Z credit going forward, and we look forward to additional clarity on how ethanol producers can monetize low-carbon farming practices through the tax credit.”
What Happens Next
The IRS will take public comments before finalizing the rules.
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