Aircraft Club: Section 45Z credit guidance released

In detail  

Section 45Z provides a tax credit for clean transportation fuel produced at a qualified facility in the United States and sold to an unrelated person for various uses. To qualify, the fuel must meet specific lifecycle greenhouse gas (GHG) emissions criteria published by Treasury in an annual table of emissions rates for different fuel types. Nonaviation fuels are subject to the Greenhouse gases, Regulated Emissions, and Energy use in Technologies (GREET) model, while sustainable aviation fuels are subject to the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) or similar methodologies. The Section 45Z credit amount is determined by the fuel's emissions factor and applicable rates, and companies that satisfy the prevailing wage and apprenticeship requirements are eligible to increase the credit amount by a multiple of five. 

Observation: Section 45Z’s reliance on GREET and CORSIA to determine whether fuels meet emissions and production standards is consistent with other technology-neutral credits enacted as part of the IRA.

Notice 2025-10 details proposed rules under Section 45Z for qualified facilities, ownership, and production. The notice provides that (1) a qualified facility includes all components that function interdependently to produce transportation fuel and (2) carbon capture equipment can be used to contribute to the lifecycle GHG emissions rate. Significantly, a company is not required to own the facility to claim a Section 45Z credit, as production is attributed to the producer. Notice 2025-10 clarifies that a company must engage in substantial processing activities, which excludes minimal processing activities like blending, to qualify as a producer. Additionally, the fuels must be suitable for use in highway vehicles or aircraft. The notice also provides methodologies for determining emissions rates for different fuel types.

Observation: Notice 2025-10 provides rules that may be included in forthcoming proposed regulations on Section 45Z. It provides preliminary guidance that is not binding on taxpayers. For additional information about these proposed rules, please see PwC Insight IRS notices provide initial guidance on the Section 45Z clean fuel credit. 

Taxpayers may obtain a provisional emissions rate for novel fuels or those using un-established pathways under Notice 2025-10 by first obtaining an emissions value from the Department of Energy. Detailed records must substantiate the production and emissions rates for the credit, and certification is required for sustainable aviation fuel. Registration under Section 4101 is necessary to qualify for the credit, with specific requirements for re-registration and notification of ownership changes.

Notice 2025-11 provides background on the CORSIA program and the 45ZCF-GREET model for determining emissions rates. Taxpayers are required to use the most recent determinations from the emissions rate table for nonaviation fuels and choose between CORSIA or 45ZCF-GREET for sustainable aviation fuels.

Observation: The GREET life cycle analysis was developed by the Department of Energy to assess the environmental impacts associated with technologies, fuels, products, and energy systems across various stages of the supply chain. Other IRA credits that rely on the GREET model include Section 40B for sustainable aviation fuel and Section 45V for clean hydrogen. See our PwC Insights for more information: 

• Final regulations under Section 45V expand options for determining greenhouse gas emissions
• IRS notice provides additional safe harbors for sustainable aviation fuel tax credit

For additional information about Notice 2024-49, please see PwC’s June 2024 Aircraft Club Newsletter.