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IRS notices provide initial guidance on the Section 45Z clean fuel credit
February 2025
In brief
What happened?
The IRS on January 10 released Notices 2025-10 and 2025-11, which provide guidance on the Section 45Z clean fuel production credit.
Why is it relevant?
Beginning in 2025, Section 45Z replaces the Section 40A and 40B tax credits for producing clean transportation fuel. Notice 2025-10 provides the text of anticipated Section 45Z proposed regulations in advance of their publication. Notice 2025-11 provides general information on determining emissions rates and publishes the initial emissions rate table.
Action to consider
Notice 2025-10 requests comments on the draft proposed regulations. Notice 2025-11 requests general comments on the content of the notice and specific comments on how the fuel pathways approved under the EPA’s Renewable Fuel Standards Program could be adapted for purposes of the emissions rate table. Taxpayers should consider submitting comments by the April 10, 2025, deadline.
In detail
Statutory background
Section 45Z provides a tax credit for clean transportation fuel produced by a taxpayer at a qualified facility in the United States and sold after 2024 and before 2028 to an unrelated person to produce a fuel mixture, use in a trade or business, or sell at retail and place in a fuel tank.
A qualified facility is a facility used to produce transportation fuel for which no credit has been allowed under Section 45Q, 45V, or 48. A transportation fuel is fuel that is suitable for use as a fuel in a highway vehicle or aircraft and is not derived from certain co-processing. Sustainable aviation fuel is the portion of a liquid fuel that is not kerosene, is sold for use in an aircraft, meets certain standards, and is not derived from palm fatty acid distillates or petroleum.
Fuel qualifying for the credit must have a lifecycle greenhouse gas (GHG) emissions rate not greater than 50 kilograms of CO2e per mmBTU...Treasury is required to annually publish a table providing emissions rates for similar types and categories of transportation fuels. Emissions rates for nonaviation fuels must be determined based on the most recent Greenhouse gases, Regulated Emissions, and Energy use in Transportation (GREET) model developed by Argonne National Laboratory, or a successor model. For sustainable aviation fuel, emissions rates must be determined in accordance with the most recent Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) that has been adopted by the International Civil Aviation Organization with United States agreement, or through a similar methodology that satisfies the criteria of the Clean Air Act. A taxpayer may apply for a provisional emissions rate for a fuel for which a rate has not been established.
The credit amount is an applicable amount per gallon or gallon equivalent multiplied by an emissions factor. The applicable amounts are 20 cents per gallon for transportation fuel that is not sustainable aviation fuel (nonaviation fuel) and 35 cents per gallon for sustainable aviation fuel, multiplied by five if the taxpayer meets prevailing wage and apprenticeship requirements or exceptions. A fuel’s emission factor is a comparison of a fuel’s emission rate against the baseline emissions rate of 50 kilograms of CO2e per mmBTU.
To claim the credit, a taxpayer must register under Section 4101 as a producer of clean fuel and, for sustainable aviation fuel, provide certification from an unrelated party of compliance with certain requirements.
Notice 2025-10
Notice 2025-10 provides the following anticipated proposed regulations.
Qualified facility
A qualified facility is a single production line used to produce a transportation fuel. A single production line includes all steps of the production process from the processing of feedstock through to the transportation fuel sold. It includes all components that function interdependently to produce a transportation fuel through a process that results in the lifecycle GHG emissions rate used to determine the credit. Components function interdependently to produce a transportation fuel if the use of each component is dependent upon the use of each of the other components to produce a transportation fuel.
A qualified facility includes carbon capture equipment that contributes to the lifecycle GHG emissions rate of the production process.
Whether a Section 45Z credit is disallowed for a facility for which a Section 45Q, 45V, or 48 credit was allowed generally is determined separately for each tax year and each facility. However, the Section 45Z credit is permanently disallowed if a taxpayer has elected to treat a specified clean hydrogen production facility as energy property under Section 48.
Ownership
A taxpayer is not required to own the qualified facility where the taxpayer produces transportation fuel. Fuel production is attributed to the producer and not the facility owner. Production of transportation fuel by multiple taxpayers that do not all own the facility, or by multiple owners, is allocated in proportion to the taxpayers’ interests in the gross sales.
If an unincorporated organization elects under Section 761(a) to opt out of subchapter K, each member’s undivided ownership interest in the facility is treated as a separate facility.
Producer/production
In general, the producer is the person that engages in the production of transportation fuel. The owner of a disregarded entity is treated as the producer. A producer of alternative natural gas is the person that processes the alternative natural gas to remove water, carbon dioxide, and other impurities to make it interchangeable with fossil natural gas.
Production includes all steps and processes used to make a transportation fuel, beginning with processing primary feedstocks and ending with a transportation fuel ready to be sold. Production requires substantial processing. Minimal processing, such as blending a fuel mixture or other activities that do not result in a chemical transformation, and using a primary feedstock to produce a fuel that meets the same standard as the primary feedstock, do not qualify as production.
Fuels
A fuel is any liquid or gaseous substance that can be consumed to supply heat or power and does not include electricity. Low-GHG nonaviation fuels that may qualify as transportation fuels are described.
Fuel is suitable for use if the fuel either is practically and commercially fit, or can be blended into a fuel mixture that is fit, for use as a fuel in a highway vehicle or aircraft. A fuel may be suitable for use even though use in a highway vehicle or aircraft is not the fuel’s predominant use, but it may not be only a possible or rare use. A fuel is suitable for use when no further production, refinement, or other step is necessary before the fuel is ready to be sold.
Methodologies for determining emissions rates
A taxpayer producing a type and category of nonaviation transportation fuel that is established in the applicable emissions rate table must determine the fuel’s emissions rate using the 45ZCF-GREET model. A taxpayer producing a type and category of sustainable aviation fuel that is established in the applicable emissions rate table must determine the fuel’s emissions rate using the most recent version of CORSIA Default, CORSIA Actual, or 45ZCF-GREET. The taxpayer may choose which methodology to use for each type and category of sustainable aviation fuel it produces and must use the same methodology to calculate lifecycle GHG emissions associated with all stages of fuel feedstock production and distribution.
Taxpayers must use the most recent version of a methodology that is publicly available on the first day of the production tax year or as of the date a type or category of fuel is added. Taxpayers may optionally use an updated version of an allowed methodology that becomes publicly available later in that tax year.
Provisional emissions rate
A taxpayer may obtain a provisional emissions rate for (1) a novel type of fuel not established in the applicable emissions rate table or (2) a type of fuel that is produced using a pathway or primary feedstock not established in the applicable emissions rate table. The taxpayer first must obtain an emissions value from the Department of Energy (DOE), which is a value providing the DOE’s analytical assessment of the lifecycle GHG emissions rate associated with the production of a type of transportation fuel using a particular primary feedstock and pathway. Procedures for obtaining a provisional emissions rate will be provided in regulations or other guidance.
Substantiation
Taxpayers must maintain detailed records establishing that fuel produced is a transportation fuel and on emissions rates and other requirements for the credit.
A taxpayer must attach a certification to the taxpayer’s income tax or information return for each qualified facility where the taxpayer produces sustainable aviation fuel and each tax year the taxpayer claims the credit. The certification must be prepared by a qualified, accredited certifier and contain certain specified information, and must be signed and dated no later than the extended due date of the tax return for the tax year the fuel is sold or the date an amended return or administrative adjustment request is filed.
A taxpayer may substantiate the emissions rate for a nonaviation transportation fuel that was determined using the 45ZCF-GREET model by obtaining certification in substantially the same form and manner for certifying a sustainable aviation fuel emissions rate.
Registration
A person is registered under Section 4101 when the IRS has issued a letter of registration and the registration has not been revoked or suspended. Each business unit that has a separate employer identification number, including a disregarded entity treated as a corporation and a qualified subchapter S subsidiary, is treated as a separate person.
A person other than a publicly traded company must re-register if more than 50% of ownership interests in or assets of the person changes hands. Publicly traded companies must notify the IRS about a change in ownership. Re-registration also is required if an employer identification number changes. A person whose re-registration ultimately is approved may claim the Section 45Z credit for production as of the date the IRS receives the application.
Applicants for registration must satisfy activity, acceptable risk, and satisfactory tax history tests. Applicants and registrants must make deposits, file returns, and pay taxes as required; maintain sufficient records; and notify the IRS of any change in the information submitted. The IRS may revoke or suspend a registration under certain conditions.
Observation: Notice 2024-49 provided detailed information on registration requirements and procedures.
Notice 2025-11
Notice 2025-11 provides background information on the CORSIA program for determining emissions rates for sustainable aviation fuel and the 45ZCF-GREET model used for nonaviation transportation fuel, and general guidance on determining emissions rates using these methodologies.
An appendix to Notice 2025-11 provides the initial emissions rate table. A taxpayer producing a nonaviation transportation fuel for which an emissions rate is established must use the most recent determinations under the emissions rate table to determine the fuel’s emissions rate.
A taxpayer producing a sustainable aviation fuel for which an emissions rate is established must determine the emissions rate pursuant to (1) an analysis using the most recent version of CORSIA Default or CORSIA Actual or (2) an analysis using the most recent determinations under the 45ZCF-GREET model. The taxpayer must use the same methodology for determining the emissions associated with all stages of fuel feedstock production, and distribution for a given fuel.
Additional guidance will provide the procedures for obtaining a provisional emissions rate. Provisional emissions rate requests will not be accepted until after guidance is published; however, emission rates will apply as of January 1, 2025, regardless of when issued.
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