IRS issues notice on 45Z clean fuel production credit to support domestic biofuel production, American agriculture

The Internal Revenue Service issued guidance Sept. 8 on the section 45Z clean fuel production credit “to empower America’s crop and livestock farmers, ranchers and fuel producers across the country and help them access the growing domestic biofuels market in a way that makes the tax credit work for them,” IRS stated.

“Today’s guidance helps America’s farmers, ranchers and fuel producers access growing opportunities in the domestic biofuels market,” said IRS CEO Frank J. Bisignano. “This guidance helps unlock billions of dollars for America’s agricultural producers, provides greater certainty for investment across rural America, strengthens domestic biofuel production and helps lower fuel costs for American consumers.”

Notice 2026-53 provides the 2026 emissions-rate table used to calculate the clean fuel production credit and provides additional guidance, including on the use of manure-derived fuels and regenerative-agricultural practices, supporting American biofuel production.

Notice 2026-53

The Working Families Tax Cuts amended and extended section 45Z, including making several changes that require technical modeling updates to the 45ZCF-GREET model used to determine emissions rates.

The section 45Z proposed regulations, which were issued Feb. 4 and are under final consideration by the IRS and U.S. Department of the Treasury, proposed rules implementing the WFTC changes to the clean fuel production credit, including addressing how the annual emissions-rate tables work and which table and models a producer should use to determine the emissions rate of a particular fuel. 

The Sept. 8 notice provides certain technical modeling language used to implement WFTC-mandated model updates for manure-derived fuels.

This notice addresses how producers should account for WFTC changes when using the emissions-rate table and allowed models.

The U.S. DOE is developing corresponding updates to the 45ZCF-GREET model.

The 45Z proposed regulations indicated that the IRS would provide further guidance on how USDA rules on regenerative-agricultural practices will be integrated into the 45ZCF-GREET model once the USDA finalized its rules, which USDA did June 29.

This notice provides a safe harbor that will be available for 2025 clean-fuel production. 

The notice also provides transition rules for applying changes made by the WFTC when an allowed methodology has not yet been updated to reflect those changes, including rules addressing used cooking oil (UCO) and other feedstocks.

Among other changes, the law:

• Requires emissions rates to exclude emissions attributable to indirect land-use change.

• Limits eligible transportation fuel to fuel derived exclusively from feedstocks produced or grown in the United States, Mexico or Canada.

• Prohibits negative emissions rates, except for transportation fuel derived from animal manure.

• Requires distinct emissions rates for transportation fuels derived from specific animal-manure feedstocks.

The clean fuel production credit, as modified by the WFTC, provides a tax credit for eligible clean transportation fuels produced domestically and sold in a qualified sale, including sustainable aviation fuel (SAF) and other clean fuels.

The credit amount generally depends on a fuel’s lifecycle greenhouse-gas emissions rate, with lower-emission fuels qualifying for larger credits.

The Sept. 8 notice provides the 2026 emissions-rate table used to calculate the credit and allows certain regenerative-agricultural practices and farm-specific manure-management practices to be reflected in emissions calculations, helping agricultural producers participate in the growing domestic biofuels market.

For agricultural feedstocks, the guidance allows taxpayers to account for qualifying low-carbon agricultural practices consistent with USDA’s technical guidelines and the 45Z-specific Feedstock Carbon Intensity Calculator.

The guidance also provides transition relief for fuel produced in 2025 and 2026 from certain requirements relating to the development of a nutrient budget before nutrients are applied.

The guidance provides for distinct emissions rates for transportation fuel derived from specific animal manure feedstocks, as required by the WFTC.

The 2026 emissions-rate table includes dairy manure and swine manure, and the treasury department and IRS anticipate that the 45ZCF-GREET model will be updated later in 2026 to include poultry manure and beef manure as primary feedstocks.

The guidance also allows farm-specific prior manure-management practices to be taken into account in certain circumstances, allowing emissions calculations to better reflect conditions on individual farms.