SABR welcomes proposed 45Z rules

The U.S. Department of the Treasury and IRS issued long-awaited proposed regulations Feb. 3 for the section 45Z clean fuel production credit, which governs tax incentives for low-emission transportation fuels produced between Jan.1, 2025, and Dec. 31, 2029.   

The proposed rules implement major changes mandated by the “big, beautiful bill” passed in July, focusing on prioritizing domestic feedstock and streamlining calculations.  

One of the big questions for the Sustainable Advanced Biofuel Refiners Coalition was whether the proposed rule would just cover 2025 regulations or whether it would also cover 2026 and beyond, since the changes made to 45Z in July 2025 did not take effect until Jan. 1, 2026.  

So effectively there are two programs—one for 2025 and one for 2026 and beyond.  

The proposed regulations do indeed cover both programs: 2025 and 2026 and beyond.  

SABR said the announcement is a positive step that provides the industry a degree of certainty.   

“These proposed rules will provide clarity for the program and a much-needed signal to the market to move forward,” said SABR CEO Joe Jobe.  

The biodiesel markets have been nearly paralyzed for over a year by the policy uncertainty created by lack of implementing regulations, which caused severe economic harm to farmers, biodiesel producers and all stakeholders in the biodiesel value chain.   

“We very much appreciate that treasury and the IRS issued these proposed regulations clarifying many questions that were raised by preliminary guidance issued a year ago,” Jobe said. “And we especially appreciate that they included specific safe-harbor provisions, although we are still trying to confirm how those provisions will work from a practical standpoint.”  

Key highlights of the new proposed regulations for 45Z include:  

• Safe harbors—two safe harbors are provided, one for substantiating emissions rates with respect to non-sustainable aviation fuel (SAF) transportation fuel and the other for substantiating qualified sales of transportation fuel.   

• Prevailing wage requirements—the proposal makes no changes to prevailing wage or apprenticeship rules in place since June 2024.  

• Domestic feedstock limitation—fuels must be produced from feedstocks grown or produced in the United States, Mexico or Canada to be eligible for the credit, excluding foreign waste feedstocks.  

• Removal of land-use penalties—the proposal removes the “indirect land-use change” (ILUC) penalty on agricultural feedstocks. This significantly boosts the eligibility and value of the credit for corn-based ethanol and soy-based biofuels.  

• Elimination of special SAF rate—the proposed rules confirm the removal of the special higher rate for SAF, capping the credit at $1 per gallon (down from $1.75) for all fuels.  

• Carbon-intensity (CI) focus—the credit remains directly tied to the lifecycle CI of the fuel, with lower CI scores resulting in higher credits.  

• Treatment of negative emissions—the regulations prohibit negative emissions rates for most fuels, except for those derived from animal manure, which may use specific, more favorable, negative CI scores.  

• Registration and compliance—taxpayers must be registered with the IRS using Form 637 at the time of production to claim the credit.  

• “Qualified sale” definition—the rules provide clarity on what constitutes a “qualified sale,” specifically allowing for sales to third-party intermediaries. The proposal would allow producers, many of whom are smaller, to qualify for credits if they sell to resellers rather than directly to consumers. Previous guidelines had left resellers unsure whether they qualified.  

• Future GREET model updates—the proposal sets the stage for further updates to the 45ZCF-GREET model to allow for the inclusion of climate-smart agriculture (CSA) practices (e.g., no-till, cover crops) to reduce CI scores.  

The proposal was welcomed by agricultural and biofuel groups such as the American Soybean Association and Renewable Fuels Association for favoring domestic producers, though many still await the finalized GREET model to fully determine the impact on specific fuel pathways.  

A public hearing is scheduled for May 28.