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Highlights
- The U.S. Department of the Treasury and IRS released proposed regulations on January 23, 2026, regarding the production tax credit (PTC) for clean fuels under Section 45Z of the Internal Revenue Code.
- The proposed regulations allow reliance thereon until final regulations are published in the Federal Register, provided that taxpayers follow them in their entirety and in a consistent manner.
Under Section 45Z of the Internal Revenue Code, a production tax credit (PTC) is available for each gallon or gasoline gallon equivalent of transportation fuel produced after December 31, 2024, and sold before January 1, 2030. The credit amount equals up to $1 per gallon or gasoline gallon equivalent, depending on the emissions factor of the fuel.
The credit amount is reduced to one-fifth of the otherwise available amount if prevailing wage and apprenticeship requirements are not satisfied. Additionally, the One Big Beautiful Bill Act (OBBB) imposed new prohibited foreign entity (PFE) and foreign feedstock limitations for purposes of claiming a Section 45Z PTC beginning taxable years after enactment, generally January 1, 2026. (See Holland & Knight's previous alert, "One Big Beautiful Bill Act to Scale Back Clean Energy Tax Credits Under Inflation Reduction Act," updated July 7, 2025.)
The Treasury Department and IRS previously released initial guidance on January 10, 2025, in the form of Notice 2025-10, which included a notice of intent to propose regulations on the Section 45Z Credit, and Notice 2025-11, which provided the annual emissions rate table for Section 45Z that referred taxpayers to the appropriate methodologies to determine the life cycle greenhouse gas (GHG) emissions of their fuel. (See Holland & Knight's previous alert, "Treasury Department, IRS Release Section 45Z Clean Fuel PTC Guidance," January 10, 2025.) The U.S. Department of Energy (DOE) also has released versions of the 45Z-GREET model.
A Closer Look
The proposed regulations:
- clarify the qualified sale rule to confirm that sale of a transportation fuel to an intermediary or reseller is a qualified sale
- allow sales of transportation fuels to related parties (in corporate and non-corporate structures, including consolidated corporate groups and partnerships), if that related person then sells the fuel to an unrelated person
- confirm that producers can blend transportation fuels with fossil fuels prior to a sale of the fuel
- confirm that the person who upgrades raw biogas to be interchangeable with fossil natural gas is the producer of renewable natural gas, even if such person does not compress the gas to satisfy the requirements of ASTM D8080
- note that the Section 45Z-specific version of the feedstock carbon intensity calculator published in 2026 will be used for calculating the carbon intensity adjustments under Section 45Z for feedstocks produced using certain agricultural practices
- provide preliminary procedures to obtain a provisional emission rate (PER) for those who cannot use the emissions rate table, although further DOE guidance will be required
- provide safe harbors for substantiation of a fuel's emissions rate and substantiation of the qualified sale requirement
- provide additional clarity on anti-stacking rules and anti-abuse rules
Public comments on the proposed regulations are due 60 days from formal publication in the Federal Register. The proposed regulations allow reliance thereon until final regulations are published, provided that taxpayers follow them in their entirety and in a consistent manner.
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