IRS issues 45Z biofuels guidance

WASHINGTON — The Internal Revenue Service has issued guidance on Section 45Z of the Clean Fuels Production Tax Credit, clarifying the tool and how it supports biofuel production.

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.

The Treasury Department will issue a final rule on the guidance this fall.

The guidance was released alongside the U.S. Department of Energy’s 45Z Clean Fuel Greenhouse gases, Regulated Emissions and Energy use in Technologies model, giving biodiesel, renewable diesel, sustainable aviation fuel and ethanol producers the tool they need to calculate the claim for the 45Z Clean Fuel Production Credit.

The GREET model was developed by Argonne National Laboratory and is used to assess the life cycle environmental impacts of fuels and energy systems, including greenhouse gas emissions, fossil fuel consumption, air pollutant emissions and water consumption.

The 45ZCF-GREET version is the specific model used for compliance with the 45Z tax credit.

The U.S. Department of Agriculture’s Feedstock Carbon Intensity Calculator will be used to calculate field-level carbon intensity score for crops. A lower CI score can help lower the overall carbon intensity for biofuels such as ethanol, potentially making the fuel eligible for a higher 45Z credit.

Biofuel Producers

The credit itself goes to the biofuel producers, not directly to farmers. Each biofuel plant will determine how any value generated through the credit is passed back to farmers.

The calculator considers factors including actual yield, nitrogen use and efficiency, nitrogen inhibitors, tillage practices, grazed cover crops, manure, soil testing, grain deliverability and the major land resource area where the grain is produced.

For farmers, the best steps are to keep accurate records of farming practices and inputs, stay current on soil testing, consider practices that improve efficiency and soil health, and talk with their ethanol plant about it plans for 45Z.

Transition Rules

The notice also provides transition rules for applying changes made by the Working Families Tax Cuts, including rules addressing used cooking oil 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.

In addition, the model also incorporates improved carbon scoring data for inputs such as natural gas and provides calculations covering fuels produced in both 2025 and 2026.

“This guidance helps America’s farmers, ranchers and fuel producers access growing opportunities in the domestic biofuels market,” said IRS CEO Frank 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.”