SECTION 3. EXPLANATION OF

FORTHCOMING PROPOSED REGULATIONS

.01 Forthcoming proposed regulations . The draft text of the forthcoming § 45Z proposed regulations is contained in the appendix of this notice. This section 3 explains the draft regulatory text.

.02 Authority . The forthcoming proposed regulations would be issued under

1 Unless otherwise specified, all “section” or “§” references are to sections of the Internal Revenue Code (Code), or the regulations issued thereunder.

2 The term “mmBTU” means 1,000,000 British thermal units, and the term “Btu” means British thermal units. The term “CO2e” means, with respect to any greenhouse gas, the equivalent carbon dioxide (as determined based on relative global warming potential). See § 45Z(d)(1)-(2).

3 Notice 2022-58 also requested comments on § 45V.

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the authority granted by §§ 45Z, 4101(a) (1), 6001, and 7805(a).

Section 45Z contains several delegations of authority to the Secretary. Section 45Z(e) directs the Secretary to issue guidance no later than January 1, 2025, regarding implementation of § 45Z, including calculation of emissions factors for transportation fuel, the emissions rate table described in § 45Z(b)(1)(B)(i), and the determination of clean fuel production credits under § 45Z. Section 45Z(f)(2) further authorizes the Secretary to issue regulations regarding the fuel production attributable to the taxpayer, and § 45Z(f) (1)(A)(i)(II) authorizes the Secretary to issue guidance on certification and other information with respect to certain transportation fuels. Section 45Z(b)(1)(B) (ii) authorizes the Secretary to determine whether a model is a successor model in the case of non-SAF transportation fuel. Additionally, § 45Z(b)(1)(B)(i) directs the Secretary, subject to § 45Z(b)(1)(B) (ii) and (iii), to annually publish a table setting forth the emissions rate for similar types and categories of transportation fuels based on the amount of lifecycle greenhouse gas emissions as described in section 211(o)(1)(H) of the Clean Air Act (42 U.S.C. 7545(o)(1)(H)), as in effect on August 16, 2022 (CAA) for such fuels, expressed as kilograms of CO2e per mmBTU, which a taxpayer must use for purposes of § 45Z. See Notice 2025-11 (providing initial emissions rate table).

Section 4101(a)(1) authorizes the Secretary to prescribe regulations related to any registration required under § 4101, including the time, form, manner, and terms and conditions of such registration.

Section 6001 authorizes the Secretary to prescribe regulations related to recordkeeping, statements, and special returns. The Secretary implemented such regulations under § 1.6001-1.

Section 7805(a) authorizes the Secretary to prescribe all needful rules and regulations for the enforcement of the Code, including all rules and regulations as may be necessary by reason of any alteration of law in relation to internal revenue.

.03 Definitions . Section 1.45Z-1 of the forthcoming proposed regulations would provide definitions that would apply for purposes of § 45Z. The forthcoming proposed regulations would incorporate stat

utory definitions and provide additional or clarifying definitions with respect to § 45Z. Sections 3.03(1) through (10) of this notice address some of the key terms that would be defined in the forthcoming proposed regulations.

(1) 45ZCF-GREET model . The forthcoming proposed regulations would provide that the 45ZCF-GREET model means the model by that name developed by the Argonne National Laboratory (ANL) and published by the DOE for use in determining the amount of lifecycle greenhouse gas emissions for purposes of § 45Z. For additional information about the 45ZCFGREET model, see section 3.04(3)(a) of this notice.

(2) Fuel . The forthcoming proposed regulations would define a “fuel” as any liquid or gaseous substance that can be consumed to supply heat or power. Therefore, for purposes of § 45Z, the term “fuel” would not include electricity. For an additional explanation, see section 3.03(8)(b) of this notice.

(3) Gallon equivalent . (a) In general . The forthcoming proposed regulations would define “gallon equivalent” for purposes of § 45Z(a)(1) (A) to mean, with respect to any non-liquid fuel, the amount of such fuel that has the energy equivalent of a gallon of gasoline, which refers to the amount of such fuel having a Btu content of 116,090 (lower heating value).

(b) Non-liquid fuel . The forthcoming proposed regulations would clarify that a fuel is considered non-liquid if it is in a gaseous state at ambient pressure and temperature of 1 atmosphere and 60 degrees Fahrenheit, respectively. The forthcoming proposed regulations would also clarify that the gallon equivalent for a given non-liquid fuel is calculated by dividing the lower heating value of that fuel (measured in Btu) by the lower heating value of a gallon of gasoline (that is, 116,090 Btu), rounded to 5 decimal places.

(4) Producer and taxpayer . (a) In general . The forthcoming proposed regulations would define “producer” for purposes of § 45Z as the person that engages in the production of a transportation fuel. The forthcoming proposed regulations would define the “taxpayer” for purposes of § 45Z as the person that is registered as a producer of clean fuel

under § 4101 (or treated as the registrant for purposes of filing a claim for the § 45Z credit).

Section 45Z refers to the “taxpayer” producing and selling a transportation fuel as the person eligible to claim the credit but does not specify who that person is if the production process involves multiple persons and multiple steps. The forthcoming proposed regulations would provide clarity on this point.

(b) Producer of alternative natural gas . The forthcoming proposed regulations would provide that the “producer” of alternative natural gas, including renewable natural gas (RNG), for purposes of § 45Z is the person that processes the alternative natural gas (processor) to remove water, carbon dioxide, and other impurities such that it is interchangeable with fossil natural gas. This definition would be consistent with the purpose of § 45Z because the processor is the most active participant in the production process, and § 45Z incentivizes production. The definition of “producer” would, therefore, exclude any person that removes conventional or alternative natural gas (CANG) from a pipeline, compresses it further after removal, and then sells such further-compressed CANG (compressor). Under the proposed definition, CANG compression also would not meet the definition of “production” because compression is not a chemical transformation, and the compression process is minimal processing.

Several commenters and industry stakeholders specifically raised questions about who should be considered the producer of RNG for purposes of § 45Z. The Treasury Department and the IRS understand that the processor and the compressor are typically different persons, and that the processor typically performs most of the active production and owns (or uses) a facility. The Treasury Department and the IRS further understand that the compressor typically performs the final compression step before a fuel is used in a vehicle and typically owns (or uses) only compression equipment rather than an actual facility. As a result, the compressor would be unable to meet the requirement that transportation fuel be produced in a qualified facility as provided in § 45Z(d) (4) and § 1.45Z-1(b)(24) of the forthcoming proposed regulations and is not engag

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ing in production of a transportation fuel under § 45Z(a)(1) and § 1.45Z-1(b)(23) of the forthcoming proposed regulations.

(5) Production . The forthcoming proposed regulations would define “production” as all steps and processes used to make a transportation fuel. Under the forthcoming proposed regulations, production would begin with the processing of primary feedstock(s) and end with a transportation fuel ready to be sold in a qualifying sale. Production would not include instances where a person uses a primary feedstock to produce a fuel that meets the same ASTM standard as the primary feedstock.

The definition of “production” would also clarify that minimal processing would not qualify as production for purposes of the § 45Z credit. Minimal processing would include blending a fuel mixture or otherwise engaging in activities that do not result in a chemical transformation. Therefore, under the forthcoming proposed regulations, a person that merely blends a fuel mixture, regardless of whether the fuel mixture itself satisfies the requirements of § 45Z(d)(5)(A), is not a producer of a transportation fuel because the blending process would constitute minimal processing. For example, a person that blends different types of fuel, such as ethanol and gasoline, directly at a fuel pump (sometimes known as splash blending) would not be the producer of a transportation fuel. Further, the importation of fuel that is largely finished fuel and undergoes only minimal processing in the United States would not constitute production.

Section 45Z is a production credit that is meant to replace fuel credits and payments that specifically incentivize blending (including credits under §§ 40B and 6426(k), which incentivize SAF blending). Thus, to equate blending with production would be contrary to Congress’s purpose in enacting § 45Z.

The forthcoming proposed regulations would also incorporate the rules in § 45Z(f)(1)(A)(ii) and (f)(1)(B) requiring production to occur in the United States.

(6) Qualified facility . (a) Facility . The forthcoming proposed regulations would clarify that a “facility,” as used in § 45Z(d)(4), means a single production line that is used to produce

a transportation fuel and would include all components that function interdependently to produce a transportation fuel. The definition would also clarify the treatment of indirect, post-production, and multipurpose equipment. The definition of “facility” would also exclude CANG compression equipment as post-production equipment.

(b) Qualified facility . The forthcoming proposed regulations would clarify that a “qualified facility,” as defined in § 45Z(d) (4), means a facility that satisfies the anti-stacking rules in § 45Z(d)(4)(B) and § 1.45Z-4 of the forthcoming proposed regulations.

(7) Qualifying sale . The forthcoming proposed regulations would define a “qualifying sale” in accordance with § 45Z(a)(4). The forthcoming proposed regulations would also (1) clarify that a sale “for use . . . in a trade or business” refers to use as a fuel in a trade or business within the meaning of § 162; and (2) incorporate the sale attribution rules in § 45Z(f)(3) when fuel is sold by another member (as defined in § 1.1502-1(b)) of the taxpayer’s consolidated group (as defined in § 1.1502-1(h)).

(8) Transportation fuel . (a) In general . The forthcoming proposed regulations would define terms associated with the § 45Z(d)(5)(A) definition of “transportation fuel.”

The term “suitable for use as a fuel in a highway vehicle or aircraft” (suitable for use) would be defined to mean that the fuel either has practical and commercial fitness for use as a fuel in a highway vehicle or aircraft, or may be blended into a fuel mixture that has practical and commercial fitness for use as a fuel in a highway vehicle or aircraft. The forthcoming proposed regulations would also clarify that actual use as a fuel in a highway vehicle or aircraft is not required. For example, a fuel that is otherwise suitable for use, but is used as marine diesel fuel or marine methanol, may satisfy the definition of transportation fuel. The forthcoming proposed regulations would further provide that CANG is suitable for use once it is produced such that if further compressed it would meet the specifications of ASTM International D8080, and that a fuel that does not require further processing and may be blended with or used as a compo

nent of taxable fuel (within the meaning of § 4083) is suitable for use.

(b) Electricity . The forthcoming proposed regulations would not include electricity in the definition of “transportation fuel,” and electricity production would therefore be ineligible for the § 45Z credit, for several reasons.

First, at the time § 45Z was enacted, the Code contained an assortment of income tax credit, excise tax credit, and excise tax payment provisions for various biofuels and other alternative fuels sold or used as a fuel. These include incentives for biodiesel, renewable diesel, and several different alternative fuels (including compressed natural gas and second generation biofuel). Joint Committee on Taxation, General Explanation of Tax Legislation Enacted in the 117th Congress, JCS 1-23, at 278 (Dec. 31, 2023). Congress designed the § 45Z credit to replace these incentives, which were only available for liquid or gaseous fuels. See §§ 40(b)(6); 40A(b) (1) and (b)(2); 40B; 6426(c)-(e) and (k); 6427(e). Therefore, for purposes of § 45Z, a “fuel” refers to a liquid or gaseous substance that can be consumed to supply heat or power and does not include electricity.

Second, the anti-stacking rules within the definition of “qualified facility” in § 45Z(d)(4)(B) prevent the allowance of both a § 45Z credit and a credit for clean hydrogen production (§ 45V or 48(a)(15)) or carbon oxide sequestration (§ 45Q) with respect to a facility in a taxable year. The inclusion of the anti-stacking rules indicates that Congress was concerned about the potential for activity at a particular facility to generate multiple credits in a taxable year and wished to foreclose that possibility. This, combined with the omission of the § 45Y credit from the anti-stacking rules, suggests that the production of electricity is not eligible for the § 45Z credit. See § 45Z(d)(4)(B). Had Congress intended to include electricity as a transportation fuel for purposes of § 45Z, Congress would have included the § 45Y credit in the anti-stacking rules.

Third, the Code already provides a separate credit for clean electricity production under § 45Y. When Congress created the § 45Z clean fuel production credit, it also created the clean electricity production credit under § 45Y. Generally, the credit allowed under § 45Y is not limited

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based on how the electricity is ultimately used. If the definition of “transportation fuel” in § 45Z were read to include electricity, there would be significant overlap between the electricity eligible for a credit under § 45Z and the electricity eligible for a credit under § 45Y. A reading of § 45Z to include electricity would not be consistent with Congress’ intent in designing § 45Y specifically to incentivize clean electricity production and § 45Z to incentivize production of clean transportation fuel.

(9) Non-SAF transportation fuel . The forthcoming proposed regulations would define “non-SAF transportation fuel” for purposes of § 45Z. The forthcoming proposed regulations would also provide a list of non-SAF fuels that may qualify as a transportation fuel, as well as descriptions of such fuels. A listed non-SAF fuel that meets the applicable description must also meet all the other applicable requirements under § 45Z to qualify as a transportation fuel. The list of non-SAF fuels would generally track those in Notice 2024-49, with a few modifications to the definitions within Notice 2024-49 to address concerns raised by commenters and industry stakeholders.

(10) SAF transportation fuel . The forthcoming proposed regulations would define “SAF transportation fuel” in accordance with the § 45Z(a)(3)(B) definition of sustainable aviation fuel and would clarify that a taxpayer may meet the requirement that the fuel be “sold for use in an aircraft” if such taxpayer sells a synthetic blending component to a person that blends the fuel into a fuel mixture described in ASTM D7566.

.04 General rules . (1) Overview . Section 1.45Z-2 of the forthcoming proposed regulations would provide general rules regarding the amount and timing of the § 45Z credit. The rules would describe and clarify the credit calculation rules in § 45Z(a) to (c), including the applicable amount, the emissions factor, the emissions rate, the applicable emissions rate table, rounding, and inflation adjustment. The rules would also clarify that a taxpayer is eligible to claim the § 45Z credit only for the taxable year in which a qualifying sale of a transportation fuel occurs. See § 45Z(a) (1)(A)(ii). The rules would provide that a taxpayer may produce a transportation

fuel in an earlier taxable year than the taxable year in which the qualifying sale of such fuel occurs, and that a qualifying sale may take place no earlier than the date the fuel is produced. The forthcoming proposed regulations would also describe when a taxpayer may file a petition with the Secretary for determination of a PER and generally describe the PER process. The Treasury Department and the IRS will publish guidance establishing procedures for taxpayers to request a PER and providing the § 45Z inflation adjustment factor at a later time.

(2) Fuel measurement . The forthcoming proposed regulations would require the § 45Z credit to be calculated using the applicable amount per gallon for liquid transportation fuels and the applicable amount per gasoline gallon equivalent for non-liquid transportation fuels. The volume of a liquid fuel would be measured on the basis of gallons adjusted to ambient pressure and temperature of 1 atmosphere and 60 degrees Fahrenheit. Section 45Z directs taxpayers to use a gallon equivalent for non-liquid fuels but does not provide a baseline standard. Gasoline is the most appropriate baseline fuel for a gallon equivalency for non-liquid fuels because gasoline is the most common transportation fuel, and § 45Z is designed to incentivize cleaner transportation fuels as alternatives to existing fossil fuels. The use of a gasoline gallon equivalency is also consistent with the gasoline gallon equivalent requirement in § 6426(d)(3), which applies to many of the types of fuel that would be considered transportation fuel under § 45Z in the context of a credit that § 45Z is intended to replace. To facilitate implementation of a gallon equivalency standard for non-liquid fuels, it is necessary to specify whether the equivalency is based on a lower heating value or a higher heating value of the baseline fuel, as the two types of heating values have different energy contents. The forthcoming proposed regulations would use a lower heating value of gasoline, rather than a higher heating value, because it is a better representation of the useful energy provided by a transportation fuel.

(3) Emissions rates . (a) 45ZCF-GREET model . (i) In gen- eral . Section 45Z(b)(1)(B)(ii) provides that in the case of non-SAF transporta

tion fuel, the lifecycle greenhouse gas emissions of such fuel must be based on the most recent determinations under the Greenhouse gases, Regulated Emissions, and Energy use in Transportation model developed by the ANL or a successor model (as determined by the Secretary). The name of the “Greenhouse gases, Regulated Emissions, and Energy use in Transportation” model was changed to “Greenhouse gases, Regulated Emissions, and Energy use in Technologies” and it is now generally referred to as the “GREET” model.

The GREET model refers to a suite of models, the first version of which was released in 1995 and is now called the R&D GREET model. Since 1995, DOE maintained the GREET model to enable research regarding lifecycle analyses of hundreds of different methods of producing, delivering, and using energy. The R&D GREET model, was not designed to be used for determining emissions rates for tax credits, including the § 45Z credit, but the current suite of GREET models includes different versions, some of which are designed to facilitate particular regulatory regimes.

As of January 10, 2025, the DOE’s GREET website lists the following different versions of the GREET model: R&D GREET, 40BSAF-GREET, 45VH2GREET, 45ZCF-GREET, CA-GREET4.0, and ICAO-GREET. See http://energy. gov/eere/greet . For the reasons discussed below, for purposes of the § 45Z credit, the phrase “most recent determinations under the Greenhouse gases, Regulated Emissions, and Energy use in Transportation model” in § 45Z(b)(1)(B)(ii) is best understood as referring to determinations under the 45ZCF-GREET model. In addition, the forthcoming proposed regulations would designate the 45ZCF-GREET model as a successor model to the GREET model.

Some commenters have suggested that the R&D GREET model should be used for the § 45Z credit. However, the 45ZCFGREET model is the only appropriate GREET model to use for purposes of the 45Z credit, because the R&D GREET model is not limited to transportation fuels and includes information that is based on preliminary analyses (that is, analyses that are not yet complete, have significant

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technical uncertainties, or are still being reviewed by laboratory staff, the DOE staff, or independent experts). See gener- ally GREET, Office of Energy Efficiency & Renewable Energy, U.S. Department of Energy available at https://www.energy. gov/eere/greet .

While the R&D GREET model is a valuable tool for characterizing the benefits and impacts of energy technologies in a directional manner and testing new and updated data and parameters, it is not appropriate for use in analyses where a high degree of precision and certainty is required. Because the R&D GREET model offers users many choices regarding analysis methodology (for example, co-product accounting method and global warming potential values), different users can calculate different emissions rates with respect to the same fuel. Many of these choices would not be appropriate for the specific context of the § 45Z credit given the potentially preliminary nature of much of the information represented in R&D GREET and given that specific representations of activities, and their emissions, are needed in a specific fashion (for example, to comply with the requirements of § 45Z). Given the limitations of some of the data underlying aspects of the R&D GREET model and the fact that the model does not predetermine for the user which methodologies and accounting parameters are appropriate for compliance with the requirements of § 45Z, R&D GREET does not provide the analytical and methodological specificity necessary to meet the specific objectives or statutory requirements of the § 45Z credit.

ANL developed, and the DOE published, the 45ZCF-GREET model as a specific version of the GREET model to determine emissions rates that also meets three key parameters: (1) user-friendliness and consistency, (2) technical robustness of the pathways represented, and (3) consistency with the requirements of § 45Z. The first version of the 45ZCF-GREET model, anticipated to be released on January 10, 2025, will be available at https://

www.energy.gov/eere/greet . This first version of the 45ZCF-GREET model includes the most commonly used types and categories of fuel that are anticipated to meet the eligibility requirements to claim the § 45Z credit. Additional types and categories of fuel may be added in future versions of the 45ZCF-GREET model.

Implementation of the § 45Z credit requires that data used to calculate emissions rates reflect a given taxpayer’s specific operations and that such data be independently verifiable to the extent possible. Use of facility-specific, verifiable data ensures that the § 45Z credit is available only to those fuels that meet statutory requirements. For certain parameters, bespoke inputs are unlikely to be easily measured by taxpayers and/or independently verifiable with high fidelity, given the current status of verification mechanisms. Thus, certain parameters in the 45ZCF-GREET model are fixed assumptions, referred to as “background data,” that are based on the best available data and may not be changed by users. Alternatively, the “foreground data” in the 45ZCF-GREET model are parameters that must be input by the user. See the 45ZCFGREET User Manual ⁴ for details on background and foreground data.

(ii) 45ZCF-GREET as a “successor model”

The Treasury Department and the IRS recognize that the continued existence of the R&D GREET model and periodic updates to both the 45ZCF-GREET model and the R&D GREET model may create potential uncertainty about the meaning of “most recent determinations” with regard to the GREET model, which would be detrimental to the administration and implementation of the § 45Z credit. To avoid any potential uncertainty, the forthcoming proposed regulations would invoke the Secretary’s express delegation of authority in § 45Z(b)(1)(B)(ii) to require use of the 45ZCF-GREET model as a successor model.

This rule would be consistent with the Secretary’s determination that, for pur

poses of the § 45V credit, the 45VH2GREET model is a “successor” model to GREET and that taxpayers are required to use the most recent version of the 45VH2GREET model. ⁵ See T.D. 10023 (January 10, 2025) for the Secretary’s determination with regard to the 45VH2-GREET model and a more detailed discussion of the GREET model.

In drafting the forthcoming proposed regulations, the Treasury Department and the IRS considered the statutory definition of “lifecycle greenhouse gas emissions” in § 211(o)(1)(H) of the Clean Air Act (as in effect on August 16, 2022) and the specific objectives of § 45Z and consulted with the DOE. The 45ZCF-GREET model is a model specifically developed by ANL as a derivative of and successor to the R&D GREET model to meet the requirements and objectives of § 45Z.

(iii) Most recent determinations under GREET . Regardless of any determination by the Secretary of a successor model, the phrase “most recent determinations under the Greenhouse gases, Regulated Emissions, and Energy use in Transportation model” in § 45Z(b)(1)(B)(ii) is best understood as referring to determinations under the latest version of the 45ZCFGREET model.

After consultation with the DOE, the Treasury Department and the IRS have concluded that use of the latest version of the 45ZCF-GREET model would be appropriate because it is tailored to the administration of the § 45Z tax credit and includes features that make it easy for taxpayers to use. Use of the latest version of the 45ZCFGREET model would also ensure that the pathways and approaches provided for determining “well-to-wheel” emissions for various fuel production processes are of sufficient methodological certainty to be appropriate for determining eligibility for a tax credit. The most recent determinations under the latest version of the 45ZCFGREET model are the only determinations under a variant of a GREET model that are suitable for use and may be used for purposes of the § 45Z credit.

4 The 45ZCF-GREET User Manual, along with the 45ZCF-GREET model, is available at: https://www.energy.gov/eere/greet.

5 Similar to § 45Z(b)(1)(B)(ii), § 45V(c)(1)(B) requires the Secretary to determine lifecycle greenhouse gas emissions using “the most recent Greenhouse gases, Regulated Emissions, and Energy use in Transportation model (commonly referred to as the ‘GREET model’) developed by Argonne National Laboratory, or a successor model (as determined by the Secretary)” for purposes of the clean hydrogen production credit under § 45V.

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(iv) SAF portion of 45ZCF-GREET model . The forthcoming proposed regulations would provide that the 45ZCFGREET model can be used to determine emissions rates for SAF transportation fuel (SAF portion of 45ZCF-GREET model). The SAF portion of the 45ZCFGREET model is a “similar methodology” to CORSIA under § 45Z(b)(1)(B) (iii)(II) because, like the CORSIA program, it evaluates the full fuel lifecycle, including all stages of fuel and feedstock production through to the end use of the finished fuel. The DOE worked with the Treasury Department and other federal agencies to develop the 45ZCFGREET model, including specifications for and limitations on background and foreground data, to satisfy the statutory requirements of § 45Z. Additionally, in the context of whether the R&D GREET model could be used to determine lifecycle greenhouse gas emissions for purposes of § 40B(e)(2), ⁶ the EPA identified certain necessary components of a lifecycle greenhouse gas analysis consistent with § 211(o)(1)(H) of the CAA that the R&D GREET model lacked and determined that the newly created 40BSAFGREET 2024 model included the absent categories of emissions. ⁷ Similarly, the EPA has concluded that the newly-created 45ZCF-GREET model includes the categories of emissions it previously identified as missing from the R&D GREET model, the lack of which made R&D GREET insufficient for calculating lifecycle greenhouse gas emissions for purposes of § 211(o)(1)(H) of the CAA. ⁸

Additionally, the 45ZCF-GREET model contains certain necessary components of a lifecycle greenhouse gas analysis consistent with § 211(o)(1)(H) of the CAA. ⁹ Therefore, emissions rates for SAF transportation fuels calculated using the 45ZCF-GREET model would be based on the amount of lifecycle greenhouse gas

emissions as described in § 211(o)(1)(H) of the CAA. See § 45Z(b)(1)(B)(i).

(b) Methodologies . The forthcoming proposed regulations would designate the allowed methodologies for determining emissions rates for purposes of the emissions rate table described in § 45Z(b) (1)(B)(i). If a type and category of nonSAF transportation fuel is established in the applicable emissions rate table, a taxpayer producing such type and category of fuel would determine the fuel’s emissions rate using the 45ZCF-GREET model, as directed by the applicable emissions rate table. If a type and category of SAF transportation fuel is established in the applicable emissions rate table, a taxpayer producing such type and category of fuel would determine the fuel’s emissions rate using the most recent version of the CORSIA Default Life Cycle Emissions Values for CORSIA Eligible Fuels lifecycle approach (CORSIA Default) or the CORSIA Methodology for Calculating Actual Life Cycle Emissions Values lifecycle approach (CORSIA Actual), or the 45ZCF-GREET model, as directed by the applicable emissions rate table. Under the forthcoming proposed regulations, for each type and category of SAF transportation fuel, a taxpayer would be required to use the same methodology to calculate lifecycle greenhouse gas emissions associated with all stages of fuel feedstock production and distribution.

Section 45Z(b)(1)(B)(i) requires the emissions rate table to be based on the amount of lifecycle greenhouse gas emissions (as described in § 211(o)(1)(H) of the CAA) for such fuels. This CAA provision defines lifecycle greenhouse gas emissions as the aggregate emissions from all stages of the fuel’s production and use, including feedstock production and transportation, fuel production and distribution, and use of the finished fuel. This type of lifecycle analysis is sometimes referred to as “well-to-wheel” emissions analysis.

As a result, for each type and category of transportation fuel, the 45ZCF-GREET model also uses “well-to-wheel” emissions to calculate lifecycle greenhouse gas emissions for all stages of fuel production, as well as emissions resulting from use of the fuel in transportation.

Consistent with § 45Z(b)(1)(B)(ii), the forthcoming proposed regulations would require taxpayers to use the most recent version of an allowed methodology that is publicly available on the first day of the taxable year during which the taxpayer produced the transportation fuel for which the § 45Z credit is claimed. If a version of an allowed methodology adds a type or category of fuel after the first day of a taxable year, taxpayers must use such version for such new type or category of fuel for the entire taxable year. If an updated version of an allowed methodology becomes publicly available after the first day of the taxable year of production (but still within such taxable year), then the taxpayer could choose to treat such updated version as the most recent version of such methodology.

In the 45ZCF-GREET model, for purposes of accounting for emissions associated with hydrogen (as a production input), natural gas alternatives (as a production input or as the transportation fuel produced), electricity, and carbon capture and sequestration, rules similar to the rules under section 45V would apply.

The portions of the forthcoming proposed regulations regarding the emissions rate table and allowed methodologies (including the designation of the 45ZCFGREET model as a successor model) would apply to taxable periods ending on or after January 10, 2025.

The Treasury Department and the IRS intend to propose rules at a future date providing that taxpayers will be able to access additional reductions in calculating the lifecycle greenhouse gas emissions rates of SAF and non-SAF transportation fuels (as described in 42 U.S.C. 7545(o)

6 Section 40B(e)(2) has a requirement that a methodology similar to CORSIA must also satisfy the criteria under § 211(o)(1)(H) of the CAA, just as in § 45Z(b)(1)(B)(iii)(II). See also Notice 2024-37, 2024-21 I.R.B. 1191.

7 See Letter from Joseph Goffman, Principal Deputy Assistant Administrator for the Office of Air and Radiation, U.S. Environmental Protection Agency, to Lily Batchelder, Assistant Secretary for Tax Policy, U.S. Department of Treasury (December 13, 2023), (EPA December 2023 Letter) available at https://home.treasury.gov/system/files/136/Final-EPA-letter-to-UST-on-SAFsigned.pdf.

8 See Letter from Joseph Goffman, Assistant Administrator for the Office of Air and Radiation, U.S. Environmental Protection Agency, to Aviva Aron-Dine, Deputy Assistant Secretary for Tax Policy, U.S. Department of Treasury (January 8, 2025), (EPA January 2025 Letter) available at https://home.treasury.gov/system/files/136/January-2025-EPA-letter-to-UST-on-45zcfGREET-signed.pdf.

9 EPA January 2025 Letter.

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(1)(H)) by utilizing certain climate smart agriculture (CSA) practices for cultivating domestic corn (CSA corn), domestic soybeans (CSA soybeans), and domestic sorghum (CSA sorghum) (collectively, CSA crops) for use as SAF and non-SAF transportation fuel primary feedstocks. These additional reductions would be available to taxpayers once the Treasury Department and the IRS propose regulations, including rules for CSA, for the § 45Z credit, and an accounting of one or more CSA practices is developed for the lifecycle greenhouse gas emissions rates of CSA crops calculated under the 45ZCFGREET model.

.05 Special rules . Section 1.45Z-4 of the forthcoming proposed regulations would provide certain special rules with respect to the § 45Z credit. The rules would (1) incorporate the requirements in § 45Z(f)(1)(A)(i)(I) and (ii) that taxpayers must be registered as a producer of clean fuel under § 4101 at the time of production and produce their fuel in the United States; (2) describe the anti-stacking rules under § 45Z(d)(4)(B) for purposes of determining if a facility is a qualified facility, including examples; (3) incorporate the production attribution rules in § 45Z(f)(2) for facilities with multiple owners; (4) clarify that § 45Z does not require the taxpayer to own a facility and provide related production attribution rules; and (5) describe the recordkeeping and substantiation requirements for taxpayers claiming the § 45Z credit.

The forthcoming proposed regulations would provide an emission rate substantiation safe harbor providing that a taxpayer may substantiate the emissions rate for a non-SAF transportation fuel that was determined using the 45ZCF-GREET model by obtaining certification with respect to such fuel substantially in the form and manner described in § 1.45Z-5 of the forthcoming proposed regulations for certifying a SAF transportation fuel emissions rate determined using the 45ZCF-GREET model. The Treasury Department and the IRS are concerned about the potential abuse of the section 45Z credit where transportation fuel is produced and sold in a manner that is inconsistent with the statutory purposes. The Treasury Department and the IRS are considering the need for an anti

abuse rule in the forthcoming proposed regulations.

With respect to used cooking oil (UCO) feedstocks, the Treasury Department and the IRS are concerned about (1) the improper identification of a substance that is not UCO as UCO (for example, virgin palm oil mislabeled as UCO), which could have substantially greater emissions impacts than genuine UCO, and (2) the uncertainty of market impacts caused by incentivizing UCO (for example, the degree to which increased UCO demand would be backfilled by virgin oils such as palm oil). Both of these concerns are particularly acute for imported UCO given the lack of transparency regarding the local sources. Due to these significant concerns about the ability to reliably distinguish between imported UCO and palm oil, and the resulting risk of crediting ineligible fuels, the Treasury Department and the IRS are considering appropriate substantiation and recordkeeping requirements for imported UCO. As a result, pathways that use imported UCO will not be available in the 45ZCF-GREET model until the Treasury Department and the IRS publish further guidance. UCO is considered to be imported if it originates from a source (for example, restaurant or food processor) outside the United States and/ or is purchased from an aggregator located outside the United States.

.06 Certification of emissions rates . Section 1.45Z-5 of the forthcoming proposed regulations would provide rules for unrelated party certification of emissions rates for SAF transportation fuel (certification). The rules would describe the content, form, and manner for a taxpayer to provide certification under § 45Z(f)(1) (A)(i)(II). The Treasury Department and the IRS are developing a model certificate that will be provided at a later date. Until the model certificate is available, taxpayers may use the model certificates included in Notice 2024-6, 2024-2 I.R.B. 348, and Notice 2024-37, 2024-21 I.R.B. 1191, as examples of how to format their certification. Taxpayers should reference § 1.45Z-5 of the forthcoming proposed regulations for the substance and content of the certification.

The forthcoming proposed regulations would treat the following as qualified certifiers for the associated methodol

ogies: (1) for taxpayers using CORSIA Default or CORSIA Actual, any individual or organization with active accreditation from International Sustainability and Carbon Certification, Roundtable on Sustainable Biomaterials, or other sustainability certification scheme approved by the International Civil Aviation Organization; and (2) for taxpayers using the 45ZCF-GREET model, any individual or organization with active accreditation (i) as a validation and certification body from the American National Standards Institute National Accreditation Board or (ii) as a verifier, lead verifier, or verification body under the California Air Resources Board Low Carbon Fuel Standard program (CARB LCFS). Qualified certifiers would be required to have the relevant active accreditation as of the date they provide the certification for a taxpayer’s fuel.

The forthcoming proposed regulations would include CARB LCFS verifiers as qualified certifiers for taxpayers using the 45ZCF-GREET model as a methodology for SAF transportation fuel because CARB LCFS verifiers are experienced with evaluating information similar to the information included in the 45ZCFGREET model.

The Treasury Department and the IRS anticipate requiring unrelated party certification of CSA crops, including information related to chain of custody of CSA crops throughout the biofuel supply chain.

.07 Claim filing . Section 1.45Z-6 of the forthcoming proposed regulations would (1) describe the time and manner of filing a claim for the § 45Z credit and (2) provide special rules for cases in which the producer of a clean fuel is not the credit claimant. If an entity that is disregarded as an entity separate from its owner within the meaning of § 301.7701-2(c)(2)(i) of the Procedure and Administration Regulations (disregarded entity) or a qualified subchapter S subsidiary within the meaning of § 1361(b)(3)(B) (QSub) produces transportation fuel that is eligible for the § 45Z credit, the forthcoming proposed regulations would treat the owner of such disregarded entity or QSub as registered as a producer of clean fuel under § 4101 for purposes of claiming the § 45Z credit. In addition, the forthcoming proposed regulations would clarify that the agent of a consolidated group, when filing a Form

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7218, Clean Fuel Production Credit, to claim the § 45Z credit, must use the producer’s registration number (within the meaning of § 45Z(f)(1)(A)(i)(I) and § 1.4101-1) of the member that produced the transportation fuel. The forthcoming proposed regulations would be consistent with the § 45Z Fact Sheet FAQs and provide additional specificity and clarity.

.08 Registration . (1) Registration rules generally . Section 1.4101-1 of the forthcoming proposed regulations would provide rules regarding the approval, denial, revocation, or suspension of registration that are similar to the rules of § 4222(c) and § 48.4222(c)-1 of the Manufacturers and Retailers Excise Tax Regulations. Additionally, many of the requirements of § 1.4101-1 of the forthcoming proposed regulations would be similar or identical to the requirements of § 48.4101-1. The Treasury Department and the IRS are aware that many applicants for registration as clean fuel producers (which is required in order to claim the § 45Z credit) must also be registered under § 4101 for excise tax purposes; such applicants are therefore familiar with the registration process and must maintain other § 4101 registrations.

(2) Separate entity treatment . The forthcoming proposed regulations would generally provide that each business unit that has, or is required to have, a separate employer identification number (EIN) is treated as a separate person. The rules would provide that each disregarded entity that has an EIN and is a producer of transportation fuel for purposes of § 45Z must register as a producer of clean fuel in order to be eligible to claim the § 45Z credit. The rules would also provide that each QSub that has an EIN and is a producer of transportation fuel for purposes of § 45Z must register as a producer of clean fuel in order to be eligible to claim the § 45Z credit.

The Treasury Department and the IRS understand that, for many producers, each facility is owned by a disregarded entity. The forthcoming proposed regulations would provide registration rules that would reflect this practice while also satisfying the statu

tory requirements. The separate entity treatment rules also would provide for registration in a manner that would be similar to registering on a facility basis and would thus align more closely with other related tax provisions, including §§ 45V and 45Q (for which anti-stacking provisions apply) and the elective payment election and transfer election provisions of §§ 6417 and 6418, which are generally determined on a per-facility basis. The rules would also be consistent with (1) § 48.4101-1(a)(4), which requires separate entity treatment by providing that every business that has or is required to have a separate EIN is treated as a separate person for purposes of excise tax registrations under § 4101, (2) § 301.7701-2(c)(2)(v)(A)(3), which provides that § 301.7701-2(c)(2)(i) (concerning certain wholly-owned entities) does not apply for purposes of registration under §§ 4101, 4222, and 4412, and (3) § 1.1361-4(a)(8)(i)(C), which provides that a QSub is treated as a separate corporation for purposes of registration under §§ 4101, 4222, and 4412.

(3) Reregistration safe harbor . The forthcoming proposed regulations would provide a safe harbor for a person that has been registered by the IRS and must reregister due to a change in ownership. A person that is approved for reregistration would be eligible to claim a § 45Z credit as of the date the IRS received the application for reregistration, even if, at the time of such person’s fuel production, the IRS had not yet approved the reregistration.

(4) Section 4101(a)(1) registration requirement . Section 13704(b)(5) of the IRA provides that for transportation fuel produced after December 31, 2024, “[s] ection 4101(a)(1), as amended by the preceding provisions of this Act, is amended by inserting the phrase ‘every person producing a fuel eligible for the clean fuel production credit (pursuant to section 45Z)’ after ‘section 6426(k)(3)).’” However, § 4101(a)(1) does not reference § 6426(k)(3). A prior version of such amendment contained text that read “(as defined in section 40B or section 6426(k) (3)),” ¹⁰ but the reference to § 6426(k)(3) did not appear in the enacted version of

§ 13704(b)(5) of the IRA. The Office of Law Revision Counsel of the U.S. House of Representatives, whose functions include preparing and publishing periodically a new edition of the United States Code, executed the provision by making the insertion after “section 40B),” to reflect the probable intent of Congress. ¹¹ Such intent is also reflected in § 45Z(f)(1) (A)(i)(I). For these reasons, the forthcoming proposed regulations would require every person intending to claim a § 45Z credit with respect to the production of a fuel eligible for the § 45Z credit to register with the IRS under § 4101.