SECTION 2. BACKGROUND

.01 In general . Section 45Z, as amended by § 70521 of the OBBBA, provides an income tax credit for clean transportation fuel produced domestically after December 31, 2024, and sold by December 31, 2029. Among other requirements to qualify for the § 45Z credit, a taxpayer must produce a “transportation fuel” that meets certain suitability, emissions rate, anti-coprocessing, and anti-double-crediting requirements. See § 45Z(a)(1) and (d)(5)(A). Under § 45Z(d)(5)(A)(ii), the emissions rate requirement is met if a transportation fuel has an emissions rate ² that is not greater than a statutory baseline of 50 kilograms (kg) of carbon dioxide equivalent based on relative global warming potential (CO2e) per million British thermal units (mmBTU).

A taxpayer calculates the amount of the § 45Z credit by multiplying the applicable amount per gallon or gallon equivalent with respect to a transportation fuel produced by the taxpayer and sold in a qualified sale by the emissions factor for such fuel. See § 45Z(a)(1). Per § 45Z(a)(5), the credit amount is rounded to the nearest cent. A taxpayer’s total § 45Z credit for a taxable year is the sum of the § 45Z credit for each transportation fuel sold during the taxable year.

.02 Establishment of emissions rates . Under § 45Z(b)(1)(A), a transportation fuel’s emissions factor measures the reduction in the fuel’s emissions rate relative to the statutory baseline emissions rate of 50 kg of CO2e per mmBTU, expressed as a fraction of the statutory baseline. Under § 45Z(b)(2), any emissions factor must be rounded to the nearest multiple of 0.1.

Generally, a taxpayer must determine a transportation fuel’s emissions rate by using the annual emissions rate table published by the Secretary of the Treasury or the Secretary’s delegate (Secretary). See § 45Z(b)(1)(B). However, a taxpayer producing a transportation fuel for which an emissions rate has not been established in the annual emissions rate table may file a petition with the Secretary for determina

1 Unless otherwise specified, all references to “section” or “§” are references to sections of the Code or the Income Tax Regulations (26 CFR part 1).

2 Section 45Z(b)(1)(B)(i) provides that a transportation fuel’s emissions rate is based on the amount of lifecycle greenhouse gas (GHG) emissions (as described in § 211(o)(1)(H) of the Clean Air Act (42 U.S.C. 7545(o)(1)(H)), as in effect on August 16, 2022) for such fuel, expressed as kg of CO2e per mmBTU. See also § 45Z(d)(1)–(3).

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the establishment of emissions rates and credit eligibility that apply only to transportation fuel produced after December 31, 2025. Transportation fuel produced before January 1, 2026, even if sold after December 31, 2025, is not subject to these amendments. These statutory amendments include:

(1) The requirement in § 45Z(b)(1)(B) (iv) that the emissions rate of transportation fuel produced after December 31, 2025, must be adjusted, based on regulations or methodologies determined by the Secretary, to exclude any emissions attributed to indirect land use change (ILUC).

(2) The requirement in § 45Z(b)(1)(B) (v)(I) for the Secretary to provide a distinct emissions rate with respect to any transportation fuel derived from animal manure and produced after December 31, 2025, that is based on the specific animal manure feedstock. Such feedstocks may include dairy manure, swine manure, poultry manure, or any other sources as are determined appropriate by the Secretary. See § 45Z(b)(1)(B)(v)(I).

(3) The requirement in § 45Z(b)(1)(B) (v)(II) and (b)(1)(E) that the emissions rate cannot be less than zero for any transportation fuel produced after December 31, 2025, except for any transportation fuel derived from animal manure.

(4) The requirement in § 45Z(f)(1) (A)(iii) that transportation fuel produced after December 31, 2025, must be exclusively derived from a feedstock that was produced or grown in the United States, Mexico, or Canada.

Section 4 of this notice clarifies how a taxpayer using an allowed methodology that does not reflect these amendments should apply those amendments to determine the emissions rate of transportation fuel produced after December 31, 2025. See generally section 2.04 of this notice.

.04 Current guidance on emissions rates .

(1) In general . On February 4, 2026, the Treasury Department and the IRS published proposed regulations under § 45Z (REG121244-23) in the Federal Register at 91 F.R. 5160 (§ 45Z NPRM), which provide

guidance for determining the § 45Z credit, including the establishment of emissions rates for transportation fuels under proposed § 1.45Z-2(d). ³

Proposed § 1.45Z-2(d)(1) would implement the general rules for determining the emissions rate of a transportation fuel in § 45Z(b)(1)(B) and (D): a taxpayer would either use the applicable emissions rate table published by the Secretary or, if the applicable emissions rate table does not establish an emissions rate for the taxpayer’s fuel, a PER determined by the Secretary.

Proposed § 1.45Z-2(e) would incorporate the rules in § 45Z(b)(1)(B) regarding the annual publication of a table of emissions rates for similar types and categories of transportation fuels, including the requirement in § 45Z(b)(1)(B)(i) that the emissions rate table be published “[s]ubject to” the requirements in § 45Z(b) (1)(B)(ii) through (v).

Proposed § 1.45Z-2(g) would provide that when an emissions rate is first established for a type and category of fuel, whether in an applicable emissions rate table or by a PER determination, that emissions rate will relate back to January 1, 2025. (2) Applicable emissions rate table . Proposed § 1.45Z-2(e)(2) would provide rules for identifying the “applicable emissions rate table” that a taxpayer must use in a given taxable year. Proposed § 1.45Z-2(e)(2)(i) would clarify that the applicable emissions rate table for a taxpayer is the emissions rate table that is in effect on the first day of the taxpayer’s taxable year of production.

Proposed § 1.45Z-2(e)(2)(ii) would clarify that if a taxpayer produces a fuel for which the applicable emissions rate table establishes an emissions rate, the taxpayer must use the corresponding allowed methodologies, as specified in proposed § 1.45Z-2(e)(3), as provided in such table to determine the emissions rate for all such fuel produced during the taxpayer’s taxable year.

Proposed § 1.45Z-2(e)(2)(iii)(A) would clarify that the applicable emissions rate table establishes the emissions rate for a fuel if the emissions rate table

includes both the “type of transportation fuel” and “category of transportation fuel” (that is, the fuel’s unique primary feedstock and pathway used to produce a type of transportation fuel), as defined in proposed § 1.45Z-1(b)(35). Proposed § 1.45Z-2(e)(2)(iii)(B) would clarify that if an emissions rate table does not initially include a type or category of fuel, but an allowed methodology is updated to add such type or category of fuel during the calendar year, then that type or category of fuel is considered included in such emissions rate table.

(3) Allowed methodologies . Proposed § 1.45Z-2(e)(3)(i) would provide that a taxpayer producing a fuel for which an emissions rate is established by the applicable emissions rate table must determine the fuel’s emissions rate using the allowed methodologies described in proposed § 1.45Z-2(e)(3)(iv) and (v), as directed by the applicable emissions rate table.

Proposed § 1.45Z-2(e)(3)(ii) would require a taxpayer to use the first version of an allowed methodology that is publicly available in the taxable year of production and that includes the type and category of the taxpayer’s fuel. However, 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.

The preamble to the § 45Z NPRM discusses how 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 the most recent determinations under the 45ZCF-GREET model. To address any potential uncertainty given the continued existence of other GREET models, proposed § 1.45Z-2(e)(3)(iii) would designate the 45ZCF-GREET model as a successor model under § 45Z(b)(1)(B)(ii). Proposed § 1.45Z-2(e)(3)(v) would clarify that the SAF portion of the 45ZCF-GREET model is a “similar methodology” to CORSIA under § 45Z(b)(1)(B)(iii)(II).

3 Terms used in this notice have the same meaning as provided in § 45Z and the § 45Z NPRM.

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Proposed § 1.45Z-2(e)(3)(iv) and (v) would identify the allowed methodologies for determining emissions rates for purposes of the emissions rate table described in § 45Z(b)(1)(B)(i). If the applicable emissions rate table establishes the emissions rate for a non-SAF transportation fuel, a taxpayer producing such fuel would determine the fuel’s emissions rate using the 45ZCF-GREET model, as directed by the applicable emissions rate table. If the applicable emissions rate table establishes the emissions rate for a SAF transportation fuel, a taxpayer producing such 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), with the agreement of the United States, or the 45ZCF-GREET model, as directed by the applicable emissions rate table. The proposed regulations would also clarify that, for a given type and category of SAF transportation fuel, a taxpayer must use the same methodology to calculate lifecycle GHG emissions associated with all stages of SAF transportation fuel production, from fuel feedstock production through distribution.

Proposed § 1.45Z-2(e)(3)(iii)(B) would provide that in the 45ZCF-GREET model, for purposes of accounting for emissions associated with natural gas alternatives (as a production input or as the transportation fuel produced), rules similar to the rules under § 45V apply, unless otherwise specified by the 45ZCF-GREET model with respect to technical modeling issues that are subsequently identified by the DOE or technical differences arising from the application of the § 45V rules to the 45ZCF-GREET model. Section 1.45V-4(f)(3)(v) provides generally that for purposes of determining the lifecycle GHG emissions rate of a process that uses methane derived from biogas sourced from animal waste, the associated emissions must use an alternative fate derived from the national average of all animal waste management practices. ⁴ That approach is incompatible with § 70521(c)

of the OBBBA, requiring distinct emissions rates, based on the specific animal manure feedstock, for transportation fuels derived from animal manure. Section 3.02 of this notice provides guidance on the emissions associated with natural gas alternatives derived from animal manure for § 45Z purposes, implementing this OBBBA amendment.