The U.S. Department of Treasury and Internal Revenue Service issued proposed regulations for section 45Z on Feb. 4, 2026. The proposed regulations provided detail, and, in most cases, clarity on critical provisions that help identify qualifying elements of the 45Z credit. These proposed regulations received substantial commentary from industry, resulting in Treasury and the IRS holding a three-day hearing from May 27 – May 29, 2026 to discuss the proposed regulations with constituencies ranging from think tanks and fuel producers to dairy farmers.

Section 45Z Background

Internal Revenue Code Section 45Z provides a technology-neutral clean fuel production credit for qualifying transportation fuel sold after Dec. 31, 2024 and before Jan. 1, 2028, with credit amounts tied to lifecycle greenhouse gas emissions and enhanced amounts available where prevailing wage and apprenticeship requirements are satisfied. Like all production tax credits, section 45Z credits are not subject to recapture based on a Project’s placement-in-service.[1] Section 45Z credits have also been spared much of the ire of the Trump administration; section 45Z credits are not subject to near-term statutory phaseout dynamics, creating more certainty in the longevity of the credit. Key tax diligence focuses on validating and quantifying the production process from feedstock intake to “qualifying” sales (including the use of production output by the purchaser) and carbon intensity (or emissions) modeling. As there are a number of means to chemically transform biomass into a transportation fuel, risk assessment exercises and the due diligence process hinge on understanding the specific facility’s production cycle and the taxpayer’s ability to substantiate its volume of production, support its lifecycle emissions calculations with objective inputs and log its compliant sales.

May 27-29 Hearing

Due to the open-ended nature of the hearing, a variety of matters were discussed; however, one recurring theme presented by sponsors centered on the 45ZCF-GREET model. As of May 29, 2026, the IRS/DOE contract under which the agencies were cooperating to create and maintain the 45ZCF-GREET model has lapsed, leaving the timeline for an updated model unclear. Sponsors noted that model availability drives confidence in emissions outcomes and pathway planning, creating uncertainty for those looking to invest capital by upgrading or building new facilities.

This issue is exacerbated for pathways not currently reflected in the current 45ZCF-GREET Model, such as wheat starch slurry. For those pathways not modelled by IRS/DOE, the producer must apply for a Provisional Emissions Rate on a timeline that fits their tax year, but the proposed regulations do not include a PER timeline that clearly expresses a process, timeline, or point of contact for those requesting a PER to calculate their 45Z credit. Absent this workable process, eligibility risk can become timing risk, making it more difficult to monetize credits from projects that should otherwise be similarly situated to projects using pathways covered by the 45ZCF-GREET Model.

Supply-chain substantiation was another prominent theme. Beginning in 2026, only production derived from domestic feedstock will be eligible for section 45Z credits. Testimony described “origin laundering” concerns for used cooking oil and broader recordkeeping weaknesses for imported feedstocks such as used cooking oil and animal fats, especially where aggregation, relabeling, and incomplete import-stage confirmation can undermine origin evidence. Speakers noted that many market participants already operate within EPA Renewable Fuel Standard documentation frameworks, which could make harmonization of final Section 45Z substantiation rules more realistic than building an entirely new compliance architecture.

The hearing also underscored that some fuels and processes may offer stronger credit potential but require more disciplined diligence. Dairy participants emphasized the importance of updated 45ZCF-GREET Modelling for manure-based pathways, particularly because those pathways may support highly favorable emissions outcomes, while other speakers welcomed the proposed definition of a “qualifying sale” that turns on fuel being suitable for use as transportation fuel without requiring proof of ultimate end use, an approach that better reflects how fuels move through real supply chains.

Conclusions

The 45Z proposed regulations created enough certainty to kickstart what we have seen as a robust environment for claiming and transferring 45Z PTCs; however, the lack of certainty around continued 45ZCF-GREET Model updates to simplify processes while covering more pathways is limiting the potential pool of sponsors who are willing to make significant investments to upgrade or build facilities that would otherwise be credit eligible. Certain pathways that carry additional substantiation risks, such as UCO and animal fats, continue to be a focal point of both Treasury/IRS and constituent parties as everyone works for solutions that provide certainty while being administratively workable (and auditable).

We leave optimistic that Treasury and the IRS intend to resolve concerns through practical approaches to model access, pathway coverage, qualifying sales, and supply-chain substantiation. Focus appears to be on improving administrability rather than narrowing scope or introducing new limitations on credit eligibility.

 

[1] However, the credits are subject to prohibited foreign entity restrictions as other renewable energy credits beginning in 2026 for specified foreign entities and 2027 for foreign-influenced entities.