New Guidance for Section 45Z Clean Fuel Production Tax Credits

The U.S. Department of the Treasury and IRS released proposed regulations on February 6, 2026 for the Section 45Z Clean Fuel Production Tax Credit— a key incentive under the Inflation Reduction Act designed to accelerate the production of low-emission transportation fuels. The credit applies to clean transportation fuels produced after December 31, 2024, and sold before January 1, 2030, offering up to $1 per gallon or gallon equivalent depending on the fuel’s emissions profile.

Who Qualifies and How
The proposed regulations clarify several points, including providing examples of what encompasses production of fuel.

To claim the Section 45Z credit, the taxpayer must be the actual producer of the clean transportation fuel at a qualified facility. For the taxpayer to be considered a producer, they must perform substantial chemical processing transforming raw materials to finished fuel. The taxpayer must demonstrate genuine production activity rather than blending or compression. Taxpayers must register as a producer of clean fuel under Section 4101 at the time of production.

A qualified facility includes all components required to produce the fuel, specifically excluding such items as feedstock-related equipment and any postproduction equipment. Qualifying operations include ethanol plants and renewable natural gas (RNG) facilities using dairy manure or similar feedstocks. Facilities must be located in the U.S. or its territories. Beginning in 2026, only fuels produced from North American feedstocks (U.S., Mexico, or Canada) will qualify. Under the anti-stacking rules, facilities cannot claim other tax credits under Sections 45V, 45Q or 48(a)(15) for the same taxable year.

The transportation fuel must be suitable for use in highway vehicles or aircraft, though actual use is not required. For example, fuel that that is suitable for use in a highway vehicle or aircraft that is ultimately used as marine fuel would still qualify.

The proposed regulations also confirm what is required for qualified sales.

The fuel must be sold by the taxpayer in a qualified sale. A qualified sale occurs when fuel is sold to an unrelated third party for use in a trade or business. The proposed regulations clarify several points

• Sales to third-party distributors and other resellers count as qualified sales to the extent the fuel is ultimately used in a manner described in Section 45Z.
• Sales by a corporation to another member of its consolidated group will qualify as unrelated sales to the extent that the member ultimately sells it on to an unrelated party.
• The proposed regulations also introduce a safe harbor, allowing producers to rely on a purchaser ’s written certification of qualifying use—simplifying compliance and reducing administrative burden.

Emissions Factor
The amount of the Section 45Z credit depends on the emissions factor for the fuel produced. The emissions factor for each fuel is determined using the U.S. Department of Energy’s 45ZCF-GREET model, which measures lifecycle greenhouse gas emissions. Taxpayers must use the most recent version of the 45ZCF-GREET model that is available on the first day of the taxable year for which they are claiming the credit. For novel fuels not yet included in the model, a provisional emissions rate can be established through an approved petition process with the U.S. Department of Energy.

Prevailing Wage and Apprenticeship Requirements
As with other production tax credits, facilities qualifying for the Section 45Z credit must meet the prevailing wage and apprenticeship requirements under Sections 45(b)(7) and 45(b)(8).  Facilities placed in service before January 1, 2025, need only meet prevailing wage standards, while facilities placed in service after December 31, 2024 must also satisfy apprenticeship requirements to receive the full credit amount. Failure to meet these standards reduces the credit value to one-fifth, making early compliance planning essential.

Next Steps
The Section 45Z framework represents a shift in clean fuel incentives, focusing on rewarding producers for emissions-based performance and domestic sourcing. Comments on the proposed regulations are due by April 6, 2026, with a public hearing scheduled for May 28, 2026.

For brokers and clients, this means new opportunities to structure transactions, manage qualification risk, and explore tax insurance solutions that protect against potential disallowance or compliance challenges. QBE ’s team is closely monitoring these developments and stands ready to help brokers and clients navigate the evolving Section 45Z credit landscape.