The IRS has issued new guidance for the Section 45Z clean fuel production credit, and the Department of Energy has updated the model many producers use to calculate lifecycle emissions. The changes, outlined in IRS Notice 2026-53 and the September 2026 45ZCF-GREET update, affect which feedstocks qualify, how emissions are measured, and what documentation and modeling choices may matter for 2026 claims.
The development is mainly relevant to businesses producing domestic clean transportation fuel, including renewable natural gas, sustainable aviation fuel, and fuels using crop-based or waste-based feedstocks. For owners and investors in energy, agriculture, and closely held operating businesses, the tax issue is straightforward: eligibility and credit size can change based on feedstock origin, manure category, and which version of the model is used.
What Changed
According to the IRS guidance summarized by Global ELR and JD Supra, Notice 2026-53 provides the calendar-year 2026 emissions rate table for Section 45Z. The credit applies to domestic production of clean transportation fuel produced after December 31, 2024, and sold or used by December 31, 2029.
The notice also implements changes tied to the One Big Beautiful Bill Act, signed July 4, 2025, for fuel produced after December 31, 2025. Those changes do four main things:
- Exclude indirect land use change, or ILUC, from emissions-rate calculations.
- Bar foreign feedstocks other than those produced or grown in the United States, Canada, or Mexico.
- Generally prevent emissions rates from going below zero, except for fuel derived from animal manure.
- Require distinct emissions rates for specific manure feedstocks.
The DOE has updated the 45ZCF-GREET model twice this year. The June 2026 version incorporated initial statutory amendments. The September 2026 version adds new dairy and swine manure renewable natural gas pathways for post-2025 fuel, separates certain behind-the-meter electricity inputs into “Integrated” and “EAC,” adds carbon capture and sequestration parameters for some pathways, and integrates USDA’s crop-intensity framework for regenerative agriculture practices.
Who Is Affected
The biggest near-term impact may fall on producers using imported used cooking oil and other non-North American feedstocks. For fuel produced after December 31, 2025, feedstocks must come from the US, Canada, or Mexico. That means non-Canadian and non-Mexican imported used cooking oil is ineligible for the credit after that date.
By contrast, Canadian and Mexican used cooking oil was added to the June 2026 version of the model and, the reports say, relates back to January 1, 2025. That makes it available for all otherwise eligible Section 45Z production. Recordkeeping standards for those imported feedstocks, however, remain under consideration and have not yet been finalized in the proposed regulations.
Animal manure pathways are another major focus. The 2026 emissions rate table now includes distinct pathways for US dairy manure and swine manure. Poultry and beef manure pathways are expected later in 2026 once the model is updated again. The generic animal manure pathway is restricted to fuels produced before January 1, 2026.
For producers using pre-June 2026 versions of the model, the new guidance may require manual adjustments. ILUC must be backed out of certain pathway results, and negative emissions rates generally must be adjusted up to zero for post-2025 fuel unless the fuel is derived from animal manure.
The After-Tax Math
Section 45Z is calculated as an applicable amount per gallon, or gallon equivalent, multiplied by an emissions factor that measures lifecycle greenhouse-gas emissions reduction relative to a 50 kg CO2e/mmBTU baseline. The IRS notice discussed in the reports provides the 2026 emissions rate table, but the reports do not publish the underlying per-gallon credit amounts for each pathway. That means the exact tax value for a given facility depends on the official table and the producer’s modeled emissions result.
Even without a published dollar example from the reports, the tax mechanics still matter:
| Change | Potential tax effect |
|---|---|
| Exclude ILUC for post-2025 production | May improve modeled emissions results for some crop-based pathways compared with older calculations that included ILUC. |
| Negative emissions barred except for animal manure | May reduce the maximum credit for some very low-carbon pathways because results generally cannot go below zero. |
| Distinct dairy and swine manure pathways | May preserve larger credit potential for qualifying manure-derived fuels because negative emissions treatment remains available there. |
| Foreign feedstock limit | May eliminate the credit entirely for post-2025 fuel using feedstocks sourced outside the US, Canada, or Mexico. |
Example: a producer that had been modeling a post-2025 fuel pathway with non-Canadian imported used cooking oil may find the credit unavailable after December 31, 2025, even if the fuel otherwise had a favorable emissions profile. A producer using US dairy manure, by contrast, may have a newly defined pathway with more favorable treatment under the 2026 table.
What Producers May Want to Review
Households with ownership stakes in clean fuel projects, private businesses, or agricultural operations tied to Section 45Z may want to review several operational tax points with counsel or a CPA.
- Feedstock sourcing: Whether post-2025 supply chains meet the US-Canada-Mexico rule.
- Model version: Whether calculations rely on a pre-June 2026 model that now requires manual adjustments.
- Manure categorization: Whether projects using dairy or swine manure can move to the newly recognized pathways, and whether poultry or beef projects should wait for the next model update.
- Regenerative agriculture substantiation: USDA’s framework is now integrated, but nutrient data substantiation, chain-of-custody rules, and audit and verification requirements still apply.
- Digester data: Whether farm-specific alternative fate data is available and usable under the September 8, 2026 restriction for newer farm operations.
The notice also includes a safe harbor for 2025 and 2026 fuel production under USDA’s pre-application nutrient budget requirement, recognizing that many crops were planted before the final USDA framework was published on June 29, 2026. That safe harbor is narrower than a full waiver; other substantiation and verification rules still apply.
What to Watch Next
Several pieces of the Section 45Z framework are still unfinished. The proposed regulations remain pending finalization after comments closed on April 6, 2026, and a public hearing was held on May 28, 2026. Final rules are expected to address registration requirements, facility definitions, sustainable aviation fuel certification, and anti-abuse provisions.
Producers and investors also may want to watch for additional 45ZCF-GREET updates later in 2026 for poultry and beef manure pathways, more IRS guidance on the restriction for farms that began operations after September 8, 2026, and final documentation rules for Canadian and Mexican feedstock imports.
Another unresolved issue is how Section 45Z will interact with Sections 45Q and 45V for facilities that use carbon capture or produce hydrogen. Inflation adjustment factors for years after 2025 also have not yet been published.
For business owners and investors, the practical takeaway is that Section 45Z remains available, but the qualifying rules are becoming more specific. That raises the value of checking emissions modeling, feedstock contracts, and substantiation processes before assuming a projected tax credit will match earlier estimates.
Sources
- First reported IRS Issues 45Z Tax Credit Notice and DOE Updates 45ZCF-GREET Model — Global ELR
- IRS Issues 45Z Tax Credit Notice and DOE Updates 45ZCF-GREET Model — JD Supra
After TAX is an independent publication. Articles are general information, not tax, legal or investment advice. Consult a licensed professional about your situation.
