IRS Issues Guidance on Section 45Z Clean Fuels Production Tax Credit to Support Domestic Biofuel Production and American Agriculture

The Internal Revenue Service (IRS) issued guidance on September 8, 2026, on the Section 45Z Clean Fuels Production Tax Credit “to empower America’s crop and livestock farmers, ranchers, and fuel producers across the country and help them access the growing domestic biofuels market in a way that makes the Clean Fuels Production Credit work for them.” Notice 2026-53 provides the 2026 emissions rate table used to calculate the clean fuel production credit and provides additional guidance, including on the use of manure-derived fuels and regenerative agricultural practices, supporting American biofuel production. According to the IRS, the Notice “provides certain technical modeling language used to implement [the Working Families Tax Cuts (WFTC)]-mandated model updates for manure-derived fuels.” The Notice addresses how producers should account for WFTC changes when using the emissions rate table and allowed models. The IRS notes that the U.S. Department of Energy (DOE) “is developing corresponding updates to the 45ZCF-GREET model.” The IRS indicated in its 45Z proposed regulations that it would provide further guidance on how the U.S. Department of Agriculture (USDA) rules on regenerative agricultural practices will be integrated into the 45ZCF-GREET model once the USDA issued a final rule, which USDA did on June 29, 2026. Notice 2026-53 provides a safe harbor that will be available for 2025 clean fuel production. The Notice also provides transition rules for applying changes made by the WFTC when an allowed methodology has not yet been updated to reflect those changes, including rules addressing used cooking oil and other feedstocks. Among other changes, the law:

• Requires emissions rates to exclude emissions attributable to indirect land use change;

• Limits eligible transportation fuel to fuel derived exclusively from feedstocks produced or grown in the United States, Mexico, or Canada;

• Prohibits negative emissions rates, except for transportation fuel derived from animal manure; and

• Requires distinct emissions rates for transportation fuels derived from specific animal manure feedstocks.