On February 4, 2026, the Department of the Treasury and the Internal Revenue Service (IRS) published lengthy proposed regulations interpreting the clean fuel production credit in section 45Z (REG-121244-23; 91 F.R. 5160). Section 45Z was added to the Internal Revenue Code as part of the Inflation Reduction Act (IRA) in 2022 and subsequently amended in the One Big Beautiful Bill Act (OBBBA) last year. The section 45Z credit allows a taxpayer to offset its income tax liability for domestic production of clean transportation fuel at a qualified facility. This credit replaces a number of earlier fuel credits and looks at the carbon emissions throughout the lifecycle of the fuel production, such as the production of the raw materials and feedstocks and their transportation to the qualified facility, to determine a fuel's "emission factor" (also known as a "carbon intensity score"). The amount of the section 45Z credit is inversely proportional to the carbon intensity score: the lower the carbon intensity score, the higher the credit will be.

The section 45Z credit has been effective for more than a year (for fuel produced after December 31, 2024) and the energy industry has watched closely as Treasury and the IRS prepared guidance on the credit. In January 2025, a pair of notices – Notice 2025-10, 2025-5 I.R.B. 682, and Notice 2025-11, 2025-6 I.R.B. 704 – stated the government's intent to propose regulations and the general scope of those rules. The notices generated nearly 400 comments that were considered in drafting the proposed regulations issued this month. The proposed regulations touch on a number of aspects of the section 45Z credit, including credit eligibility rules, emissions rates, and certification and registration requirements. Taxpayers who produce transportation fuels that may be eligible for section 45Z credits, as well as producers of feedstocks and those who transport such materials, should consider providing comments on the proposed regulations, which are due April 6, 2026. This is just one of many clean energy projects that may receive attention from the government this year. The IRS 2025-2026 Priority Guidance Plan (PGP) identifies the need for guidance on carbon capture under section 45Q, the zero-emission nuclear power production credit under section 45U, and beginning of construction under section 45X.

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