Section 45Z Tax Credit: Clean Fuel Production Credit

Background

Section 45Z was added by the Inflation Reduction Act of 2022 and provides an income tax credit for clean transportation fuel produced domestically after December 31, 2024 and sold by December 31, 2027.

The credit is calculated per gallon (or gallon-equivalent) using an emissions factor derived from the fuel’s lifecycle GHG emissions rate, expressed as kg CO₂e per mmBTU. Section 45Z also requires Treasury/IRS to publish an annual emissions-rate table that directs taxpayers to approved methodologies for determining emissions rates, and it distinguishes between non-SAF and SAF pathways.

Treasury has described 45Z as consolidating and replacing several prior fuel credits, while shifting the incentive toward measured lifecycle performance (i.e., lower carbon intensity = higher credit value).

Reporting requirements

To claim 45Z, companies need documentation that substantiates the lifecycle emissions rate used to calculate the credit (and therefore the emissions factor). Such documentation is typically submitted with their annual federal income tax return because 45Z is an income tax credit, not an excise credit. This means companies generally claim the credit for a taxable year on their corporate return after all of the required supporting records and calculations are assembled.

Official guidance emphasizes, among other details, the annual emissions-rate table and approved methodologies, including the 45ZCF-GREET model. Required emissions and calculation evidence include:

• Method selection evidence: Documentation showing which methodology applies to your fuel pathway (e.g., 45ZCF-GREET for non-SAF; 45ZCF-GREET or CORSIA methodologies for SAF) consistent with the annual table/guidance.

• Model outputs (audit trail): Saved 45ZCF-GREET outputs (and version used), including emissions results under the required “well-to-wheels” boundary described in DOE guidance.

• Input data pack: The underlying operating data used in the model. Typical examples include feedstock sourcing/quantities, process energy and fuel use, co-products, transport assumptions, and other operational parameters required by the chosen pathway. (The point is traceability from real plant data → model inputs → reported emissions rate.)

• Annual table alignment: Records showing how claimed emissions rate aligns with the IRS emissions rate table framework (type/category) and any relevant rounding/administrative conventions described in IRS notices.

Beyond official tools like 45ZCF-GREET, some companies use compliance software to organize data and automate carbon-intensity workflows. For example, complyCI positions itself as automating carbon-intensity modeling and documentation management for programs including 45Z. These tools can streamline internal controls, but they don’t replace the need to substantiate the emissions-rate calculation under IRS/Treasury rules.

Current Status

Section 45Z is in effect beginning January 1, 2025, and IRS guidance continues to evolve through notices and planned regulations. Treasury/IRS issued initial guidance including Notice 2025-10 (notice of intent to propose regulations covering definitions, eligibility, calculation, claims, and recordkeeping) and Notice 2025-11 (initial emissions-rate table and emissions-rate guidance). DOE has published the 45ZCF-GREET model documentation to support lifecycle emissions calculations used for the credit.

Resources

• IRS hub page: Clean Fuel Production Credit (45Z)

• Notice 2025-10 (IRS): draft proposed-reg text + methods + recordkeeping framework

• Notice 2025-11 (IRS): initial emissions-rate table + emissions-rate guidance

• DOE documentation: 45ZCF-GREET user manual / FAQs

• Statute: 26 U.S.C. § 45Z