New IRS guidance and updated modeling reshape Section 45Z eligibility, emissions calculations, feedstock rules, and compliance obligations for clean fuel producers.
By Joshua T. Bledsoe, Scott W. Cockerham, Michael Dreibelbis, Eli M. Katz, and Phil Goldberg
Key Points:
- The Notice introduces new emissions pathways, feedstock restrictions, and compliance requirements that will affect a broad range of clean fuel producers.
- The USDA’s final Framework for Determining Carbon Intensity of Crops has been integrated into the September 2026 version of the 45ZCF-GREET model.
On September 8, 2026, the Internal Revenue Service (IRS) published Notice 2026-53 (the Notice), providing the calendar year 2026 emissions rate table for the Section 45Z clean fuel production credit (the 45Z Credit).
The 45Z Credit provides a federal income tax credit for the domestic production of clean transportation fuel after December 31, 2024, and sold or used by December 31, 2029. The 45Z Credit is calculated as the applicable amount per gallon (or gallon equivalent) multiplied by an emissions factor that measures the fuel’s life cycle greenhouse gas emissions reduction relative to a 50 kg CO2e/mmBTU baseline.
The proposed 45Z Credit regulations (91 FR 5160) remain pending finalization. Comments closed on April 6, 2026, and a public hearing was held on May 28, 2026. Final regulations are expected to address outstanding questions on registration, facility definitions, SAF certification, and anti-abuse provisions.
The Notice updates the emissions rate table used to calculate 45Z Credit eligibility, incorporates changes mandated by the One Big Beautiful Bill Act (OBBBA) (Public Law 119-21, § 70521, signed July 4, 2025), and provides guidance on the September 2026 update to the 45ZCF-GREET model.1
The combination of the Notice and the updated 45ZCF-GREET model results in refined carbon accounting that more accurately values the climate benefits of clean fuels, particularly by recognizing that manure-derived fuels can have negative carbon intensity.
This blog post summarizes the key developments and practical implications for clean fuel producers and project stakeholders.
For a comprehensive overview of the 45Z Credit, including how statutory requirements and agency guidance have evolved over time, please refer to these Latham articles: Section 45Z Proposed Regulations: Key Changes and Guidance for Clean Fuel Producers and One Big Beautiful Bill Introduces Major Changes to Federal Tax Law.
OBBBA Amendments to the 45Z Credit
The OBBBA made four significant changes to the 45Z Credit, each effective for fuel produced after December 31, 2025. The OBBBA amendments require the exclusion of indirect land use change (ILUC) emissions from emissions rate calculations, prohibit the use of foreign feedstocks (other than those from Canada and Mexico), and generally prohibit the use of negative emissions rates, except for fuel derived from animal manure. The Notice explains how these amendments are implemented in the 45ZCF-GREET model and the emissions rate table.
ILUC Exclusion
For pathways using dedicated land for feedstock production (i.e., corn, sorghum, soybeans, etc.), the 45ZCF-GREET model accounts for Indirect Effects, which comprises three sources of modeled greenhouse gas emissions (ILUC, Other Crops, and Livestock). 26 U.S.C. Section 45Z(b)(1)(B)(iv) requires that emissions rates exclude ILUC emissions.
For taxpayers using a pre-June 2026 version of the 45ZCF-GREET model, the Notice instructs that the ILUC value must be subtracted from the Total Life Cycle Analysis Results, which is the sum of Indirect Effects, direct, and upstream emissions, and the resulting value multiplied by a 1.055 conversion factor. Taxpayers using the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) Default or CORSIA Actual methodologies for Sustainable Aviation Fuel must similarly exclude any ILUC component. The June 2026 and September 2026 versions of 45ZCF-GREET automatically exclude ILUC from results for post-2025 production.
Foreign Feedstock Limitation
26 U.S.C. Section 45Z(f)(1)(A)(iii) requires that fuel be exclusively derived from feedstock produced or grown in the United States, Canada, or Mexico. Foreign feedstocks from all other countries are prohibited for fuel produced after December 31, 2025. This has immediate implications for producers using imported used cooking oil (UCO) or other non-domestic feedstocks.
Negative Emissions Rate Prohibition
26 U.S.C. Sections 45Z(b)(1)(B)(v)(II) and (b)(1)(E) provide that the emissions rate for a fuel cannot be less than zero for fuel produced after December 31, 2025, except for fuel derived from animal manure. Users of pre-June 2026 45ZCF-GREET model versions must manually adjust negative results up to zero. This change reduces the maximum potential credit for certain low-carbon fuel pathways while preserving the full benefit for animal manure-derived fuels.
Animal Manure Distinct Rates
The Notice’s 2026 emissions rate table adds distinct pathways for US dairy manure and swine manure as primary feedstocks, and includes Canadian and Mexican UCO as an eligible feedstock. 26 U.S.C. Section 45Z(b)(1)(B)(v)(I) requires distinct emissions rates based on the specific animal manure feedstock used, including dairy, swine, poultry, and others as the IRS may determine.
The 2026 emissions rate table currently includes distinct pathways for US dairy manure and swine manure. Poultry and beef manure pathways are anticipated later in 2026, once 45ZCF-GREET is updated accordingly. Non-Canadian/Mexican UCO produced after December 31, 2025, is ineligible for the 45Z Credit.
2026 Emissions Rate Table and 45ZCF-GREET Model Updates
The Notice provides the calendar year 2026 emissions rate table, which covers a broad range of fuel pathways. Allowed methodologies include the most recent version of the 45ZCF-GREET model and, for sustainable aviation fuel, the CORSIA Default, or CORSIA Actual methodologies.
Key changes to the emissions rate table include the addition of US dairy manure and swine manure as distinct primary feedstocks (available only for fuels produced after December 31, 2025), the addition of Canadian and Mexican UCO as a primary feedstock, the limitation of Brazilian sugarcane to the SAF alcohol-to-jet pathway only, and the restriction of the generic animal manure pathway to fuels produced before January 1, 2026.
The Department of Energy (DOE) has updated the 45ZCF-GREET model twice in 2026. The June 2026 version incorporated initial OBBBA amendments. The September 2026 version includes further refinements: new dairy manure and swine manure renewable natural gas pathways (for post-2025 fuel only); separation of behind-the-meter electricity into “Integrated” and “EAC” inputs; carbon capture and sequestration parameters added for coal mine methane and renewable natural gas pathways; new pretreatment methods for ethanol from corn stover (Dilute Acid and DMA); hydrogen modeled as a Section 45Z input (rather than Section 45V); and integration of the 45ZCF FD-CIC for regenerative agriculture, with a safe harbor deeming the pre-application nutrient budget requirement satisfied for fuel produced in 2025 and 2026.
Animal Manure-Derived Fuels
The OBBBA’s requirement for distinct emissions rates based on specific manure feedstocks has led to the inclusion of US dairy manure and swine manure in the 2026 emissions rate table, with poultry manure and beef manure updates anticipated later in 2026. The IRS has encouraged producers using poultry or beef manure to await the forthcoming model update rather than filing provisional emissions rate petitions.
A key feature of the Notice is the allowance for farm-specific alternative fate data. Taxpayers may input farm-specific prior manure management practices into the 45ZCF-GREET model. Prior practices are determined as of the earlier of (i) the commencement date of anaerobic digester operation, or (ii) September 8, 2026. An anaerobic digester is considered operational when the system begins capturing, using, or destroying biogas after initial start-up, with a maximum nine-month start-up period.
However, until further guidance is issued, farm-specific alternative fate data cannot be used for farms that began operations after September 8, 2026. This restriction reflects the IRS’s concern about creating incentives for new farming operations to adopt high-emitting manure management practices in order to generate a more favorable emissions baseline. Producers operating centralized digesters or multi-digester/centralized upgrader configurations should be aware that all participating farms are subject to this restriction. The national average alternative fate continues to apply for fuel produced before January 1, 2026.
Regenerative Agriculture Practices
The US Department of Agriculture (USDA) published the final Framework for Determining Carbon Intensity of Crops (FD-CIC) and Technical Guidelines on June 29, 2026 (91 FR 39334), codified at 7 CFR part 2100. The 45ZCF FD-CIC has been integrated into the September 2026 version of the 45ZCF-GREET model, enabling producers to claim emissions reductions associated with regenerative agriculture practices including cover crops, tillage practices, nitrification inhibitors, and manure application. These practices are currently applicable to corn, sorghum, soybeans, and canola that are grown in the US.
Recognizing that crops used in 2025 and 2026 fuel production were likely planted before the final USDA guidelines were published, the Notice provides a safe harbor: the pre-application nutrient budget requirement of 7 CFR 2100.060 is deemed satisfied for fuel produced during those years. However, taxpayers must still substantiate nutrient application data, and the chain of custody requirements (7 CFR 2100.030-035) and audit and verification requirements (7 CFR 2100.040-041) remain fully applicable.
Used Cooking Oil and Foreign Feedstock Transition Rules
The treatment of UCO under the foreign feedstock limitation has been a focus of industry attention. Canadian and Mexican UCO was added to the June 2026 version of the 45ZCF-GREET model and relates back to January 1, 2025, meaning it is available for all Section 45Z-eligible production. Non-Canadian/Mexican UCO, however, is ineligible for the credit for fuel produced after December 31, 2025. For 2025 production only, the IRS has indicated that an imported non-Canadian/Mexican UCO pathway will be added in a forthcoming model version.
Recordkeeping requirements for Canadian and Mexican feedstocks remain under consideration and have not been finalized in the proposed regulations. Producers that rely on UCO as a primary feedstock should closely monitor the development of substantiation and documentation requirements in the final regulations.
What’s Next
The Section 45Z regulatory landscape will continue to evolve over the coming months. In the meantime, stakeholders should consider monitoring the following developments:
- Finalization of the Section 45Z proposed regulations, which will resolve outstanding questions on registration requirements, facility definitions, SAF certification standards, and anti-abuse rules.
- Forthcoming 45ZCF-GREET model updates adding poultry and beef manure pathways, which will enable producers using those feedstocks to calculate emissions rates and claim the credit.
- Additional IRS guidance on the new farm alternative fate restriction, which will determine when farms beginning operations after September 8, 2026, may use farm-specific manure management data.
- Development of UCO and foreign feedstock substantiation requirements in the final regulations, which will establish documentation standards for Canadian and Mexican feedstock imports.
- Continued USDA FD-CIC integration into the 45ZCF-GREET framework, including any updates to the Technical Guidelines for regenerative agriculture practices.
- Publication of inflation adjustment factors for calendar years after 2025.
- Guidance on the interaction between Section 45Z, Section 45Q, and Section 45V credits for facilities using carbon capture or producing hydrogen.
We will continue to monitor developments in the Section 45Z regulatory framework, including finalization of the proposed regulations, updates to the 45ZCF-GREET model, and additional IRS and Treasury guidance on the OBBBA amendments.
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