By Lisa Hanke, Regulatory Engagement Director, EcoEngineers

On January 10, 2025, the U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) released the long-awaited guidance of the Section 45Z Clean Fuels Production Tax Credit (PTC) under the Inflation Reduction Act of 2022 (IRA). 

The guidance aims to provide initial clarity on the requirements for claiming the Section 45Z tax credit, which is designed to incentivize the production of clean transportation fuels such as ethanol, renewable natural gas (RNG), renewable diesel, and sustainable aviation fuel (SAF). The guidance also solicits public comments, which are due by April 10, 2025. 

Key Components of the Section 45Z Guidance

One of the key components of the Section 45Z guidance is the release of the 45ZCF-GREET model and its user manual. The 45ZCF-GREET model is a specific version of the Greenhouse Gases, Regulated Emissions, and Energy Use in Technologies (GREET) model developed to determine emission rates of transportation fuels. The model is straightforward with few inputs for users to enter. Most inputs are fixed and cannot be changed. Depending on the producer, this can make it easier to use the calculator but it reduces some optionality. The model provides a baseline for avoided emissions in manure and for landfill RNG projects. The proposed regulations would provide an emission rate substantiation safe harbor for non-SAF transportation fuel by obtaining third-party certification.

Energy attribute certificates (EACs) are permitted as is carbon capture and sequestration (CCS) to achieve a lower emission rate. However, it does not currently incorporate Climate Smart Agriculture (CSA) practices in its calculations. The U.S. Department of Agriculture (USDA) also released Technical Guidelines for Climate-Smart Agriculture Crops Used as Biofuel. The final rule is expected to be incorporated into the Section 45ZCF-GREET model at a later date.

Foreign Feedstock and Emissions Rate Table

The guidance currently does not allow foreign used cooking oil (UCO) as a feedstock citing concerns of potential fraud; however, the Treasury and IRS indicated that specific guidance on traceability requirements for foreign UCO will be released at a later date. 

The guidance document also includes an annual emissions rate table. Currently, only feedstock pathways included in this table can generate Section 45Z tax credits. Those not included must submit a Provisional Emissions Rate (PER). Future guidance will be released in the process of submitting a PER. 

SAF producers may use either the 45ZCF-GREET model or methodologies from the International Civil Aviation Organization (ICAO). Third-party certification is currently required for SAF. 

In summary, the Section 45Z guidance and 45ZCF-GREET model issued in January 2025 delivers important information for producers of clean transportation fuels, as well as provide the opportunity for public comment. Clean fuel producers and stakeholders are encouraged to submit public comments on the current proposed regulation and upcoming guidance related to PERs, feedstock baselines, foreign feedstocks, and the integration of the Renewable Fuel Standard (RFS) into Section 45Z tax credit. 

How EcoEngineers Can Help

Navigating the complexities of the Section 45Z tax credit can be challenging for producers of clean transportation fuels. EcoEngineers specializes in helping clients understand and comply with regulatory requirements, including the latest Section 45Z guidance. Our experienced team can help you calculate emissions rates with the 45ZCF-GREET model and prepare for future verification and validation, ensuring you fully benefit from the Section 45Z tax credit. We are committed to ensuring that our clients can maximize their tax credit benefits while maintaining compliance with all regulations. 

Contact your account manager or clientservices@ecoengineers.us to learn how we can help you navigate the Section 45Z guidance and achieve your clean fuel production goals.