IRS Releases Proposed Clean Fuel Production Credit Regulation Amendments

On February 4, 2026, the Internal Revenue Service (IRS) released proposed regulations that govern the Clean Fuel Production Credit under Internal Revenue Code (IRC) 45Z.¹ The proposals come on the heels of the credit being amended last year by the One Big Beautiful Bill Act (OBBBA) of 2025 and include provisions potentially favorable for producers of qualified fuel.

The credit was initially created under the 2022 Inflation Reduction Act and subsequently amended by OBBBA. The credit applies to defined clean transportation fuel sold by December 31, 2029. The 2029 expiration date was part of OBBBA amendments to the credit, which extended the credit by two years. Other notable credit changes pursuant to OBBBA include a requirement that fuel be derived from feedstock produced or grown in the U.S., Mexico, or Canada; a limitation on credit eligibility for specified foreign entities or a foreign-influenced entity; changes to the credit calculation; and emissions measurements.

The proposed regulations touch on several areas of the credit, including more than 30 definitions, emissions factors and rates for transportation fuel, registration requirements, procedures for claiming the credit, anti-stacking provisions, anti-abuse standards, production attribution, facility ownership, recordkeeping requirements, substantiation rules, rules regarding foreign-entity restrictions, credit transferability, direct payments, and interactions with other credits.

Notably, the proposed regulation [1.45Z-1(b)(29)(ii)] states that “sold for use in a trade or business” includes fuel sold to an unrelated person that subsequently resells the fuel in its trade or business. This language was proposed in response to stakeholder concerns regarding the definition in IRS Notice 2025-10, which stated that term sold for use in a trade or business means sold for use as a fuel (emphasis added) in a trade or business. Stakeholders noted that in the fuel industry, producers often sell to related or unrelated intermediaries (wholesalers or dealers) and not to final purchasers. This prompted concern that the term “use as a fuel” could prevent all sales for resale, including sales to intermediaries, from qualifying for the credit. The proposed regulation addressed that concern.

The proposed regulations allow for a better-defined pathway to contemporaneous substantiation and recordkeeping. While 1.45Z-4(g) does state that a taxpayer must keep records to establish the primary feedstocks, certain fuel output specifications, greenhouse gas emission rates, and records of lab testing. This same section includes two very important safe harbors. The first safe harbor is reliance on a qualified certifier to provide the greenhouse gas emissions rate. (Note that the definition of “qualified certifier” depends upon the fuel type and emissions methodology used and will always be a neutral, credentialed third party.) The second safe harbor involves the procedures for receiving a certificate for qualified sale from the purchaser of the fuel, further resolving the qualified sale issue above. The proposed regulations provide a pro-forma certificate template for both safe harbors.

From an engineering perspective, the proposed regulations provide additional guidance for sustainable aviation fuel (SAF) using the CORSIA method and what credentials would be needed to certify this fuel. For non-SAF, the 45ZCF-GREET model is further flushed out with additional feedstocks. As with everything related to OBBBA and the new Foreign Entity of Concern (FEOC) regime, additional scrutiny is given to the origin of feedstocks utilized in fuel production. Some feedstocks that are not on the preapproved list will require a provisional emissions rating (PER) with the Department of Energy, which is flushed out procedurally. Finally, the guidance excludes any emissions attributed to indirect land use.

Ryan’s Take and Action Steps

These rules are exceedingly complex especially regarding definitional changes with regards to what fuels potentially qualify for the credit. Producers of fuels that potentially meet the definitional standards need to undertake a detailed review of the proposals to determine if they qualify, no longer qualify, and can benefit from some of the OBBBA amendments and changes detailed in the regulation proposals. This should be done before the comment period ends April 6, 2026. Stakeholder comments, as observed regarding sales to wholesalers and dealers, can effectuate favorable changes.

¹ Federal Register, Vol. 91, No. 23 (February 4, 2026).

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