Treasury, IRS Deliver 45Z Proposal to White House OMB

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December 19, 2025

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by Erin Krueger (Ethanol Producer Magazine) The U.S. Department of the Treasury and Internal Revenue Service on Dec. 17 delivered a proposed rule to set 45Z clean fuel production credit guidance to the White House Office of Management and Budget. OMB review marks a final stage before a proposed rule is released for public comment.

According to information released by the OMB, the notice of proposed rulemaking (NPRM) includes guidance regarding 45Z implementation, including the calculation of emissions factors for transportation fuel, the determination of clean fuel production credits, and producer registration.

The 45Z tax credit was first established by the Inflation Reduction Act of 2022, providing a tax credit for the production and sale of low-emission transportation fuels. The original version of the credit started at 20 cents per gallon for non-aviation fuels and 35 cents per gallon for sustainable aviation fuel (SAF). For facilities that satisfy the prevailing wage and apprenticeship requirements, the value of the tax credit was up to $1 per gallon for non-aviation fuels and $1.75 per gallon for SAF. Under the IRA, the 45Z credit was available for 2025, 2026 and 2027.

The 45Z credit was updated and extended as part of the One Big Beautiful Bill Act, which was signed by President Trump in July 2025. Under the OBBBA updates, the “special rate” for SAF will is eliminated beginning in 2026, effectively capping the value of the credit at $1 per gallon for all fuels, including SAF. The OBBBA also extended 45Z for two additional years, through the of 2029. Legislative efforts are currently underway to reinstate the “special rate” for SAF and further extend the credit.

Although the 45Z credit was created in 2023 and entered into force in 2025, Treasury and IRS have failed to release full guidance. Guidance delays have been particularly harmful to the biobased diesel industry, with domestic production down significantly when compared to last year.

Treasury and the IRS in January 2025 issued a notice of intent to propose regulations addressing the clean fuel production credit. A companion notice, also issued in January 2025, included initial guidance on emissions rates under the 45Z credit, including an initial table that sets forth emissions rates for similar categories and types of fuel.

Also in January 2024, the U.S. Department of Energy released the 45ZCF-GREET model, which is designed specifically to evaluate life cycle GHG emissions to meet the requirements of section 45Z.

The DOE in July 2025 issued a notice soliciting public comments on a preliminary plan for determining provisional emissions rates (PER) for the purposes of the 45Z clean fuel production credit. A PER must be determined for any fuel not addressed in the emissions rate tables.

According to information published by the OMB, the upcoming NPRM is expected to address public comments gathered by Treasury and the IRS in response to the January 2025 notices. “These notices were published in early 2025 to meet the statutory deadline of January 1, 2025, however the rules need to be further formalized in an NPRM and then finalized,” according to the OMB’s summary of the NPRM.

Additional information is available on the OMB website. READ MORE

Related articles

Clean Fuel Tax Credit Regulations Undergo White House Review (Bloomberg Tax)
Ethanol Blog: Treasury's Proposed 45Z Rule Has Landed at White House OMB (DTN Progressive Farmer)
Opinion: The Treasury Department must seize the chance to open new markets for America’s farmers (Agri-Pulse)
Opinion: The farmers feeding America are starving for help under Donald Trump (Agri-Pulse

Excerpt from DTN Progressive Farmer: Along with Treasury, USDA will eventually be expected to finalize or require the interim Technical Guidance for "Climate-Smart Agriculture Crops Used as Biofuel Feedstocks" issued in the final days of the Biden administration. An analysis by the American Farm Bureau Federation noted, "USDA has largely turned away from labeling conservation practices as 'climate-smart.'"

While the tax credit is for biofuel producers, the 45Z is expected to help boost incomes for farmers using practices that help a biofuel plant lower its CI score.

AFBF noted in its analysis, "It is also important to reiterate that there is no requirement for biofuel producers to pass any of their earning from 45Z on to the farmers who produced their feedstocks."

That was actually some of the basis behind the Partnership for Climate-Smart Commodities and IRA conservation funds under the Biden administration. Those programs were expected to help incentivize farmers to adopt practices that would then sell into more valuable commodities because of lower carbon footprints.

AFBF's Market Intel report on the 45Z from July:

Note: DTN is part of one of the Partnership for Climate-Smart Commodities projects, "Farmers for Soil Health," which is focused on increasing long-term cover crop adoption and creating a marketplace to generate demand for climate-smart commodities. The partnership involves farmers in at least 19 states who grow corn and soybeans. The USDA program has been renamed into Advancing Markets for Producers (AMP). READ MORE

Excerpt from Agri-Pulse: American corn and soybean farmers are hurting. Trump’s trade war has raised fertilizer and other input costs while suppressing prices. The worst part is that international markets may not come back soon as trading partners like China turn to Brazilian farmers to supply their needs.

This means that domestic markets for U.S. commodities are critical. Biofuels markets today for soybeans and corn use 45% of soybean oil and 40% of corn production. And today’s biofuels are good for the environment with one peer-reviewed study showing greenhouse gas emissions that are 46% lower than fossil fuels. That’s why there is bipartisan support, as evidenced by the extension of the 45Z tax credit, which rewards fuel producers that produce low-carbon biofuels with fewer GHGs.

In the beginning of this year, then-Agriculture Secretary Tom Vilsack announced a new rule establishing the guidelines for quantifying, reporting, and verifying the greenhouse gas emissions associated with the production of biofuel feedstock commodity crops grown in the United States. Under 45Z, biofuel manufacturers who produce fuels lower in carbon intensity than petroleum based fuels can receive a $1 per gallon tax credit.

In order to meet that threshold, those manufacturers will need to lower their carbon intensity and that could include contracting with farmers who produce low carbon corn and soybeans using practices such as cover crops, conservation tillage, and enhanced efficiency fertilizers. Farmers can therefore expect higher prices for their commodities.

In making the announcement Vilsack said, “The new guidelines are a win for farmers, biofuel producers, the public, and the environment. The action today marks an important milestone in the development of market-based conservation opportunities for agriculture.”

The two of us worked on the 45Z tax credit and, frankly, we were frustrated that the Biden administration wasn’t able to finalize the rule so it could take immediate effect. The Treasury Department was unwilling to adopt the rule in its tax guidance on 45Z without a public comment period on the portion of the rule that measured carbon intensity associated with biofuels. In essence, we ran the ball to the two-yard line with the expectation that the Trump administration would run it into the end zone in a matter of a few weeks.

Interested in more news on farm programs, trade and rural issues? Sign up for a four-week free trial to Agri-Pulse. You’ll receive our content - absolutely free - during the trial period.

That comment period concluded in the early spring and yet months later, the Trump administration has yet to even try to move the ball. Why?

It’s not because the administration is opposed to farmers adopting what we called climate-smart agricultural practices and what they call regenerative practices. Earlier this month, Agriculture Secretary Brooke Rollins, along with Health and Human Services Secretary Robert F. Kennedy, Jr., and Mehmet Oz, administrator of the Center for Medicare and Medicaid Services announced a $700 million Regenerative Pilot Program to help American farmers adopt practices that improve soil health, enhance water quality, and boost long-term productivity.

And while the initiative doesn’t actually create any new financial resources for farmers, the practices that will help farmers produce lower carbon feedstocks to make ethanol, biodiesel, and sustainable aviation fuel that Tom Vilsack was talking about in January are the same tools in the Trump administration’s announcement. Planting cover crops, reducing or eliminating tillage, improving the timing and quantity of fertilizer, and employing technology to more precisely apply crop inputs are the same tools that would be used in producing lower carbon feedstocks and in improving the health of our soil.

We fear there may be two other reasons the Trump administration has yet to move on 45Z. First, the Administration has been friendly to fossil fuel interests who have traditionally opposed biofuel initiatives. And second, there is no champion – no Tom Vilsack -- for biofuels policy within the Trump administration.

There is still time for the Trump administration to get this right, but they must move quickly. The Treasury Department is currently writing the regulation that will be used for the clean fuel production tax credit, known as 45Z.

Treasury can choose to include the regenerative practices that will both create new market opportunities for struggling farmers and lead to healthier soil and cleaner water … or it can opt to leave them out. If the department includes regenerative ag practices in 45Z, the incentives for regenerative practices in 45Z dwarf the resources available in the administration’s $700 million initiative.

It meets the demand of domestic transportation industries, it opens markets overseas where customers want lower carbon liquid fuels, and it creates market-based opportunities for farmers to increase their profitability even as they help reduce emissions.

Tim Gannon is a farmer and agricultural policy consultant who served in various positions at USDA during the Barack Obama and Joe Biden administrations. Robert Bonnie served USDA as undersecretary of farm production and conservation under Biden and undersecretary of natural resources and environment under Obama. He is a distinguished fellow with UC Berkeley’s Stone Center for Environmental Stewardship. READ MORE