Key Takeaways
- Section 45Z rewards fuel producers for measurable lifecycle emissions reductions, with credit value tied directly to carbon intensity.
- Accurate carbon intensity modeling, reliable operational data, and independent verification are critical to maximizing credit value and supporting claims.
- Early planning across tax, operations, engineering, sustainability, and compliance teams can help producers strengthen documentation and reduce risk.
The Section 45Z Clean Fuel Production Credit is a federal incentive designed to accelerate the production of lower-carbon transportation fuels in the United States.
This credit is available for qualifying fuels produced and sold beginning in 2025, and rewards producers based on the lifecycle greenhouse gas (GHG) emissions associated with their fuel.
Section 45Z and Carbon Intensity
Unlike previous incentives that provided a fixed credit amount by fuel type, Section 45Z links the value of the credit directly to a fuel's carbon intensity (CI), creating a technology-neutral framework that incentivizes measurable emissions reductions.
Carbon intensity (CI) is a measure of the lifecycle greenhouse gas emissions associated with the production process and accounts for emissions generated throughout the entire supply chain, including feedstock production, fuel processing, transportation, distribution, and end use.
Because Section 45Z ties credit values directly to CI, fuel producers have a significant financial incentive to reduce emissions at every stage of production.
The following strategies can all contribute to lower CI scores and potentially higher credit values:
- Improving plant efficiency
- Utilizing lower-carbon feedstocks
- Optimizing transportation logistics
- Implementing renewable energy
- Adopting carbon capture technologies
- Reducing process emissions
Section 45Z Credit Amount
The maximum credit available under Section 45Z is $1.00 per gallon for qualifying transportation fuels, indexed annually for inflation.
The actual credit amount depends on the fuel's lifecycle emissions profile, meaning producers with lower carbon intensity scores may qualify for substantially larger credits than producers with higher emissions profiles.
As a result, accurately measuring and documenting emissions has become a critical business consideration for organizations seeking to maximize the value of the incentive.
How to Determine Eligibility for Section 45Z
To determine eligibility and calculate credit values, producers must establish a defensible carbon intensity score using approved methodologies.
The primary modeling framework currently identified for this purpose is the 45ZCF-GREET model, which builds upon lifecycle assessment methodologies commonly used throughout the renewable fuels industry. Developing a defensible CI score requires more than simply running a model; it depends on collecting reliable operational data, applying appropriate assumptions, maintaining robust documentation, and implementing processes that can withstand external review.
Verification Requirements for Section 45Z
Verification is a key component of the Section 45Z credit. Fuel producers must have their emissions calculations reviewed and certified by an independent verifier who holds credentials recognized under the California Air Resources Board (CARB) Low Carbon Fuel Standard (LCFS) program.
This verification requirement elevates the importance of data quality, internal controls, and record retention. Producers should expect verifiers to evaluate the completeness and accuracy of operational data, the appropriateness of modeling assumptions, the traceability of supporting documentation, and the consistency of processes used to calculate emissions rates.
Registration Requirements for Section 45Z
In addition to satisfying emissions and verification requirements, eligible producers must register their facilities with the IRS using Form 637 before claiming the credit. Organizations that delay registration, documentation development, or data collection efforts may find it more difficult to support future credit claims. Early planning can help ensure that systems, controls, and documentation are in place when production activities begin generating eligible credits.
Who Can Benefit From Section 45Z
Producers of transportation fuels such as ethanol, biodiesel, renewable diesel, sustainable aviation fuel (SAF), and renewable natural gas (RNG) produced from landfill gas, animal manure, and crops are expected to benefit from Section 45Z.
Because the credit is based on lifecycle emissions performance rather than fuel type alone, producers that can demonstrate meaningful reductions in carbon intensity may realize significant economic benefits regardless of the specific fuel pathway.
How to Maximize the Value of Section 45Z
As organizations evaluate opportunities under Section 45Z, success will depend on more than tax compliance. Companies should view the credit as a multidisciplinary effort involving operations, engineering, finance, sustainability, tax, and compliance teams.
Establishing defensible carbon intensity models, maintaining high-quality operational data, implementing strong internal controls, and preparing audit-ready documentation will be essential to maximizing credit value and reducing compliance risk.
How Eide Bailly Can Help
We assist clients with:
- Section 45Z eligibility assessments
- Data collection and documentation processes
- CI Score calculation utilizing 45ZCF-GREET models
- Section 45Z Certification
- Monetization of the credits under 6418
By combining engineering, sustainability, tax, and assurance expertise[EA2.1], Eide Bailly helps clients maximize available incentives based upon established and defensible positions.
Who We Are
Eide Bailly is a nationally ranked accounting and advisory firm bringing financial, operational, and technical solutions to middle market and high-growth organizations.
