IRS Updates Clean Energy Credits and Form W-2c Specifications in Bulletin No. 2026–41

Executive Summary

The October 2, 2026 Internal Revenue Bulletin (IRB) consolidates three high-impact developments in clean energy tax policy and administrative compliance. First, the IRS finalized the 2026 inflation adjustment factor and applicable credit amounts for the § 45Y clean electricity production credit, a technology-neutral production tax credit enacted under the Inflation Reduction Act of 2022 (IRA) that replaced the technology-specific § 45 production tax credit. Second, the IRS issued Notice 2026-53, which republishes the 2026 emissions rate table for the § 45Z clean fuel production credit and incorporates amendments from the One, Big, Beautiful Bill Act (OBBBA), Public Law 119-21, § 70521, including the exclusion of indirect land use change (ILUC) emissions from lifecycle greenhouse gas (GHG) calculations and the creation of distinct emissions rates for transportation fuels derived from animal manure. Third, Revenue Procedure 2026-29 updates the specifications for substitute Forms W-2c and W-3c, including the bifurcation of Box 14 into Box 14a and Box 14b, the relocation of the vendor code, and the removal of obsolete identifiers from employee copies.

These updates arrive amid a rapidly evolving regulatory landscape for clean energy incentives. The § 45Y credit, which applies to electricity produced, consumed, or stored in 2026 at qualified facilities located in the United States or its possessions, now reflects a base credit amount of 0.6 cents per kilowatt-hour (kWh) and an alternative credit amount of 3.1 cents per kWh for facilities meeting prevailing wage and apprenticeship requirements under § 45Y(d)(2). The § 45Z credit, which applies to transportation fuels with lifecycle GHG emissions at or below 50 kg CO₂e per mmBTU, now requires the use of the GREET 2023 model (or its modified versions, 45ZCF-GREET and 45VH2-GREET) for emissions rate determinations, as mandated by OBBBA § 70521. The amendments also prohibit the inclusion of ILUC emissions in lifecycle calculations for fuels produced after December 31, 2025, and establish distinct emissions rates for animal manure-derived fuels, including dairy, swine, and poultry manure.

The IRS’s administrative updates to substitute forms reflect the agency’s ongoing effort to refine wage and tax reporting in tandem with the expanded eligibility requirements for clean energy credits. Revenue Procedure 2026-29, issued on October 5, 2026, supersedes prior guidance in Revenue Procedure 2024-36 and introduces strict formatting and approval requirements for private printing of substitute Forms W-2c and W-3c. The revenue procedure mandates exact replication of IRS-issued forms, including font size, color, and data field placement, with red-ink substitutes requiring specific Pantone matching. Black-and-white substitutes must maintain scannability and machine-readability, with OCR-compliant layouts that align with IRS Publication 1141. The revenue procedure also eliminates obsolete identifiers and relocates critical data fields, including the vendor code, to standardized locations.

The political and industry context of these updates reveals a deliberate alignment between tax policy and climate objectives. The § 45Y and § 45Z credits, expanded under the IRA and refined by the OBBBA amendments, represent a pivot from technology-specific incentives to performance-based rewards for emissions reductions. The exclusion of ILUC under § 45Z, a concession to agricultural interests, underscores the compromises embedded in the legislative process, while the mandatory use of GREET reflects a scientific consensus on lifecycle emissions modeling. For practitioners, the convergence of these rules demands a multidisciplinary approach: tax strategy must integrate environmental science, regulatory compliance must align with wage reporting, and financial planning must account for inflation adjustments and emissions rate volatility. The IRS’s insistence on retroactive application and strict form specifications signals that these rules are not merely advisory but are intended to shape behavior through enforcement.

IRS Sets 2026 Inflation Adjustments for Clean Electricity Production Credit

The IRS has finalized the 2026 inflation adjustment factor and applicable credit amounts for the § 45Y clean electricity production credit, a cornerstone of the Inflation Reduction Act’s (IRA) clean energy incentives. Published as Notice 2026-47 in the Internal Revenue Bulletin, the notice republishes the inflation adjustment factor and applicable amounts that were originally issued in the Federal Register on September 4, 2026 (91 FR 56942). The adjustments reflect the statutory requirement under § 45Y(d)(1) to annually index the credit to inflation, ensuring the credit’s real value keeps pace with economic conditions. For calendar year 2026, the base credit amount is set at 0.6 cents per kilowatt-hour (kWh), while the alternative credit amount—applicable to facilities meeting prevailing wage and apprenticeship requirements—stands at 3.1 cents per kWh.

These figures represent a material increase from prior years, reflecting sustained inflationary pressures and the IRA’s commitment to accelerating decarbonization through technology-neutral incentives. The adjustments apply to electricity produced, consumed, or stored in 2026 at qualified facilities located in the United States or its possessions, underscoring the credit’s role in scaling domestic clean energy deployment. The notice’s republication in the IRB formalizes its applicability for tax planning and compliance, signaling the IRS’s intent to provide certainty to taxpayers and investors in the clean energy sector.

The mechanics of the § 45Y credit are defined in § 45Y(a)(1), which provides that the credit for any taxable year equals the product of the kilowatt hours of electricity produced at a qualified facility during the taxable year and either sold to an unrelated person or, if metered by an unrelated entity, sold, consumed, or stored by the taxpayer, multiplied by the applicable amount with respect to such facility. This structure ensures that the credit is tied directly to tangible energy output rather than capital investment, aligning the incentive with actual clean energy generation.

The applicable amount under § 45Y(a)(2) is bifurcated into a base amount and an alternative amount, creating a two-tier credit structure that rewards compliance with labor standards. The base amount, set at 0.3 cents per kilowatt hour under § 45Y(a)(2)(A), applies to facilities that do not meet the conditions for the higher credit. The alternative amount, set at 1.5 cents per kilowatt hour under § 45Y(a)(2)(B), is available to facilities that either (1) have a maximum net output of less than one megawatt, (2) began construction prior to the 60-day window following Treasury’s issuance of guidance on prevailing wage and apprenticeship requirements, or (3) satisfy those wage and apprenticeship standards. The wage and apprenticeship requirements, codified in § 45Y(g)(9) and § 45Y(g)(10), respectively, were initially addressed in Notice 2022-61, published in the Federal Register on November 30, 2022, which established the 60-day period for compliance and provided transitional relief for projects that began construction before the guidance was issued.

The inflation adjustment mechanism under § 45Y(c)(1) ensures that the real value of the credit is preserved over time by adjusting both the base and alternative amounts for inflation. The inflation adjustment factor is defined in § 45Y(c)(3) as a fraction, the numerator of which is the GDP implicit price deflator for the preceding calendar year, and the denominator of which is the GDP implicit price deflator for 1992. The GDP implicit price deflator is the most recent revision of the implicit price deflator for gross domestic product as computed and published by the Department of Commerce before March 15 of the calendar year. This methodology ties the credit’s value to broad macroeconomic trends rather than consumer prices, reflecting Congress’s intent to maintain the credit’s purchasing power over the long term.

For calendar year 2026, the inflation adjustment factor was determined to be 2.0570, calculated as the ratio of the 2025 GDP implicit price deflator (128.986) to the 1992 GDP implicit price deflator (62.707). This factor is applied to both the base and alternative amounts to determine their inflation-adjusted values for 2026. The base amount of 0.3 cents is multiplied by 2.0570, resulting in an adjusted amount of 0.6171 cents, which is then rounded to the nearest multiple of 0.05 cents under the rounding rules in § 45Y(c)(1), yielding 0.6 cents. Similarly, the alternative amount of 1.5 cents is multiplied by 2.0570, resulting in 3.0855 cents, which is rounded to the nearest multiple of 0.1 cents, yielding 3.1 cents. These rounding rules ensure that the adjusted amounts remain administrable while preserving the credit’s real value.

The rounding rules are critical for practitioners because they determine the final credit amount that taxpayers can claim. For the base amount, if the inflation-adjusted amount is not a multiple of 0.05 cents, it must be rounded to the nearest multiple of 0.05 cents. For the alternative amount, if the inflation-adjusted amount is not a multiple of 0.1 cents, it must be rounded to the nearest multiple of 0.1 cents. This ensures that the credit amounts are expressed in practical, administrable increments while maintaining the integrity of the inflation adjustment.

The 2026 inflation adjustment factor and applicable amounts were republished in Notice 2026-47, which formalized their applicability for tax planning and compliance. The notice’s republication in the Internal Revenue Bulletin underscores the IRS’s commitment to providing certainty to taxpayers and investors in the clean energy sector, particularly as they navigate the transition from legacy credits to the technology-neutral framework of § 45Y. This certainty is essential for capital-intensive clean energy projects, which require long-term planning horizons and predictable incentives to secure financing.

The mechanics of § 45Y reflect a broader policy evolution in federal clean energy incentives, moving from technology-specific credits to performance-based rewards. This shift aligns with the Biden administration’s climate goals and the IRA’s emphasis on scaling domestic clean energy deployment. By tying the credit to actual electricity production and adjusting for inflation, § 45Y ensures that the incentive remains responsive to both economic conditions and technological advancements. For practitioners, understanding these mechanics is essential for advising clients on credit eligibility, compliance with labor standards, and the impact of inflation adjustments on project economics.

Breaking Down the § 45Y Credit: Mechanics and Inflation Adjustments

The § 45Y credit, enacted under the Inflation Reduction Act of 2022 (IRA), represents a fundamental shift in federal clean energy policy by replacing the technology-specific production tax credit under § 45 with a technology-neutral incentive designed to accelerate decarbonization across the electricity sector. This transition reflects Congress’s intent to avoid picking technology winners and instead reward outcomes—zero or net-negative greenhouse gas emissions—regardless of the generation method. The credit applies to electricity produced, consumed, or stored in 2026 at qualified facilities located in the United States or its possessions, embedding domestic production requirements into the incentive structure.

The mechanics of the § 45Y credit are defined in § 45Y(a)(1), which provides that the credit for any taxable year equals the product of the kilowatt hours of electricity produced at a qualified facility during the taxable year and either sold to an unrelated person or, if metered by an unrelated entity, sold, consumed, or stored by the taxpayer, multiplied by the applicable amount with respect to such facility. This structure ensures that the credit is tied directly to tangible energy output rather than capital investment, aligning the incentive with actual clean energy generation.

The applicable amount under § 45Y(a)(2) is bifurcated into a base amount and an alternative amount, creating a two-tier credit structure that rewards compliance with labor standards. The base amount, set at 0.3 cents per kilowatt hour under § 45Y(a)(2)(A), applies to facilities that do not meet the conditions for the higher credit. The alternative amount, set at 1.5 cents per kilowatt hour under § 45Y(a)(2)(B), is available to facilities that either (1) have a maximum net output of less than one megawatt, (2) began construction prior to the 60-day window following Treasury’s issuance of guidance on prevailing wage and apprenticeship requirements, or (3) satisfy those wage and apprenticeship standards. The wage and apprenticeship requirements, codified in § 45Y(g)(9) and § 45Y(g)(10), respectively, were initially addressed in Notice 2022-61, published in the Federal Register on November 30, 2022, which established the 60-day period for compliance and provided transitional relief for projects that began construction before the guidance was issued.

The inflation adjustment mechanism under § 45Y(c)(1) ensures that the real value of the credit is preserved over time by adjusting both the base and alternative amounts for inflation. The inflation adjustment factor is defined in § 45Y(c)(3) as a fraction, the numerator of which is the GDP implicit price deflator for the preceding calendar year, and the denominator of which is the GDP implicit price deflator for 1992. The GDP implicit price deflator is the most recent revision of the implicit price deflator for gross domestic product as computed and published by the Department of Commerce before March 15 of the calendar year. This methodology ties the credit’s value to broad macroeconomic trends rather than consumer prices, reflecting Congress’s intent to maintain the credit’s purchasing power over the long term.

For calendar year 2026, the inflation adjustment factor was determined to be 2.0570, calculated as the ratio of the 2025 GDP implicit price deflator (128.986) to the 1992 GDP implicit price deflator (62.707). This factor is applied to both the base and alternative amounts to determine their inflation-adjusted values for 2026. The base amount of 0.3 cents is multiplied by 2.0570, resulting in an adjusted amount of 0.6171 cents, which is then rounded to the nearest multiple of 0.05 cents under the rounding rules in § 45Y(c)(1), yielding 0.6 cents. Similarly, the alternative amount of 1.5 cents is multiplied by 2.0570, resulting in 3.0855 cents, which is rounded to the nearest multiple of 0.1 cents, yielding 3.1 cents. These rounding rules ensure that the adjusted amounts remain administrable while preserving the credit’s real value.

The rounding rules are critical for practitioners because they determine the final credit amount that taxpayers can claim. For the base amount, if the inflation-adjusted amount is not a multiple of 0.05 cents, it must be rounded to the nearest multiple of 0.05 cents. For the alternative amount, if the inflation-adjusted amount is not a multiple of 0.1 cents, it must be rounded to the nearest multiple of 0.1 cents. This ensures that the credit amounts are expressed in practical, administrable increments while maintaining the integrity of the inflation adjustment.

The 2026 inflation adjustment factor and applicable amounts were republished in Notice 2026-47, which formalized their applicability for tax planning and compliance. The notice’s republication in the Internal Revenue Bulletin underscores the IRS’s commitment to providing certainty to taxpayers and investors in the clean energy sector, particularly as they navigate the transition from legacy credits to the technology-neutral framework of § 45Y. This certainty is essential for capital-intensive clean energy projects, which require long-term planning horizons and predictable incentives to secure financing.

The mechanics of § 45Y reflect a broader policy evolution in federal clean energy incentives, moving from technology-specific credits to performance-based rewards. This shift aligns with the Biden administration’s climate goals and the IRA’s emphasis on scaling domestic clean energy deployment. By tying the credit to actual electricity production and adjusting for inflation, § 45Y ensures that the incentive remains responsive to both economic conditions and technological advancements. For practitioners, understanding these mechanics is essential for advising clients on credit eligibility, compliance with labor standards, and the impact of inflation adjustments on project economics.

2026 Applicable Amounts: What Taxpayers Need to Know

The Internal Revenue Service has finalized the 2026 inflation-adjusted amounts for the § 45Y clean electricity production credit, reflecting the Biden administration’s climate goals and the IRA’s emphasis on scaling domestic clean energy deployment. By tying the credit to actual electricity production and adjusting for inflation, § 45Y ensures that the incentive remains responsive to both economic conditions and technological advancements. For practitioners, understanding these mechanics is essential for advising clients on credit eligibility, compliance with labor standards, and the impact of inflation adjustments on project economics.

The 2026 applicable amounts under § 45Y(a)(2)(A) and § 45Y(a)(2)(B) are determined by applying the inflation adjustment factor of 2.0570 to the base amounts of 0.3 cents and 1.5 cents, respectively, with rounding to the nearest specified increment. For sales, consumption, or storage of electricity occurring in calendar year 2026, the applicable amount provided in § 45Y(a)(2)(A) is 0.6 cents (or $0.006), which is 0.3 cents (or $0.003) multiplied by 2.0570 and rounded to the nearest multiple of 0.05 cent. For the same period, the applicable amount under § 45Y(a)(2)(B) is 3.1 cents (or $0.031), derived from 1.5 cents (or $0.015) multiplied by 2.0570 and rounded to the nearest multiple of 0.1 cent. The inflation adjustment factor of 2.0570 was calculated using the implicit price deflator for 1992 (62.707), which yields the adjustment factor when divided into the prior-year deflator.

These amounts apply exclusively to electricity sold, consumed, or stored during calendar year 2026 and are not retroactive to prior years. The rounding rules are critical for practitioners calculating the credit, as § 45Y(a)(2)(A) requires rounding to the nearest 0.05 cent, while § 45Y(a)(2)(B) requires rounding to the nearest 0.1 cent. The rounding process ensures that the credit remains administratively feasible while preserving the statutory intent of providing meaningful incentives. For example, a taxpayer producing 1,000 MWh of electricity in 2026 would calculate the base credit as 1,000 × $0.006 = $6,000, while the alternative credit would be 1,000 × $0.031 = $31,000, assuming all other eligibility requirements are met.

The IRS emphasized that these amounts are effective for the 2026 taxable year and do not affect credits claimed in prior years. Practitioners should ensure that clients’ projects meet the prevailing wage and apprenticeship requirements under § 45Y(a)(2)(B), which were initially outlined in Notice 2022-61 and remain in effect. The IRS also noted that the inflation adjustment factor is recalculated annually, meaning the 2.0570 figure applies only to 2026 and will differ in subsequent years based on updated economic data.

For further guidance, practitioners may contact Kevin I. Babitz of the Office of Associate Chief Counsel (Energy, Credits, and Excise Tax) at 202-317-5046 (not a toll-free call). The drafting information confirms that this notice was developed to provide clarity on the 2026 applicable amounts, reinforcing the IRS’s commitment to transparent and predictable credit administration.

IRS Issues Guidance on Clean Fuel Production Credit Emissions Rates

The IRS’s Notice 2026-53, released on October 5, 2026, marks a pivotal shift in the administration of the clean fuel production credit under § 45Z by providing definitive guidance on emissions rate establishment—a cornerstone of credit eligibility. This notice republishes the 2026 emissions rate table and clarifies how the One, Big, Beautiful Bill Act (OBBBA), enacted as § 70521 of Public Law 119-21, fundamentally reshapes the regulatory framework for transportation fuels. Most notably, the guidance excludes indirect land use change (ILUC) emissions from lifecycle greenhouse gas (GHG) calculations, a long-contested provision that had previously complicated biofuel credit eligibility. The IRS also establishes distinct emissions rates for transportation fuels derived from animal manure, a feedstock category now explicitly prioritized under the statute. This development reflects a broader policy realignment favoring agricultural waste-to-energy pathways while deprioritizing land-use-intensive feedstocks.

The notice underscores the collaborative origins of this guidance, developed in consultation with the Department of Energy (DOE), the United States Department of Agriculture (USDA), and the Federal Aviation Administration (FAA). This interagency coordination signals a unified federal approach to emissions accounting under § 45Z, particularly as it pertains to sustainable aviation fuel (SAF) and regenerative agricultural practices. The inclusion of animal manure-derived fuels within a dedicated emissions rate category responds directly to industry advocacy and aligns with broader sustainability goals in the biofuels sector. For practitioners, this guidance provides clarity on how to navigate the amended statutory framework, particularly in light of the OBBBA’s retroactive application to fuels produced after December 31, 2025.

Understanding the § 45Z Credit: Mechanics and Emissions Accounting

The § 45Z credit, enacted as part of the Inflation Reduction Act of 2022 (IRA), represents a fundamental shift in federal policy toward incentivizing domestically produced low-carbon transportation fuels. Unlike legacy credits such as § 40B (which targeted biodiesel and renewable diesel specifically), § 45Z establishes a technology-neutral credit for any transportation fuel meeting statutory emissions thresholds. The credit applies to fuels produced after December 31, 2024, and sold by December 31, 2029, creating a narrow but critical window for biofuel producers to capitalize on the incentive. The statutory baseline emissions rate of 50 kg of CO2e per mmBTU serves as the threshold for eligibility, meaning only fuels with lifecycle emissions at or below this level qualify for the credit. This baseline aligns with the Clean Air Act’s definition of lifecycle greenhouse gas emissions under § 211(o)(1)(H), ensuring consistency with existing regulatory frameworks.

The § 45Z credit operates as a production tax credit, calculated by multiplying the applicable credit amount per gallon or gallon equivalent by the fuel’s emissions factor. The emissions factor is determined by comparing the fuel’s lifecycle emissions rate to the statutory baseline of 50 kg CO2e/mmBTU. For example, a fuel with a lifecycle emissions rate of 30 kg CO2e/mmBTU would have an emissions factor of 0.4 (30/50), meaning it qualifies for 40% of the maximum credit amount. The credit amount is then rounded to the nearest cent, as required by § 45Z(a)(5). The total credit for a taxable year is the sum of the credits for each transportation fuel sold during that year. This structure incentivizes the production of fuels with the lowest possible carbon intensity, rewarding efficiency and innovation in fuel production.

The IRS plays a central role in administering § 45Z through the annual publication of an emissions rate table, which establishes standardized emissions rates for common fuel types. This table, published in the Appendix to Notice 2026-53, provides a critical reference point for taxpayers, eliminating the need for individualized emissions modeling for fuels covered by the table. For fuels not included in the table, taxpayers may petition the Secretary for a provisional emissions rate (PER), a process outlined in § 45Z(b)(1)(D). The PER process is particularly important for emerging fuels or those with unique production pathways, such as advanced biofuels derived from novel feedstocks. The IRS’s reliance on the GREET model for non-SAF transportation fuels and the CORSIA methodologies for sustainable aviation fuel ensures consistency with established scientific frameworks while allowing for flexibility in addressing new fuel types.

The OBBBA amendments, enacted retroactively for fuels produced after December 31, 2025, introduce several critical changes to the § 45Z framework. These amendments require the exclusion of indirect land use change (ILUC) emissions from lifecycle calculations, a provision that responds to longstanding industry concerns about the scientific uncertainty and economic distortion associated with ILUC modeling. The amendments also mandate a distinct emissions rate for transportation fuels derived from animal manure, recognizing the unique carbon accounting challenges and sustainability benefits associated with these feedstocks. Additionally, the amendments prohibit negative emissions rates for most fuels, except those derived from animal manure, ensuring that the credit structure remains aligned with the statutory goal of incentivizing low-carbon fuel production. For practitioners, these amendments underscore the importance of staying abreast of IRS guidance, as the retroactive application of the OBBBA provisions requires careful review of existing fuel pathways and emissions calculations.

The calculation of the § 45Z credit hinges on the emissions factor, which is derived from the fuel’s lifecycle emissions rate relative to the statutory baseline. The emissions factor must be rounded to the nearest multiple of 0.1, as specified in § 45Z(b)(2), ensuring precision in credit calculations while maintaining administrative simplicity. The IRS’s annual emissions rate table provides standardized emissions factors for common fuel types, simplifying compliance for taxpayers producing fuels covered by the table. For fuels not included in the table, taxpayers must either petition for a PER or use an approved methodology, such as the GREET model for non-SAF fuels or CORSIA methodologies for SAF. The PER process, while more administratively burdensome, allows for the inclusion of innovative fuels that may not yet have standardized emissions rates. The rounding rules for the emissions factor ensure consistency in credit calculations, reducing the risk of disputes with the IRS over credit amounts.

The role of the annual emissions rate table cannot be overstated in the practical application of § 45Z. Published by the Secretary, the table provides a comprehensive reference for taxpayers, covering a wide range of fuel types and production pathways. The table is updated annually to reflect changes in fuel production technologies, feedstock availability, and emissions modeling methodologies. For practitioners, the table serves as a critical tool for determining eligibility and calculating credit amounts, reducing the need for individualized emissions modeling. The inclusion of animal manure-derived fuels in a dedicated category responds directly to industry advocacy and aligns with broader sustainability goals, particularly in the context of SAF and regenerative agricultural practices. The table’s structure also reflects the OBBBA amendments, ensuring that the most recent statutory requirements are incorporated into the emissions rate calculations.

For fuels not included in the annual emissions rate table, the process for determining a provisional emissions rate (PER) provides a pathway for inclusion in the § 45Z credit program. The PER process, outlined in § 45Z(b)(1)(D), allows taxpayers to petition the Secretary for an emissions rate based on their specific fuel production pathway. This process is particularly important for emerging fuels or those with unique production methods, such as advanced biofuels derived from novel feedstocks or innovative processing techniques. The IRS’s reliance on the GREET model for non-SAF fuels and the CORSIA methodologies for SAF ensures that the PER process is grounded in established scientific frameworks. The PER process also allows for the inclusion of regenerative agricultural practices, which may reduce the lifecycle emissions of a fuel but are not yet reflected in the annual emissions rate table. For practitioners, the PER process requires careful documentation and adherence to IRS guidance, as the approval of a PER can significantly impact a fuel’s eligibility for the § 45Z credit.

The importance of these rules for the biofuels industry cannot be overstated, as § 45Z represents a significant opportunity for producers to monetize low-carbon fuels while advancing sustainability goals. The credit’s technology-neutral structure incentivizes innovation in fuel production, rewarding efficiency and reducing carbon intensity. The inclusion of animal manure-derived fuels and regenerative agricultural practices reflects a growing recognition of the role that these feedstocks can play in reducing lifecycle emissions. For practitioners, the § 45Z credit requires a deep understanding of the statutory framework, the IRS’s administrative guidance, and the scientific methodologies used to calculate lifecycle emissions. The retroactive application of the OBBBA amendments adds an additional layer of complexity, requiring careful review of existing fuel pathways and emissions calculations. By staying abreast of IRS guidance and leveraging the annual emissions rate table and PER process, practitioners can navigate the § 45Z framework effectively, maximizing credit eligibility while ensuring compliance with the statutory requirements.

OBBBA Amendments: Key Changes to Emissions Rate Rules

The amendments to § 45Z by the One, Big, Beautiful Bill Act (OBBBA), effective for transportation fuel produced after December 31, 2025, fundamentally restructure the emissions rate framework for the clean fuel production credit. These changes were codified in § 70521 of Public Law 119-21, enacted on July 4, 2025, and now govern how lifecycle greenhouse gas (GHG) emissions are calculated for transportation fuels under § 45Z. The amendments reflect a deliberate shift away from the prior regime’s reliance on indirect land use change (ILUC) modeling and toward a more granular, feedstock-specific approach that prioritizes animal manure and regenerative agricultural practices. The IRS addressed these amendments in Notice 2026-53, which republishes the 2026 emissions rate table and clarifies the application of OBBBA’s statutory changes.

The most consequential amendment excludes ILUC emissions from the calculation of a transportation fuel’s emissions rate under § 45Z(b)(1)(B)(iv). ILUC refers to the GHG emissions resulting from land conversion—such as deforestation or conversion of grasslands to cropland—that occurs indirectly as a result of increased demand for biofuel feedstocks. Under the prior framework, ILUC was a critical component of lifecycle emissions modeling, particularly for biofuels like corn ethanol and soy biodiesel, where it could significantly increase a fuel’s carbon intensity (CI) score. The OBBBA amendment explicitly prohibits the inclusion of ILUC emissions in the emissions rate calculation for transportation fuel produced after December 31, 2025, directing the Secretary to adjust emissions rates accordingly. This exclusion is rooted in the argument that ILUC modeling is scientifically uncertain and disproportionately penalizes domestic biofuel producers, a position advanced by agricultural and biofuel industry stakeholders during the legislative process. The IRS’s Notice 2026-53 implements this exclusion by requiring taxpayers to recalculate emissions rates for fuels produced after the effective date without ILUC, which in many cases will result in lower CI scores and higher credit eligibility.

The OBBBA amendments also impose distinct emissions rates for transportation fuel derived from animal manure, mandating separate rates based on specific feedstocks under § 45Z(b)(1)(B)(v)(I). The statute explicitly requires the Secretary to provide distinct emissions rates for fuels derived from dairy manure, swine manure, poultry manure, and any other animal manure feedstocks the Secretary deems appropriate. This provision reflects Congress’s recognition of the unique lifecycle emissions profile of animal manure-derived fuels, which often exhibit negative or near-zero CI scores due to the methane mitigation benefits of manure management systems. The IRS’s Notice 2026-53 operationalizes this requirement by incorporating separate emissions rates for these feedstocks in the annual emissions rate table, ensuring that taxpayers producing fuels from animal manure receive credit commensurate with their environmental benefits. The inclusion of poultry manure alongside dairy and swine manure underscores the breadth of Congress’s intent to incentivize manure-to-energy projects, which have gained traction in regions with concentrated livestock operations.

A third critical amendment prohibits negative emissions rates for transportation fuel produced after December 31, 2025, except for fuels derived from animal manure under § 45Z(b)(1)(B)(v)(II) and (b)(1)(E). Under the prior framework, some fuels—particularly those derived from waste feedstocks or with carbon capture and storage—could achieve negative CI scores, effectively allowing taxpayers to claim credits in excess of their actual emissions reductions. The OBBBA amendment eliminates this possibility for most fuels, capping emissions rates at zero, but explicitly carves out an exception for animal manure-derived fuels. This provision ensures that while most transportation fuels are treated neutrally in terms of emissions (i.e., no credit for negative emissions), animal manure-derived fuels retain their unique status as net-negative contributors to GHG reductions. The IRS’s Notice 2026-53 clarifies that this prohibition applies retroactively to fuels produced after the effective date, requiring taxpayers to adjust prior-year calculations where negative emissions rates were claimed.

The amendments further impose a geographic restriction on feedstock sourcing, requiring that transportation fuel produced after December 31, 2025, be exclusively derived from feedstocks produced or grown in the United States, Mexico, or Canada under § 45Z(f)(1)(A)(iii). This provision, while not directly tied to emissions rate calculations, ensures that the § 45Z credit supports domestic and North American supply chains, aligning with broader energy security and economic policy objectives. The IRS’s Notice 2026-53 does not elaborate on the mechanics of this requirement, but practitioners should interpret it as a strict sourcing rule that disqualifies fuels derived from feedstocks grown outside the specified jurisdictions. This amendment may particularly affect biofuel producers reliant on imported feedstocks, such as palm oil or sugarcane, which were previously eligible under the IRA’s broader framework.

The implications of these amendments for taxpayers and the biofuels industry are profound. For animal manure-derived fuels, the distinct emissions rates and allowance for negative emissions create a powerful incentive to invest in manure-to-energy projects, particularly in dairy- and swine-dense regions like the Midwest and North Carolina. The exclusion of ILUC emissions benefits biofuel producers across the board, particularly corn ethanol and soy biodiesel, by lowering their CI scores and increasing credit eligibility. However, the prohibition on negative emissions rates for non-manure fuels may dampen investment in cutting-edge carbon-negative technologies, such as direct air capture-integrated fuels or advanced biofuels with carbon capture and storage. The geographic sourcing requirement may also disrupt established supply chains, particularly for producers reliant on imported feedstocks, and could lead to increased demand for domestically sourced agricultural products.

The focus on animal manure and regenerative agriculture in these amendments reflects a broader political and industry shift toward incentivizing circular economy practices and methane mitigation. Animal manure management systems, such as anaerobic digesters, not only reduce methane emissions—a potent greenhouse gas—but also produce renewable natural gas or electricity that can displace fossil fuels. The OBBBA amendments explicitly recognize these co-benefits by creating a tailored emissions rate regime for manure-derived fuels. Similarly, the exclusion of ILUC emissions aligns with the interests of the biofuel industry, which has long argued that ILUC modeling is overly punitive and does not reflect the actual emissions reductions achieved by modern biofuel production. The amendments also dovetail with USDA’s emphasis on regenerative agriculture, as the exclusion of ILUC and the focus on animal manure-derived fuels encourage practices that sequester carbon in soils and reduce fertilizer use.

For practitioners, the OBBBA amendments necessitate a thorough review of existing fuel pathways and emissions calculations. Taxpayers must ensure that their emissions rates for fuels produced after December 31, 2025, comply with the new rules, including the exclusion of ILUC, the distinct rates for animal manure feedstocks, and the prohibition on negative emissions rates. The IRS’s Notice 2026-53 provides the annual emissions rate table for 2026, which incorporates these amendments, but practitioners should also be prepared to file a petition for a provisional emissions rate (PER) if their specific fuel pathway is not covered in the table. The retroactive application of the OBBBA amendments adds an additional layer of complexity, requiring careful review of prior-year claims to ensure compliance with the new statutory framework. By leveraging the annual emissions rate table and engaging with the PER process, practitioners can navigate the § 45Z framework effectively, maximizing credit eligibility while mitigating compliance risks.

Emissions Rate Methodologies: GREET, CORSIA, and Beyond

The Internal Revenue Service’s Notice 2026-53 republishes the 2026 emissions rate table under § 45Z and clarifies the methodologies for determining lifecycle greenhouse gas (GHG) emissions for transportation fuels eligible for the clean fuel production credit. The guidance is anchored in the statutory framework of § 45Z, as amended by the One, Big, Beautiful Bill Act (OBBBA), and reflects the IRS’s collaboration with the Department of Energy, the United States Department of Agriculture, and other federal agencies. The notice underscores the centrality of lifecycle emissions modeling in credit eligibility, particularly for sustainable aviation fuel (SAF) and transportation fuels derived from animal manure, where specialized methodologies are required.

The IRS’s reliance on the Greenhouse gases, Regulated Emissions, and Energy use in Transportation (GREET) model—developed by Argonne National Laboratory—and the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) methodologies reflects a deliberate policy choice to standardize emissions accounting across disparate fuel types. This standardization is critical for ensuring consistency in credit eligibility determinations, particularly as the § 45Z credit expands beyond traditional biofuels to include SAF and fuels derived from agricultural waste. The notice also addresses the retroactive application of OBBBA amendments, which introduces additional complexity for practitioners reviewing prior-year claims under the revised statutory framework.

The Role of GREET for Non-SAF Transportation Fuels

For transportation fuels other than SAF, § 45Z(b)(1)(B)(ii) requires that lifecycle GHG emissions be determined using the most recent version of the GREET model, or a successor model as designated by the Secretary. The 45ZCF-GREET model, a specialized version of GREET tailored for § 45Z compliance, is the designated tool for this purpose. The model calculates lifecycle emissions by accounting for emissions at each stage of fuel production, including feedstock extraction, fuel processing, transportation, and combustion. The IRS explicitly directs practitioners to the publicly available versions of the 45ZCF-GREET model, user manuals, and FAQs hosted by the Department of Energy at https://www.energy.gov/cmei/greet.

The GREET model’s role in § 45Z compliance is not merely advisory; it is a statutory requirement. The IRS’s notice emphasizes that taxpayers must use the most recent version of the model that includes their specific fuel type and category. This requirement ensures that credit calculations reflect the latest scientific and technological developments in emissions accounting. For example, the 2026 emissions rate table published in the Appendix to Notice 2026-53 incorporates updates from GREET 2026, which includes refinements to land use change modeling and process energy assumptions.

Practitioners must exercise caution when selecting the appropriate GREET version. The IRS cautions that using an outdated model may result in an emissions rate that does not meet the statutory baseline of 50 kilograms of carbon dioxide equivalent (kg CO₂e) per million British thermal units (mmBTU). This baseline, established under § 45Z(d)(5)(A), requires that eligible transportation fuels have an emissions rate not greater than 50 kg CO₂e/mmBTU. Failure to use the most recent GREET version could lead to disqualification from the credit or the need to file a provisional emissions rate (PER) petition under § 45Z(b)(1)(D).

CORSIA Methodologies for SAF Transportation Fuels

For sustainable aviation fuel (SAF), § 45Z(b)(1)(B)(iii) mandates the use of CORSIA methodologies to determine lifecycle GHG emissions. CORSIA, developed by the International Civil Aviation Organization (ICAO), provides two distinct approaches for calculating emissions: the CORSIA Default Methodology and the CORSIA Actual Methodology. The CORSIA Default Methodology uses standardized emissions factors for specific fuel pathways, while the CORSIA Actual Methodology allows for project-specific data to refine emissions calculations.

The IRS’s notice clarifies that SAF producers may use either the CORSIA Default or CORSIA Actual methodologies, provided they align with the criteria under § 211(o)(1)(H) of the Clean Air Act, as in effect on August 16, 2022. This statutory reference ensures consistency with existing regulatory frameworks governing aviation emissions. The notice also emphasizes that the methodology used must be applied consistently across all stages of SAF production, from feedstock sourcing to fuel combustion.

The choice between CORSIA Default and CORSIA Actual methodologies has significant implications for credit eligibility. The CORSIA Default Methodology is simpler and less resource-intensive, making it attractive for smaller producers. However, it may result in higher emissions rates due to its reliance on generalized assumptions. In contrast, the CORSIA Actual Methodology allows for more precise emissions accounting but requires detailed data collection and verification, which can be costly and time-consuming. Practitioners must weigh these trade-offs when advising clients on the optimal methodology for their specific SAF production pathways.

Emissions Rate Tables and Methodological Consistency

The IRS’s annual emissions rate table, published in the Appendix to Notice 2026-53, serves as the primary reference for determining eligibility for the § 45Z credit. The table provides pre-calculated emissions rates for common fuel types and categories, allowing taxpayers to avoid the complexity of filing a PER petition. However, the table is not exhaustive, and taxpayers producing fuels not covered by the table must file a petition for a provisional emissions rate under § 45Z(b)(1)(D).

The notice underscores the requirement that taxpayers use the same methodology for all stages of SAF production. This requirement ensures that emissions calculations are consistent and avoid double-counting or omissions. For example, a producer using the CORSIA Actual Methodology for feedstock sourcing must also apply this methodology to fuel processing and combustion stages. Failure to maintain methodological consistency may result in an emissions rate that does not meet the statutory baseline, disqualifying the fuel from the credit.

The IRS also clarifies that the applicable emissions rate table must be used in conjunction with the most recent version of the GREET or CORSIA methodologies. The notice states that taxpayers must use the emissions rate table published for the calendar year in which the fuel is produced, even if the table was published after the fuel’s production date. This requirement ensures that credit calculations reflect the latest regulatory guidance and scientific data.

Emissions Accounting for Fuels Derived from Animal Manure

The OBBBA amendments to § 45Z introduced specific rules for transportation fuels derived from animal manure, reflecting Congress’s intent to incentivize the use of agricultural waste as a feedstock. Under § 45Z(b)(1)(B)(v)(I), the IRS is required to provide a distinct emissions rate for transportation fuels derived from animal manure based on the specific feedstock used (e.g., dairy manure, swine manure, poultry manure). The notice emphasizes that these emissions rates must account for the unique characteristics of animal manure feedstocks, including their high moisture content and variable composition.

The IRS’s guidance also addresses the treatment of natural gas alternatives derived from animal manure. The notice clarifies that such fuels are subject to the same emissions rate requirements as other transportation fuels under § 45Z, but with adjustments to reflect the specific emissions profile of manure-derived natural gas. Practitioners must ensure that these adjustments are consistent with the GREET model’s assumptions for manure-derived fuels.

A critical point of clarification in the notice is the incompatibility of the national average alternative fate with the OBBBA requirements. The national average alternative fate, which assumes a baseline emissions rate for manure-derived fuels based on industry averages, does not meet the statutory requirement for a feedstock-specific emissions rate. Practitioners must therefore use the GREET model to calculate a feedstock-specific emissions rate for manure-derived fuels, rather than relying on national averages.

Transition Guidance and Retroactive Application of OBBBA Amendments

The retroactive application of the OBBBA amendments adds a layer of complexity for practitioners reviewing prior-year claims under the revised statutory framework. The IRS issued transition guidance in Notice 2026-41, effective September 8, 2026, requiring taxpayers to bifurcate their emissions calculations based on production dates and apply specific adjustments to pre-June 2026 model outputs.

The guidance mandates that taxpayers using a pre-June 2026 version of the 45ZCF-GREET model must generate separate results for transportation fuel produced on or before December 31, 2025, and after December 31, 2025. This bifurcation reflects the statutory effective dates embedded in the OBBBA amendments, which took effect January 1, 2025, for certain provisions and January 1, 2026, for others. The IRS explicitly tied this requirement to the release of the June 12, 2026 version of the 45ZCF-GREET model, which was the first to incorporate some OBBBA amendments. Practitioners must therefore maintain parallel modeling workflows: one for pre-2026 production using legacy model outputs and another for post-2025 production using adjusted calculations. The IRS emphasized that this approach ensures compliance with the statutory amendments while acknowledging the operational constraints of legacy systems.

For transportation fuel produced after December 31, 2025, the guidance requires the exclusion of ILUC emissions from the Total Life Cycle Analysis Results (Total LCA Results) under § 45Z(b)(1)(B)(iv). The IRS acknowledged that pre-June 2026 versions of the 45ZCF-GREET model included ILUC emissions in their calculations, creating a compliance mismatch with the OBBBA amendments. To rectify this, taxpayers must subtract the ILUC value published in the 45ZCF-GREET model from the Total LCA Results, expressed in grams of CO2e per megajoule, and then multiply the adjusted result by 1.055 to convert to kilograms of CO2e per mmBTU. For taxpayers using the CORSIA Default or CORSIA Actual methodologies to determine emissions rates for sustainable aviation fuel (SAF) produced after December 31, 2025, the guidance requires the exclusion of any ILUC value included in those methodologies. The IRS cited § 45Z(b)(1)(B)(iv) as the statutory basis for this exclusion, noting that the OBBBA amendments explicitly prohibited the inclusion of ILUC emissions in lifecycle analyses for post-2025 fuel production. This adjustment ensures that taxpayers using legacy models can still comply with the statutory framework while awaiting model updates.

The foreign feedstock limitation under § 45Z(f)(1)(A)(iii) presents another critical transition challenge. The OBBBA amendments prohibit the use of imported non-Canadian/Mexican used cooking oil (UCO) as a feedstock for transportation fuel produced after December 31, 2025, due to concerns about the inability to reliably distinguish between imported UCO and palm oil. The IRS addressed this by requiring taxpayers using pre-June 2026 versions of the 45ZCF-GREET model to exclude pathways involving imported non-Canadian/Mexican UCO for post-2025 production. The guidance notes that the June 2026 version of the model added Canadian and Mexican UCO as primary feedstocks for pathways that previously included only U.S. UCO, aligning with the statutory sourcing requirements. For fuel produced in 2025 from imported non-Canadian/Mexican UCO, taxpayers must use a forthcoming version of the 45ZCF-GREET model specifically designed for such feedstocks, despite ongoing concerns about the reliability of imported UCO pathways. The IRS justified this limited exception by citing the OBBBA’s prohibition on post-2025 production from imported non-Canadian/Mexican UCO and the reduced risk of fraud for 2025 production due to the availability of contemporaneous records.

The treatment of animal manure feedstocks under § 45Z(b)(1)(B)(v) introduces further complexity. The OBBBA amendments require distinct emissions rates for transportation fuel derived from animal manure produced after December 31, 2025, reflecting the unique lifecycle characteristics of this feedstock. The IRS guidance specifies that taxpayers must use a version of the 45ZCF-GREET model that incorporates these distinct emissions rates for post-2025 animal manure-derived fuel. For fuel produced on or before December 31, 2025, taxpayers must use a version of the model that reflects an alternative fate derived from the national average of all animal waste management practices. The IRS emphasized that this bifurcation ensures compliance with the statutory amendments while accommodating the phased implementation of updated model features. Practitioners must therefore maintain separate modeling approaches for animal manure feedstocks based on production dates, with the post-2025 approach requiring the most recent model version to capture the distinct emissions rates mandated by the OBBBA amendments.

The guidance also addresses the prohibition on negative emissions rates for transportation fuel produced after December 31, 2025, except for fuels derived from animal manure. The IRS noted that pre-June 2026 versions of the 45ZCF-GREET model may produce negative emissions rates for certain fuels, which are no longer permissible under the OBBBA amendments. For any transportation fuel produced in 2026 other than animal manure-derived fuel, taxpayers must adjust negative results up to zero. This adjustment ensures compliance with the statutory framework while preventing the improper claiming of negative emissions rates for ineligible fuels. The IRS did not provide a specific methodology for this adjustment, leaving practitioners to determine the most appropriate approach within their compliance frameworks.

Practitioners must navigate these transition rules with meticulous attention to recordkeeping and documentation. The IRS emphasized that taxpayers using pre-June 2026 versions of the 45ZCF-GREET model must maintain contemporaneous records demonstrating compliance with the bifurcation requirements and adjustment processes. For foreign feedstock limitations, taxpayers must document the sourcing of UCO to ensure it meets the statutory requirements, particularly for 2025 production involving imported non-Canadian/Mexican UCO. The IRS also highlighted the importance of using the correct version of the CORSIA Default or CORSIA Actual methodologies for SAF production, as specified in the guidance. Practitioners should engage early with the updated 45ZCF-GREET model and USDA’s technical guidelines to ensure seamless compliance as the transition rules phase in. The complexity of these requirements underscores the need for robust internal controls and external validation to demonstrate the integrity of emissions calculations.

Regenerative Agriculture and Animal Manure: New Emissions Accounting Rules

The IRS’s latest guidance on emissions accounting for regenerative agricultural practices and animal manure feedstocks under § 45Z represents a significant evolution in the lifecycle analysis of transportation fuels. This guidance, issued as part of the broader implementation of the One, Big, Beautiful Bill Act (OBBBA) amendments, introduces the USDA Feedstock Carbon Intensity Calculator (FD-CIC) as a critical tool for quantifying carbon intensity adjustments for feedstocks produced using low-carbon agricultural practices. The FD-CIC, developed by the U.S. Department of Agriculture, is designed to complement the DOE’s 45ZCF-GREET model by providing farm-level data on carbon sequestration and emissions reductions associated with regenerative practices such as cover cropping, reduced tillage, and precision nutrient management.

The Treasury Department and the IRS explicitly acknowledged in the preamble to the § 45Z Notice of Proposed Rulemaking (NPRM) that the FD-CIC would be integrated into the 45ZCF-GREET model as a module for calculating carbon intensity adjustments for agricultural feedstocks. This integration reflects a recognition that regenerative agricultural practices can materially reduce the lifecycle emissions of biofuels by enhancing soil carbon sequestration and minimizing fertilizer-related emissions. The USDA published a beta version of the FD-CIC in January 2025, followed by a finalized version in June 2026, accompanied by Technical Guidelines for the Production of Regenerative Agricultural Biofuel Feedstocks (91 F.R. 39334, June 29, 2026). These guidelines establish the standards for qualifying practices, including chain of custody requirements and audit protocols under 7 CFR part 2100.

For fuel produced in 2025, the IRS provided a critical safe harbor allowing taxpayers to use the 2026 version of the 45ZCF FD-CIC module—even though it had not yet been finalized—provided they comply with the USDA’s technical guidelines. This retroactive application is particularly significant given that most feedstocks planted for 2025 production were established before the finalization of the USDA guidelines. The IRS explicitly deemed the pre-application development of nutrient budgets (as required under 7 CFR 2100.060) to be satisfied for fuels produced in 2025 and 2026, but taxpayers must still substantiate the application of nutrients such as nitrogen, phosphorus, and potassium, as well as measurable nutrient sources and removals. The IRS emphasized that taxpayers must maintain records sufficient to substantiate their § 45Z claims, as outlined in proposed § 1.45Z-4(g)(1)–(2). This requirement underscores the importance of meticulous recordkeeping for practitioners navigating the § 45Z framework, particularly for smaller producers with limited resources.

The guidance also establishes distinct emissions rates for specific animal manure feedstocks, as mandated by § 45Z(b)(1)(B)(v)(I), which directs the Secretary to provide separate emissions rates for transportation fuels derived from animal manure based on the specific type of manure. The Treasury Department and the IRS identified dairy manure, swine manure, and poultry manure as listed manures eligible for distinct emissions rates, with the anticipation that the 45ZCF-GREET model will be updated in 2026 to include beef manure as well. For unlisted manures, the IRS indicated that future guidance may be provided, though it acknowledged that some unlisted manures may lack sufficient technical data to determine an alternative fate. The 2026 emissions rate table in the Appendix to the notice includes dairy manure and swine manure as primary feedstocks, while producers of fuels derived from poultry manure and beef manure are encouraged to await further updates to the 45ZCF-GREET model before submitting a Petition for Emissions Reduction (PER) under § 45Z(b)(1)(D).

A critical innovation in the guidance is the establishment of farm-specific prior manure management practices as a basis for determining emissions rates for animal manure feedstocks. Under proposed § 1.45Z-4(g)(1)–(2), taxpayers may use an alternative fate reflecting farm-specific prior manure management practices to calculate avoided emissions in the 45ZCF-GREET model. A “farm” is defined broadly to include any animal feeding operation or other animal operation with a nutrient management plan, and prior manure management practices may include storage in uncovered lagoons, deep pits, liquid/slurry systems, pasture/range/paddock, dry lot, or solid storage. Taxpayers must input into the 45ZCF-GREET model the number of animals by type and the share of manure managed using each prior practice as of the earlier of the commencement date of any anaerobic digester operation or September 8, 2026. If a farm diverted manure to an off-farm anaerobic digester, the commencement date is the date the farm first began diverting manure to any off-site anaerobic digester.

This farm-specific approach allows taxpayers to claim avoided emissions based on their prior manure management practices, but it comes with stringent substantiation requirements. Taxpayers must be able to substantiate the farm-specific prior manure management practices for all collected manure if such data are used to establish an alternative fate. Failure to substantiate these practices will result in the exclusion of avoided emissions for that farm’s portion of the manure inputs in the 45ZCF-GREET model. The IRS emphasized that this requirement is essential to prevent the inflation of avoided emissions and ensure the integrity of the § 45Z credit calculations.

The guidance also addresses the treatment of new farms—those beginning operations after September 8, 2026—by prohibiting the use of farm-specific alternative fates for such farms until further guidance is issued. The Treasury Department and the IRS explained that this restriction is necessary to prevent intentional inflation of avoided emissions, as new farms would have no prior manure management practices to reference. The IRS noted that without this restriction, a new farm could be incentivized to select the highest-emitting practices at startup to maximize the § 45Z credit amount, which would be contrary to the statutory intent of incentivizing cleaner fuel production. The IRS indicated that it is studying how to determine distinct emissions rates for transportation fuels derived from animal manures sourced from new farms in a manner that mitigates these concerns, but no timeline for additional guidance has been provided.

For practitioners, the implications of this guidance are substantial. The integration of the FD-CIC into the 45ZCF-GREET model provides a more nuanced and accurate accounting of the emissions benefits of regenerative agricultural practices, particularly for feedstocks like corn and soybeans. However, the complexity of the methodologies—including the need to input farm-specific data, substantiate prior manure management practices, and maintain detailed records—demands careful attention to compliance. The retroactive safe harbor for the 2026 version of the 45ZCF FD-CIC for 2025 production offers some relief for taxpayers, but the substantiation requirements remain rigorous. Additionally, the prohibition on farm-specific alternative fates for new farms introduces a compliance cliff for operations beginning after September 8, 2026, requiring proactive planning to avoid disallowed credits.

The IRS’s approach reflects a broader trend in clean energy tax policy toward more granular and data-driven emissions accounting. By leveraging the FD-CIC and farm-specific data, the guidance aims to ensure that the § 45Z credit accurately reflects the lifecycle emissions of transportation fuels, including the benefits of regenerative agricultural practices and improved manure management. However, the complexity of the rules and the need for meticulous recordkeeping underscore the importance of early engagement with the 45ZCF-GREET model and the USDA’s technical guidelines. Practitioners must navigate a landscape where compliance is not only about meeting statutory requirements but also about demonstrating the integrity of their emissions calculations through robust documentation and substantiation.