By Sean Moran, Jenny Speck, Lauren Collins, Jorge Medina, Mary Alexander, Todd Way, Hoo Ray, Sarah McIntosh, and Trey Frye*
On January 10, 2025, the Treasury Department (the “Treasury”) and the Internal Revenue Service (the “Service”) continued their flurry of new guidance by releasing IRS Notice 2025-10 (the “Notice”) concerning the clean fuel production credit available under section 45Z of the Internal Revenue Code of 1986, as amended (the “Code,” and such credit, the “Clean Fuel Production Credit”),1 for certain clean fuels produced and sold between January 1, 2025 and December 31, 2027.2
On the same day, the Treasury and the Service also released IRS Notice 2025-11, which provides emissions rates of certain fuels and pathways for purposes of computing the Clean Fuel Production Credit.3 The Clean Fuel Production Credit is a successor to several fuel production and blending credits (e.g., the credits provided under Code section 40, 40A, 40B, and 6426). Unlike its predecessors, the Clean Fuel Production Credit is “tech-neutral,” and the credit amount varies based on the type of fuel (e.g., sustainable aviation fuel (“SAF”) and highway vehicle fuel) and the well-to-wheel emissions rate (“Emissions Rate”) of such fuel.
While a full review of the Notice is beyond the scope of this alert, we have highlighted certain notable items below.4
Calculating the 45Z Credit
The Notice provides that the Clean Fuel Production Credit is available for each gallon or gasoline gallon equivalent of fuel5 produced by the taxpayer and sold in a qualified manner. Assuming certain prevailing wage requirements are satisfied,6 the Clean Fuel Production Credit is equal to the product of (a) $1.00 per gallon ($1.75 per gallon for SAF) of fuel produced by the taxpayer and sold during the taxable year and (b) the “emissions factor” for such fuel.7
The “emissions factor” for a fuel is equal to: 
Shortly after the release of IRS Notice 2025-11, the Department of Energy (“DOE”) released the “45ZCF-GREET model,” which most taxpayers must use to calculate their “Emissions Rate.”8 Notably, certain fuels (like methanol) and feedstocks (like non-domestic used cooking oil and logging residues) were not included in the 45ZCF-GREET model. If a fuel, pathway, or feedstock is described in the 45ZCF-GREET model, taxpayers may not change the “background” assumptions in the 45ZCF-GREET model with regard to such fuel, pathway, or feedstock.
Taxpayers producing a fuel or using a process or feedstock not described in the 45ZCF-GREET model may make a Provisional Emission Rate request to the DOE, although future guidance from Treasury is required before taxpayers can pursue this path, so taxpayers with fuels, pathways, or feedstocks not described in the 45ZCF-GREET model must continue to wait.9
Clarification on the definition of “suitable for use”
The Notice confirmed that a fuel is “suitable for use” in a highway vehicle or aircraft when it (a) has practical and commercial fitness for use as a fuel in a highway vehicle or aircraft or (b) can be blended into a fuel mixture that has such practical and commercial fitness. Alternative natural gases (i.e., renewable natural gas and coal mine methane) are considered “suitable for use” when they are suitable for pipeline injection (and compression or liquefaction is not required). In addition, synthetic blending components can be considered suitable for use as SAF prior to blending into a fuel mixture.
Importantly, the Notice provides that actual use as a fuel in a highway vehicle or aircraft is not necessary for a fuel to be considered “suitable for use as a fuel.” However, the ultimate use of a fuel can nonetheless be relevant in determining whether the requirements of a qualifying sale are satisfied, and fuel will not be treated as suitable for use if its use as a transportation fuel is only “possible or rare.”
Qualifying sales
To be eligible for the Clean Fuel Production Credit, fuel must be sold in a qualifying sale. Under the Notice, a “qualifying sale” means a sale of transportation fuel by the taxpayer to an unrelated person if (i) the fuel is sold for use in the production of a fuel mixture by such person; (ii) the fuel is sold for use in a trade or business by such person, or (iii) the unrelated person sells the fuel at retail to another person and places such fuel in the fuel tank of such other person.10
A sale to a person who uses the fuel as a feedstock for more fuel production (for example, using ethanol in SAF production, rather than blending ethanol with another fuel) would not be considered a qualifying sale, but the fuel purchaser may be eligible for the Clean Fuel Production Credit for the fuels it produces if the requirements of section 45Z are otherwise met.
Production
To be eligible for the Clean Fuel Production Credit, taxpayers must engage in the production of fuel and such production must occur in the United States. “Production” involves substantial processing and a chemical transformation to create a transportation fuel; minimal processing is not considered “production.”
The Notice uses several examples to help define “minimal processing,” including stabilizing biodiesel with an additive, dehydrating hydrous ethanol, splash bending, or other similar activities that do not result in a chemical transformation. “Production” also excludes production that results in a fuel that has the same ASTM standard as the primary feedstock used to produce such fuel. For alternative natural gas, the “producer” is the person that processes the alternative natural gas (i.e., a “processor”) to remove water, carbon dioxide, and other impurities such that it is interchangeable with fossil natural gas.11
Qualified Facility
Under the Notice, a “Qualified Facility” is a single production line that is used to produce a transportation fuel. The term includes all components within the steps of the production process that function interdependently to produce a fuel. The Notice emphasizes that the components of a Qualified Facility do not need to be located within the same building or within a certain geographic proximity of each other in order for the components to be functionally interdependent.
Section 45Z contains “anti-stacking” provisions that prohibit a facility from being considered a “Qualified Facility” for a taxable year if the credits available under Code section 45Q (carbon capture and sequestration), section 45V (clean hydrogen production credit), or section 48(a)(15) (clean hydrogen investment credit) have been claimed on a federal income tax return for such year with respect to the facility. Under the Notice, a “Qualified Facility” is only considered to include carbon capture equipment (“CCE”) if the CCE contributes to the Emissions Rate of the fuel’s production process.12
Additionally, a Qualified Facility would not include: (i) certain indirect production and post-production equipment (e.g., equipment used to condition a fuel, blend transportation fuel into a fuel mixture, pressurize a fuel for use in transportation, or transport a transportation fuel beyond the point of production); (ii) feedstock-related equipment; or (iii) electricity production equipment used to power the transportation fuel production process (including any CCE associated with the electricity production process).
Qualified Taxpayer
Taxpayers are only eligible for the Clean Fuel Production Credit for transportation fuels produced after the taxpayer receives a Letter of Registration issued by the IRS under Code section 4101.13 When a disregarded entity engages in the production of the transportation fuel, the disregarded entity is the appropriate applicant for a Letter of Registration.14 To receive a Letter of Registration, applicants must satisfy (i) the “activity test,” (ii) the “acceptable risk test,” and (iii) the “satisfactory tax history test.” Broadly speaking:
- the activity test requires the applicant to be actively engaged in the production of a fuel that may be eligible for the Clean Fuel Production Credit or state that it will be able to produce such a fuel six months after receiving a Letter of Registration;
- the acceptable risk test considers whether the applicant or a related person has been penalized for a wrongful act (such as being convicted of a crime or felony under federal or state laws), but the IRS will consider mitigating factors; and
- the satisfactory tax history test requires the applicant and all related persons to have satisfactory tax histories that support the conclusion that the applicant will comply with its obligations under Code section 45Z.
In certain circumstances, if the ownership of a registered person changes, the registered person must reregister. For purposes of the Clean Fuel Production Credit, the person will be treated as reregistered when the IRS receives the application for reregistration, even if, at the time of fuel production, the IRS had not yet approved the reregistration.
Stay tuned for additional analysis and insight with respect to the 45VH2-GREET and the 45ZCF-GREET models. Given the recent change in administration and the beginning of the 119th Congress, it will be interesting to see when and if the rules described in the Notice are officially released as proposed regulations and whether promised guidance on the provisional emissions rate (PER) process and climate-smart agriculture practices are released. It is clear Treasury and the IRS worked hard to release as much guidance as possible before changes in D.C. took effect. While we remain hopeful that the clean fuels space will continue to succeed and these valuable IRA tax benefits will remain available, there is an understandable air of uncertainty in the industry.
*Trey Frye is a law clerk in our New York office.
1 Our prior coverage of earlier guidance related to the Clean Fuel Production Credit can be found here.
2 The Notice is not a formal issuance of proposed regulations, but it sets forth “the rules that the Treasury Department and the IRS intend to propose in the forthcoming proposed regulations.” IRS Notice 2025-10 does not explicitly state that taxpayers may rely on the draft rules set forth therein, but in the absence of officially released proposed regulations, this interim guidance is the only guidance (beyond the statutory language) available to taxpayers.
3 Along with this notice, the Department of Energy released the 45ZCF-GREET model, which calculates the emissions rates for various categories of transportation fuels. The 45ZCF-GREET model can be found here.
4 The Notice also sets forth draft record keeping and certification rules, which are not described in this alert.
5 The Notice provides that taxpayers should use a gasoline gallon equivalent based on the lower heating value of gasoline (116,090 Btu per gallon). The lower heating value of certain non-liquid fuels are specified in the Notice. The draft rules included in the Notice would define fuel as “any liquid or gaseous substance that can be consumed to supply heat or power” and therefore would exclude electricity from the definition of fuel.
6 While prevailing wage requirements do not need to be satisfied for the construction of clean fuel production facilities placed in service prior to January 1, 2025, they must be satisfied for any repair or alterations of a clean fuel production facility. Our prior coverage of prevailing wage rules is available here.
7 Notably, an “emissions factor” can be greater than 1 where the Emissions Rate of a fuel is negative. Fuels with an Emission Rate greater than 50 kg CO2e per mmBTU are not qualifying fuels.
8 Taxpayers producing non-SAF must generally use the 45ZCF-GREET model available on the first day of the applicable taxable year. Taxpayers producing SAF can choose between the 45ZCF-GREET model, the CORSIA Default Lifecycle Emissions Values for CORSIA Eligible Fuels, and the CORSIA Methodology for calculating their Emissions Value.
9 The Notice indicates that additional guidance regarding “Climate-Smart Agriculture” practices that reduce the emissions rates of certain feedstock are forthcoming. Given the change in administration, whether and when this guidance may be released is not known.
10 The Notice would modify the trade or business prong to provide that the fuel must be sold for use in a trade or business as a fuel by such unrelated person.
11 Any fuel produced before January 1, 2025, is not eligible for the Clean Fuel Production Credit.
12 It is possible, therefore, that a facility may be a “qualified facility” in one year but not another.
13 In Notice 2024-49, Treasury encouraged taxpayers to register as fuel producers under section 4101 prior to July 15, 2024, to ensure that taxpayers receive Letters of Registration prior to January 1, 2025.
14 See FAQ here for additional information.