45Z credit rules may favor big biofuel producers over smaller rivals

45Z is turning carbon-intensity paperwork into a competitive moat, because producers that can prove site-specific values can capture higher credits while smaller plants may fall back to defaults. Treasury and IRS released proposed regulations on Feb. 3, 2026, after the credit drew nearly 500 comments and months of pressure for clearer substantiation rules. The credit applies to eligible transportation fuel produced domestically after Dec. 31, 2024, and sold by Dec. 31, 2027.

How 45Z shifts the market

Treasury’s January 2025 guidance tied lifecycle greenhouse-gas calculations to the 45ZCF-GREET model, so the carbon-intensity calculation sits at the center of the credit from the start. The credit amount moves with a fuel’s lifecycle emissions rate, which makes documentation, verification and the underlying math the difference between a larger and a smaller claim.

That structure gives producers an incentive to prove actual, site-specific CI values instead of relying on default values. The catch is cost: claiming actual values requires robust, scalable data infrastructure across the supply chain, plus enough documentation and verification to support the lifecycle analysis. Those substantiation costs are fixed overhead, and they hit smaller projects harder because the same measurement burden is spread over fewer gallons.

The result is a familiar split in biofuels policy. Large, better-capitalized producers usually have the staff, systems and third-party relationships needed to assemble a compliant file. Smaller plants often face a choice between paying for the full CI stack or taking a lower-value default path.

The registration gate and rulemaking trail

IRS Notice 2024-49 set an early eligibility hurdle. The notice said a taxpayer had to have a signed IRS registration letter dated on or before Jan. 1, 2025, to claim the Section 45Z credit for production starting Jan. 1, 2025. That made registration itself part of the race, not just a formality after fuel was produced.

Treasury and IRS then asked for public comments in Notice 2025-10, which said the clean fuel production credit applies to eligible transportation fuel produced domestically after Dec. 31, 2024, and sold by Dec. 31, 2027. By January 2025, guidance and legal commentary were already flagging open questions on how producers would substantiate emissions rates and qualify pathways, especially for renewable diesel, biodiesel, ethanol and sustainable aviation fuel.

The agencies moved from comments to text in early 2026. Treasury and IRS released proposed regulations on Feb. 3, 2026, and the Federal Register posted the proposed rule on Feb. 4, 2026. The proposed-rule record drew nearly 500 stakeholder comments, showing how many producers, trade groups and advocates wanted the same thing: a usable path to claim the credit without getting trapped in unresolved methodology questions.

What industry groups are pressing for

Growth Energy on Sept. 8, 2025, urged Treasury and IRS to provide greater certainty on the amended Section 45Z credit after the One Big Beautiful Bill Act changed the tax-code landscape. That request was aimed at the gap between the credit as written and the practical steps producers need to take to monetize it.

POET said it was awaiting federal guidance and rulemaking related to 45Z, while it focused on creating value for farmers through low-carbon grain programs. Clean Fuels Alliance America filed comments on the proposed Section 45Z rulemaking on April 6, 2026, keeping the rulemaking pressure on as producers waited for final standards on emissions accounting and verification.

Those reactions all point in the same direction: producers want a rule that makes the credit claimable without turning every facility into a bespoke carbon-accounting shop. The more site-specific the CI case, the more valuable the credit can become, but the more infrastructure, third-party review and recordkeeping a producer needs to defend it.

Where the competitive divide opens

The compliance burden is not evenly distributed. A large renewable diesel or ethanol group can spread data systems, verification contracts and emissions modeling across multiple plants. A smaller facility has to carry those same tasks with a narrower revenue base, which is why default CI values can look safer even when they leave money on the table.

That is the new divide in 45Z. The policy is designed to reward lower-carbon transportation fuels, but the producers most able to capture the higher-value credit are the ones that can prove their lifecycle emissions with auditable data, not simply those with the best theoretical carbon profile. As Treasury and IRS finish the rule, the market is watching whether site-specific CI becomes a broad opportunity or a compliance burden that only the largest producers can absorb.