IRS issues new guidance for 45Z Clean Fuel Production Tax Credit

The Internal Revenue Service (IRS) has issued new guidance regarding the Section 45Z Clean Fuel Production Tax Credit, providing regulatory clarity for the renewable natural gas (RNG) and biogas industries. The guidance aims to resolve uncertainties that have previously delayed investments in new biogas systems and organic waste recycling projects.

Industry representatives, including the American Biogas Council and Growth Energy, noted that the updated rules incorporate provisions requested by stakeholders. The guidance ties specific carbon reductions to regenerative agricultural practices, allowing farmers to benefit from the credit by utilizing specific feedstocks.

Additionally, the updates work in conjunction with the Department of Energy’s GREET model to provide a ‘safe harbor’ for recognized on-farm practices intended to reduce the carbon intensity of qualifying fuels. This regulatory framework is expected to encourage the conversion of organic waste, such as manure and food waste, into domestic renewable fuel.