New IRS 45Z Guidance Tightens Link Between Feedstocks and Biofuel Economics

The Internal Revenue Service recently issued Notice 2026-53, providing the 2026 emissions rate table for the Section 45Z Clean Fuel Production Credit and guidance on agricultural practices, manure-derived fuels, and the application of earlier legislative changes. The notice advances implementation while the broader proposed 45Z regulations remain under final consideration.

For biofuel producers, the value of a feedstock increasingly depends on whether it originated in the US, Canada or Mexico, how it was produced, and how those details affect the finished fuel's carbon intensity. The latest guidance on 45Z brings those questions into sharper commercial focus.

For market participants, the implications extend even further, spanning credit calculations, sourcing, supplier relationships, and investment planning.

Key Takeaways

• Feedstock origin is central to 45Z eligibility for fuel produced after 2025.
• Qualifying agricultural practices can influence emissions calculations as supported by documentation.
• Greater policy clarity helps planning, but feedstock costs and market conditions still determine commercial outcomes.

What Does the Latest 45Z Guidance Change?

Section 45Z supports eligible clean transportation fuels produced in the United States, with credit value generally linked to lifecycle greenhouse gas emissions. Lower emissions can translate into larger credits, subject to the program's requirements.

The September notice helps producers apply that framework as emissions methodologies evolve. It addresses how earlier statutory changes should be reflected when an allowed model has not yet incorporated them.

This distinction matters.

The notice implements existing legislative requirements rather than introducing an entirely new incentive. Producers gain additional guidance for assessing fuel pathways but should distinguish that progress from completion of the broader regulatory process.

Why Does Feedstock Origin Matter for Biofuel Producers?

For transportation fuel produced after December 31, 2025, 45Z requires feedstocks to be produced or grown exclusively in the United States, Mexico, or Canada. The legislation also excludes indirect land-use-change emissions from calculations and generally prohibits negative emissions rates, with an exception for animal-manure-derived fuels.

The sourcing implication is fairly straightforward. A feedstock's physical suitability and purchase price cannot establish its attractiveness for a credit-supported production pathway. Origin must also enter the assessment.

For example, overseas waste oil may remain technically suitable for renewable diesel production while failing the geographic requirement for 45Z. That restriction concerns eligibility for this credit. But it does not prohibit the general use of the feedstock.

Commercially, these rules could strengthen interest in qualifying North American supplies. Whether they create a price premium will depend on availability, competing demand, and the economics of individual producers. Traceable origin becomes a procurement consideration alongside quality, delivery, and cost.

How Can Agricultural Practices Affect Credit Value?

The September update to the Department of Energy's 45ZCF-GREET model incorporates a feedstock carbon intensity calculator for certain regenerative agricultural practices. This provides a mechanism for qualifying production practices to influence a fuel's modeled emissions.

Accordingly, the commercial opportunity depends on more than just purchasing crops described as lower-carbon. Suppliers and producers need evidence that allows qualifying practices to be reflected in the calculation.

This could encourage closer relationships between growers and fuel producers. Contracts may increasingly need to address production information and documentation alongside volume, quality, and price.

What Should Biofuel Market Participants Watch Next?

Greater clarity can improve planning, but it does not guarantee stronger margins. Feedstock prices, fuel sales, operating costs, and other compliance markets continue to influence profitability.

The next commercial question is how producers respond to whether sourcing shifts, supplier documentation improves, or competition for qualifying inputs grows. Those responses will help determine how policy support moves through the value chain.

Prima CarbonZero connects fuel and feedstock pricing, policy developments, trade flows, and expert analyst commentary to help market participants assess those interactions. Learn more about how our platform can help to inform your next sourcing or commercial decision.