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The U.S. Treasury Department and the IRS released new guidance on Friday for producers of transportation fuel seeking to qualify for the clean fuels production tax credit, under Internal Revenue Code Section 45Z. The guidance clarifies which entities are eligible for the credit and outlines how producers can determine allowable emissions levels.

In a notice of intent to propose regulations, the agencies specified that only producers of transportation fuel—excluding compressors or blenders—will be eligible for the tax break. However, the fuel itself may still qualify if it is a blend, as long as it is fit for use in highway vehicles or aircraft, according to Treasury's statement.

Wally Adeyemo, Treasury's Deputy Secretary, emphasized that the guidance aims to position the U.S. at the forefront of innovation in aviation and renewable fuels, while also helping to reduce transportation costs for consumers.

The Section 45Z credit, established by the 2022 Inflation Reduction Act, offers a per-gallon tax credit to producers of clean transportation fuel with greenhouse gas emissions below certain thresholds. It consolidates previous biodiesel and renewable fuel credits and adds a credit for sustainable aviation fuel. As part of the law, Treasury is tasked with setting rules for measuring carbon intensity in fuel production, using the federal Clean Air Act's definition of greenhouse gas emissions.

The IRS also released the annual emissions rate table for the Section 45Z credit on Friday. The table includes methods for taxpayers to calculate their fuel emissions and incorporates "climate-smart agriculture practices" for growing crops like corn and soybeans for sustainable aviation fuel.

John Podesta, senior adviser for international climate policy, noted that the guidance highlights the role of climate-smart agriculture in clean transportation, and the importance of offering pathways for unbundled accounting of such practices.

The IRS and Treasury did not immediately respond to requests for comment.