Compliance
U.S. Clean Fuel Production Credit: New Proposed Rules Under OBBBA and What Producers Need to Know
Domestic producers of clean transportation fuel face important regulatory updates under the One, Big, Beautiful Bill—this guide breaks down proposed rules, key compliance steps, and feedstock requirements.
By NomadicTax Research Team • 5-8 min read • March 19, 2026
## Regulatory Shift in Clean Fuel Credits
The **clean fuel production credit** (often called “45Z credit”) supports U.S. producers of clean transportation fuels. The One, Big, Beautiful Bill (OBBBA) extended and revised the credit—making compliance more nuanced. On **February 3, 2026**, the IRS issued proposed regulations clarifying eligibility, emissions rates, certification, prohibited foreign-entity involvement, and more. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-the-clean-fuel-production-credit-under-the-one-big-beautiful-bill?utm_source=openai))
## What Changed & What to Watch
- **Eligibility Window**: Clean fuel produced after December 31, 2024, through December 31, 2029, is covered under the revised credit framework. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-the-clean-fuel-production-credit-under-the-one-big-beautiful-bill?utm_source=openai))
- **Feedstock sourcing rules tightened**: Eligible feedstocks must be grown or produced in the U.S., Mexico, or Canada. Prohibitions on assistance by certain foreign entities apply. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-the-clean-fuel-production-credit-under-the-one-big-beautiful-bill?utm_source=openai))
- **Sale attribution and anti-double-credit rules**: Fuel sold through related intermediaries must meet sale attribution rules; duplication of credits disallowed. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-the-clean-fuel-production-credit-under-the-one-big-beautiful-bill?utm_source=openai))
- **Emissions rates requirement**: New rules for determining emissions—including special rules for fuels derived from **animal manure**. Indirect land use changes are excluded in emission-rate calculations. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-the-clean-fuel-production-credit-under-the-one-big-beautiful-bill?utm_source=openai))
## Steps for Producers to Comply
1. **Pre-register** via Form 637, excise-tax registration, in advance of production. Missing that creates ineligibility. |
2. **Certify feedstock origin**: maintain records showing physical source, previous ownership, import/export compliance. |
3. **Calculate emissions rate**: use acceptable methodology, document assumptions. If using manure-derived fuels, follow special emissions-rules. |
4. **Avoid prohibited foreign entity assistance**: validate that none of your feedstocks or technology are tied to disallowed entities. |
5. **Monitor regulatory finalization**: these are proposed rules; expect possible changes after comment period; but you can rely in part on existing guidance. |
## Practical Example
A biofuel plant in Iowa sources corn from both U.S. farms and imports from foreign suppliers. Under new rules, imports may disqualify portions of production unless suppliers are from allowed countries. Emissions must be calculated excluding indirect land use changes, and any part of production involving animal manure will need feedstock-specific emissions metrics. The fuel must be sold under a contract that clearly attributes sales and credit. |
## Strategic Implications for Investment & Risk
- Projects need to structure supply chains based on eligible jurisdictions. Vertical integration might reduce compliance risk. |
- Holding back feedstock purchases or production increases until rules are final might limit bonus opportunity. |
- Close attention to documentation and contracts is essential—dispute risk from IRS audits will be high. |
## Final Thoughts
For clean fuel producers, the proposed rules under OBBBA offer both opportunity and complexity. To secure full credit, take proactive steps in feedstock sourcing, emissions quantification, certification, and alignment with timing. When done well, the credit can significantly improve project economics—but missteps may result in credit loss or recapture.