Treasury's 45Z Rules Finally Land, Handing Renewable Diesel and SAF Makers a Roadmap

The wait is over, and the fine print is enormous. On February 3, Treasury and the IRS released proposed regulations for the Section 45Z clean fuel production credit, the tax incentive that took over from the old blender's credit at the start of 2025 and then left the entire biomass-based diesel industry operating on faith. Producers had been making, selling, and pricing fuel for more than a year against a credit whose rules did not exist on paper. Now they do, at least in draft form, and the document runs to the kind of detail that decides whether a renewable diesel plant in the Gulf pencils out or idles.

The core of 45Z is simple to state and hard to live under. Instead of paying a flat dollar-per-gallon subsidy the way the blender's credit did, the government pays based on how clean the fuel is. Every batch gets a carbon-intensity score. The lower the score, the bigger the credit. The proposed rules describe how that score gets calculated, which model you must use, and what counts as a qualifying sale. That is the machinery producers have been demanding since the credit went live.

What the credit actually pays

For road fuels like renewable diesel and biodiesel, the base credit is $0.20 per gallon, scaling to $1.00 per gallon if the producer meets prevailing wage and apprenticeship requirements on the facility. Sustainable aviation fuel used to enjoy a higher ceiling, a base of $0.35 per gallon reaching up to $1.75 with the wage and apprenticeship bonus, but last year's budget law erased that premium: for fuel produced after December 31, 2025, SAF is capped at the same $0.20 base and $1.00 top rate as everything else. Those figures are then multiplied down by the fuel's emissions score, so a producer only captures the full amount by hitting both the labor rules and a very low carbon intensity.

That structure explains a squeeze that industry analysts flagged well before the rules dropped. Under the 2025 numbers, SAF carried a meaningful premium over renewable diesel, which nudged refiners toward the jet-fuel side. With the premium gone for post-2025 fuel, that gap all but vanishes. When SAF and renewable diesel pay roughly the same per gallon, a HEFA producer has little financial reason to prioritize the harder, more capital-intensive jet pathway. Fastmarkets analysts warned this could stall the SAF buildout the aviation sector has been counting on, and the proposed rules do nothing to reopen that gap.

One model to rule the math

The rules settle a fight over how to measure carbon intensity in the first place. Producers of non-SAF fuels must use the Department of Energy's 45ZCF-GREET model, a version of the Argonne lifecycle-emissions tool tuned specifically for this credit. SAF producers may use it too. Treasury pairs the model with an emissions-rate table it says it will publish annually, so a producer's credit hinges on which year's table applies to their tax year. That is a real change from the ad hoc approach that came before, and it gives lenders something concrete to underwrite.

Two accounting shifts inside that model matter more than the rest. First, the rules drop the penalty for indirect land-use change on fuel produced after December 31, 2025. That charge had dinged crop-based oils like soybean and canola, and removing it lifts the effective credit for domestic feedstocks. Second, negative emissions rates are off the table after the same date, with a carve-out for fuels made from animal manure. So a dairy digester can still score below zero and bank an outsized credit; a soybean crusher cannot.

The North America wall

The feedstock map got smaller. Following the changes Congress made in last year's budget law, fuel qualifies for 45Z only if its feedstock comes from the United States, Canada, or Mexico for production after 2025. Imported fuels already lost access to the credit, which EPA data show contributed to a steep drop in biomass-based diesel imports during 2025 against the prior five-year average. The North American feedstock rule tightens the vise further.

Aviation feels this most acutely. Alcohol-to-jet projects built around Brazilian sugarcane ethanol now face a wall, because no large-scale sugarcane ethanol plants operate on U.S. soil, and the feedstock would have to be imported to run them. Layer on the tariffs that took effect last August, including a 50% reciprocal duty on Brazilian goods and a 20% levy tied to Chinese-sourced material, and the economics of foreign feedstock collapse. Domestic soybean oil, corn oil, and tallow are effectively the field now.

Loose ends the rules tie up

Beyond the headline numbers, the draft resolves a set of plumbing questions that had genuinely paralyzed deals. It confirms that selling to a reseller or intermediary counts as a qualifying sale, which unblocks the multi-step distribution chains most producers actually use. It clarifies that fuel need only be suitable for use, not actually burned, to earn the credit. It sets third-party verification and registration requirements. And it lays out anti-stacking rules so a producer cannot claim 45Z on top of the 45V hydrogen, 45Q carbon-capture, or clean-electricity credits for the same molecule.

None of that is glamorous. All of it is the sort of certainty that a project-finance committee needs before it releases capital. For an industry that spent a year selling fuel without knowing the value of its single largest revenue line, plumbing is the point.

What happens next

These are proposed regulations, not final ones, and the difference is not academic. Written comments are due by April 6, with a public hearing scheduled for May 28. Expect the aviation coalition to push hard on the SAF-versus-diesel gap, and expect crop groups to defend the removal of the land-use penalty against environmental challengers who want it back. Treasury can revise the draft before it becomes binding, so nobody should treat today's numbers as carved in stone.

Still, the direction is set. The credit rewards low carbon intensity, favors North American feedstock, and pays road fuel and jet fuel on nearly even terms. Producers who bet on domestic tallow, manure-based gas, and used cooking oil are positioned to win. Anyone whose model depended on imported feedstock or a fat SAF premium has a harder conversation ahead. After a year of flying blind, the biofuel sector finally has a map. Whether everyone likes the terrain is a separate question.