Energy credit guidance: Treasury and IRS issue Notice 2026-53, providing Section 45Z emissions rates and guidance for animal manure-derived fuels

Statutory and regulatory background

Section 45Z, as amended by the OBBBA, provides an income tax credit for clean transportation fuel produced domestically after December 31, 2024, and sold by December 31, 2029. A taxpayer’s credit generally equals the applicable amount per gallon (or gallon equivalent) multiplied by the fuel’s emissions factor.² A taxpayer generally must use the annual emissions rate table published by Treasury; where a rate has not been established, a taxpayer may petition for a provisional emissions rate (PER).³

The OBBBA added amendments to Section 45Z affecting emissions rates and credit eligibility for transportation fuel produced after December 31, 2025, including: (1) a required ILUC exclusion; (2) a mandate for distinct, feedstock-specific emissions rates for animal manure-derived fuel; (3) a zero floor on negative emissions rates, except for animal-manure-derived fuel; and (4) a requirement that fuel be derived exclusively from feedstock produced or grown in the United States, Mexico, or Canada.⁴ These four items are addressed by the Notice only insofar as it implements or provides transition guidance for them; the amendments build on the proposed Section 45Z regulations published February 4, 2026 (91 F.R. 5160), which remain under final consideration by Treasury and the IRS.

Key changes and clarifications under the Notice

1. A new methodology for farm-specific manure emissions rates

The OBBBA directed Treasury to provide distinct emissions rates for animal manure-derived fuel based on the specific feedstock: dairy, swine, or poultry manure (listed manures), or other manures the secretary determines appropriate (unlisted manures).⁵ The Notice implements this mandate by adding dairy and swine manure to the 2026 emissions rate table as distinct primary feedstocks. Treasury expects poultry and beef manures will be added to the 45ZCF-GREET model later in 2026 and expressly encourages producers of fuel from those feedstocks to await that subsequent model update and accordingly “postpone potential submission of any PER petition for such fuels.”⁶

Additionally, the Notice introduces a farm-specific “alternative fate” approach for calculating these rates. That approach calculates the amount of methane avoided by comparing prior farming practices against current renewable fuel generation practices. Under the alternative fate approach, a taxpayer inputs the number of animals by type and the share of manure managed under each prior practice in place immediately before the earlier of digester commencement or September 8, 2026.⁷ Prior practices are manure-dependent and may consider prior storage of manure in uncovered lagoons, deep pits, or solid storage.⁸ This information drives the avoided-methane calculation underlying the manure-specific rate, and a taxpayer that cannot substantiate a farm’s prior practices will not receive avoided-emissions credit for that farm’s manure.⁹

Notably, though, the Notice does not yet provide a farm-specific alternative fate for manure sourced from a new farm (one commencing operations after September 8, 2026).¹⁰ Because new farms lack historical practices to serve as a baseline, such farms could be “incentivized to select the highest emitting practices on startup,” thereby inflating their avoided emissions rate and, consequently, the value of their Section 45Z credit.¹¹

Distinct emissions rates based on the specific animal manure feedstock are applicable for all transportation fuel derived from animal manure produced after December 31, 2025.¹² For manure-derived fuel produced on or before December 31, 2025, however, taxpayers must instead use a version of 45ZCF-GREET reflecting the national-average alternative fate.¹³

2. Conversion mechanics for excluding ILUC emissions under legacy GREET versions

The Notice’s contribution provides a mechanic for taxpayers using a pre-June 2026 version of 45ZCF-GREET to exclude ILUC emissions from their emissions rate calculations: Such taxpayers must subtract the ILUC value published in the 45ZCF-GREET model from their Total Life Cycle Analysis Results. The Notice specifies that, to calculate this adjustment, the taxpayer subtracts the ILUC value in the calculated results table from the Total LCA Results, expressed in grams of CO2e per megajoule, and that the adjusted Total LCA Results must then be multiplied by a factor of 1.055 to convert the Total LCA Results into kg of CO2e per mmBTU.¹⁴ Parallel exclusions apply for SAF transportation fuel measured under CORSIA Default or CORSIA Actual.¹⁵

3. Transition mechanics for the zero floor

The Notice’s guidance regarding the prohibition on negative emissions rates for fuel produced after December 31, 2025, (and the related exception for transportation fuel derived from animal manure) is fairly straightforward: A taxpayer using a pre-June 2026 version of 45ZCF-GREET determines the emissions rate for any other (non-manure) fuel produced in 2026 by rounding a negative result up to zero.¹⁶

4. Transition mechanics for the U.S./Mexico/Canada sourcing rule

To address the requirement that fuel produced after December 31, 2025, be derived exclusively from feedstock produced or grown in the United States, Mexico, or Canada, the Notice explains that the June 12, 2026, version of 45ZCF-GREET added Canadian and Mexican UCO and tallow as primary feedstocks for pathways that previously recognized only U.S.-sourced UCO and tallow, with the resulting emissions rate relating back to January 1, 2025.¹⁷

Fuel produced after December 31, 2025, from imported non-Canadian/Mexican UCO is not credit-eligible.¹⁸ For 2025 production only, however, taxpayers using such feedstock must apply a forthcoming model pathway, reflecting Treasury and the IRS’s view that the fraud risk associated with such (already-produced) fuel is comparatively lower.¹⁹

5. Identification of the compliant GREET model version and dual-track transition guidance

The Notice identifies the June 12, 2026, version of 45ZCF-GREET as the first to incorporate the OBBBA amendments discussed above.²⁰ Taxpayers using an earlier model version must generate two results to properly reflect the OBBBA’s effective dates: one for fuel produced on or before December 31, 2025, and a second, separately adjusted result (per the transition mechanics described in the key changes above) for fuel produced after that date.²¹

6. Publication of the first 2026 emissions rate table

The Appendix to the Notice publishes the first Section 45Z emissions rate table for calendar year 2026. Consistent with the changes described above, the table lists U.S. dairy manure and U.S. swine manure as distinct primary feedstocks for renewable natural gas for the first time; an expanded set of RNG pathways including U.S. food scraps, corn stover, grain stillage, and mixed high-moisture organic wastes; and the new U.S./Canadian/Mexican UCO and tallow categories.

7. USDA Feedstock Carbon Intensity Calculator/45ZCF GREET integration

Finally, the Notice addresses integration of a Section 45Z-specific version of the USDA Feedstock Carbon Intensity Calculator (45ZCF FD-CIC) into 45ZCF-GREET for feedstocks grown using qualifying low-carbon agricultural practices. The Notice discusses the June 2026 version of USDA FD-CIC and notes that a 2026 version of 45ZCF FD-CIC will be forthcoming as part of the 45ZCF-GREET model.²²

The Notice further clarifies that, for fuel produced in 2025, the 2026 version of 45ZCF FD-CIC may be used to determine emissions associated with feedstocks produced using low-carbon agricultural practices, provided the taxpayer satisfies the requirements under the USDA technical guidelines in 7 CFR part 2100, including chain of custody and audit and verification standards.²³

Relatedly, the Notice provides a transitional safe harbor under which, for purposes of section 45Z, the USDA requirement regarding the pre-application development of a nutrient budget under 7 CFR 2100.060 is deemed satisfied for qualifying low-carbon-agricultural-practice feedstocks used in fuel produced during 2025 and 2026.²⁴ This safe harbor reflects Treasury and the IRS’s recognition that such feedstocks were likely planted before publication of the final USDA technical guidelines. Even so, taxpayers must still maintain sufficient records to substantiate nutrient applications, nutrient sources and removals, and other data inputs entered into the 45ZCF FD-CIC model, as well as their Section 45Z credit claims.

Unaddressed issues and potential impact on clients

While Notice 2026-53 resolves several priority items raised by industry stakeholders, a number of questions remain open ahead of the final Section 45Z regulations. Clients should evaluate these gaps against their projects and specific needs.

• Herd-size and multi-farm baselines: It is not yet clear which animal populations apply to the prior-practice versus current-project inputs where herd size has changed, where expansion occurred gradually, or where a centralized digester draws manure from multiple farms. Because the credit’s value turns directly on this baseline determination, clients pursuing herd expansions or multi-farm/centralized digester projects face measurement uncertainty until further instructions are issued.
• New-farm alternative fate: Because the farm-specific methodology is not yet available for farms commencing operations after September 8, 2026, clients developing new digester projects may need to rely on the potentially less favorable national average alternative fate in the interim, a timing consideration worth factoring into project underwriting and financing schedules.
• Mixed-feedstock (co-digestion) treatment: Neither the Notice nor the current 45ZCF-GREET model clearly resolves whether fuel derived from manure co-digested with other organic feedstocks can retain a negative emissions rate attributable to the manure fraction. Clients operating or evaluating co-digestion facilities should monitor this issue closely, given its potential to materially affect credit value.

Conclusion

Notice 2026-53 provides clarity for animal manure-derived fuel producers and for taxpayers navigating the OBBBA’s transition rules, and it should meaningfully improve credit certainty for dairy- and swine-manure RNG projects in particular. At the same time, the Notice leaves open several modeling questions specific to manure-derived fuel, as well as a broader set of Section 45Z implementation issues that will require further action before the final Section 45Z regulations are issued. We are continuing to monitor these developments, including the U.S. Department of Energy’s anticipated update to 45ZCF-GREET later this year and the forthcoming final Section 45Z regulations, and will provide additional analysis as warranted.

Please contact Vivek Chandrasekhar, Buck Endemann, or Alex Levin with any questions regarding how these developments may affect your facilities, offtake arrangements, or credit monetization strategy.

Endnotes