The Password is Swordfish: The Digest’s Guide to getting Money via 45Z tax credits
Groucho Marx once wrote Many Happy Returns, a tongue-in-cheek tax guide. If he were here for Section 45Z, he might add a subtitle:
“Provided You Registered Before the IRS Looked.”
The good news: Treasury has — wait for it — released the proposed regulations for the 45Z clean fuel production credit. The document contains proposed regulations regarding the clean fuel production credit enacted by the Inflation Reduction Act of 2022 and amended by the One, Big, Beautiful Bill Act. These proposed regulations would provide rules for determining clean fuel production credits, including credit eligibility rules, emissions rates, and certification and registration requirements.
It’s more than 53,000 words in length. How to summarize this behemoth — in a way that a CFO can really use —and yet capture the spirit of the 45Zs? Well, the Marx Brothers come to mind. The rules may not read as sharp and funny as Groucho, Harpo and Chico, but Zeppo seems to be right in there — maybe that’s why they are named 45Zs. Who knows? One thing’s for sure, to explain the 45Zs, we’ll keep the Marx Brothers close at hand today.
ACT I — “The Password Is Swordfish”
(Who qualifies as a 45Z producer)
In a Marx Brothers scene in Horsefeathers, the password is Swordfish, never changes. It’s not difficult. It’s not secret. It’s just arbitrary and enforced with absolute seriousness. That’s Section 45Z registration. The password is: “Registered under Section 4101 at the time the fuel is produced.” Miss that, and nothing else matters. What this means in real life (non-comedy version). This is the single most important rule in the entire credit:
- Registration is not paperwork. It is eligibility itself. If your facility is not registered when the fuel is produced, that fuel does not qualify for 45Z. Not later. Not after paperwork. Not after explanations. It’s permanently out.
- It only works going forward. The IRS Letter of Registration does not backdate. If it arrives Tuesday, Monday’s gallons are ghosts.
- The facility entity must be registered. Many production plants are owned by LLCs that are “disregarded entities” for tax purposes. For 45Z, the entity conducting the activity must be registered — even if the parent company ultimately claims the credit.
- “Producer” has a technical meaning. For RNG, the producer is the party that upgrades raw biogas to pipeline-quality renewable natural gas. Compressing it, transporting it, or injecting it into a pipeline does not make you the producer.
Translation: The IRS is Chico Marx at the door. You can argue about carbon intensity. You can show engineering diagrams. You can explain your supply chain. But if you don’t say “swordfish” — meaning you weren’t registered at production — the door stays shut.
ACT II — “The Stowaways at Immigration”
(What feedstocks and fuels qualify)
In Monkey Business, the Marx Brothers are already on the ship. The problem isn’t getting on board. The problem is getting past immigration without proper papers — so they try disguises, accents, and borrowed identities. That’s feedstock eligibility under post-OBBBA 45Z. The IRS has effectively set up customs control for carbon. Starting in 2026, feedstocks must originate in:
- The United States
- Mexico
- Canada
Feedstock must meet North American sourcing/origin requirements under the proposed rules. Why this matters more than it sounds? In the past, supply chains often operated on trust, aggregation, and market-grade documentation. Now:
- Imported UCO (used cooking oil) that was commonly sourced from Asia may not qualify.
- Tallow or fats from outside North America may be out.
- Aggregated streams — where material from multiple regions mixes — create traceability risk.
This is where the metaphor fits perfectly: Some feedstocks may look North American.
Some may travel through North American intermediaries.
Some may even be sold as if they’re something else. But 45Z cares about origin, not accent. Also important:
- The fuel does not have to be used in a highway vehicle — it just has to be suitable for that use. This keeps some marine fuels in play.
- Electricity does not qualify under 45Z.
Translation. Treasury is immigration control.
Your CI score is not your passport.
Your engineering is not your passport. Your feedstock’s origin documentation is your passport. And like the Marx Brothers at customs, if the story doesn’t hold up under inspection, you don’t get through.
ACT III — “Whatever It Is, I’m Against It”
(How much the credit is worth)
When Groucho becomes president of Huxley College, he immediately sings: “Whatever it is, I’m against it…” That’s roughly the history of SAF incentives. Not because policymakers dislike SAF — but because the rules keep changing in ways that make yesterday’s logic obsolete. The short history, in plain English
- At first: no specific SAF production credit
- Then: SAF carved out for special treatment, with credits that could reach $1.75 depending on CI
- Now, under post-OBBBA 45Z: SAF stands in the same line as everyone else
The maximum production credit is now:
- $1.00 per gallon equivalent
- No SAF bonus tier above that.
- What determines how much you actually get
The credit scales with Carbon Intensity (CI): Credit=5050−CI ×$1.00
- CI = 0 → full $1.00
- CI = 25 → $0.50
- CI = 50 → $0.00
What changed, conceptually? The system moved from: “Certain fuels get special premiums” to: “Everything competes on CI under the same ceiling”.
Translation: If you built your SAF economics around a higher premium, this is the scene where the song changes mid-performance. The industry’s feeling is: “Whatever the rule was, we financed it.
Whatever the rule is now, we’re against it.” But from Treasury’s perspective, the shift is toward a single, CI-based scale — simpler, flatter, and less generous at the top.
ACT IV — “Hello, I Must Be Going”
(CI floors, manure exceptions, and the vanishing of ILUC)
In Animal Crackers, Groucho sings “Hello, I Must Be Going, I cam to Say I Cannot Stay, I mist be Going”— which is how two major modeling features just behaved under 45Z. They were here.
They mattered.
Now they’re… mostly gone.
First exit: Negative CI scores (for most fuels).
Under earlier policy structures, very low CI pathways could keep pushing downward and be rewarded for it. Under post-OBBBA 45Z: For most pathways, the credit does not increase beyond the base ceiling even if modeled CI goes deeply negative. Even if your lifecycle math suggests you’re “cleaner than clean,” the credit does not rise above the standard ceiling. Cleaner still matters — but only up to the $1.00 cap.
Except… manure didn’t leave the stage. Certain manure-based pathways (especially dairy RNG) can still achieve very low or negative CI scores in a way that may translate into higher effective credit value. That’s not a philosophical statement.
It’s a modeling outcome tied to how avoided methane emissions are treated.
Translation: In the great leveling of credit ceilings, manure kept its backstage pass.
Second exit: Indirect Land Use Change (ILUC)
ILUC used to function like an invisible surcharge: If crop-based fuels caused land to shift elsewhere, the model added emissions. Now, under 45ZCF-GREET: ILUC is out. Not reformed.
Not tweaked.
Just… “Hello, I must be going.” This materially changes how corn ethanol, soy biodiesel, and similar pathways score.
Translation: Two big ideas were part of the plot:
- “Ultra-clean keeps earning more”
- “Land-use penalties follow crops”
Then the script changed. Most fuels now hit a practical CI floor.
ILUC exits the scene.
Manure gets a solo. And the credit structure becomes flatter, more bounded, and — for many — less dramatic than before.
ACT V — “The Party of the First Part”
(Stacking rules, switching, and the fine print)
In the famous contract scene in Night at The Opera, the Marx Brothers reduce a long legal agreement to shreds until only a few lines remain — and somehow it’s still “a contract.” That’s 45Z stacking. The regulations run tens of thousands of words. But the practical rule set is short, sharp, and weirdly absolute.
The core idea: You cannot collect multiple major federal energy credits on the same fuel or project pathway. Treasury does not allow the “all-you-can-eat” version of decarbonization incentives.
Credits you generally cannot stack with 45Z If the fuel or facility is already benefiting from:
- 45V — Clean Hydrogen
- 45Q — Carbon capture and sequestration
- Section 48 — Investment Tax Credit (for certain energy property)
…then 45Z may be off the table for that production. But you can stack Party of the Second Part credits, like the RFS RINs or LCFS credits. These are not minor overlaps. These are “party of the first part meets party of the second part” situations. Only one gets to stay in the contract. These interactions are pathway- and facility-specific, and depend on how a project is structured and which elections were previously made.
And you can switch — sometimes. Here’s where the scene gets very Marx Brothers. You may structure projects and tax strategy so that:
- One year you operate under one credit regime
- Later, you operate under another
But certain elections — such as specific 48-related choices — can permanently foreclose the option to use 45Z later.
Translation: Some clauses you can tear up. Some you rip once and they’re gone forever. Why this matters? 45Z isn’t just a production decision.
It’s a strategic tax architecture decision that interacts with financing, depreciation, and prior elections. You’re not just choosing a credit.
You’re choosing which version of the contract you live under for years.
The Bottom Line
In 45Z, the sanity clause is this: register first, document everything, and choose your credit strategy before the steel is in the ground.
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