How §45Z Creates Incremental Yield for Corporate Buyers
The Inflation Reduction Act (IRA) of 2022 created certain transferable tax credits that have evolved from theory to a strategic asset class for finance and taxation experts. As this market continues to mature, pricing differences have emerged across credit types, particularly among Sections 45X, 45Y, and 45Z, creating a value-add opportunity for corporate buyers.
A market snapshot today shows a clear divergence in pricing. Section 45X advanced manufacturing credits often trade at a premium, commonly around $0.94-$0.95. Section 45Z clean fuel production credits tend to clear at a discount — frequently closer to $0.92, depending on size. Section 45Y pricing tends to land in the middle of the two. These spreads reflect differences in perceived risk, rather than value brought to the corporate buyer. The key question for buyers is whether those perceived risks remain justified.
Section 45X: Increasing Predictability Provides Comfort
Premium pricing of §45X is understandable, as production volumes are tangible, inputs and outputs are well documented, and compliance frameworks have become familiar through repetition. Over the past year, underwriting, diligence checklists, and legal structures surrounding §45X have become increasingly standardized, creating a strong degree of comfort and predictability for corporate buyers.
Section 45Y: Occupying the Middle Ground
Section 45Y, the Clean Electricity Production Tax Credit, occupies a middle ground in the transferable tax credit landscape. Its reliance on metered electricity production aligns closely with historical production tax credit frameworks, giving tax departments, auditors, and risk committees a familiar foundation for underwriting and substantiation. §45Y has generally settled into a relatively tight band, between §45X and §45Z pricing.
Section 45Z: Proposed Regulations May Increase Pricing
By comparison, Section 45Z, the Clean Fuel Production Tax Credit, continues to trade at a steep discount compared to Sections 45Y and 45X. The pricing differential has attracted sophisticated corporate buyers who view current spreads as compensation for transitional risk.
Importantly, U.S. Treasury and IRS proposed regulations, expected as early as May 2026, are anticipated to further clarify lifecycle emissions modeling, feedstock eligibility, and substantiation requirements. Sophisticated buyers have taken advantage of discount pricing to lock in future years to maximize a nominal discount. The market anticipates §45Z pricing to increase closer to §45X and §45Y credits with the proposed regulations.
In parallel, market practices around third-party verification, contractual processes, and insurance have matured quickly, to align with processes involved in more refined credit markets. As regulatory clarity improves, the combination of enhanced buyer comfort and discounted pricing positions §45Z as a compelling value opportunity.
For corporate buyers, this convergence has meaningful implications. Current discounts in §45Z offer incremental yields for buyers with disciplined underwriting, strong internal governance, and access to experienced advisors. For buyers capable of modeling tax for future years, the risk-adjusted return profile of §45Z is attractive compared to higher-priced alternatives, especially at current market pricing.
Maturing Market Calls for Internal Assessment
Narrowing spreads are a sign of a maturing market. For tax and finance leaders, this moment calls for an internal assessment of risk levels. Pricing convergence does not necessarily mean compression in returns, but does reflect the emergence of potential arbitrage opportunities. As transferable tax credit markets continue to mature, §45Z may not represent added risk, but added basis points.
For more information, reach out to our experts:
Max Burchill, max@mickco.com or 605-977-4873 ext. 7
Nick Scott, nick@mickco.com or 605-977-4873 ext. 5
The Company should seek independent legal, tax, and accounting advice as part of this process. Mickelson & Company is not providing legal or accounting services.