Learn how the new IRS guidance on 45Z credits can help you qualify for clean fuel production incentives and help boost your business profitability.
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Long-awaited guidance, in the form of forthcoming draft proposed regulations, on Section 45Z Clean Production Fuel Credit was
released by the Treasury on January 10. The 45Z credit is available for the production of transportation fuels with lifecycle greenhouse gas emissions below certain levels.
Key dates and interim guidance on 45Z credits
The credit is effective beginning in 2025 and applies to both sustainable aviation fuel and non-SAF transportation fuels. Notice 2025-11 was released and provided initial guidance regarding emissions rates. Industry groups, such as the Renewable Fuels Association, expressed concern regarding the lack of certainty in the guidance.
With the rules not finalized prior to the inauguration next week and a 90-day comment period beginning January 10, certainty regarding the Trump administration’s intentions regarding the Inflation Relief Act that spawned this credit cannot be secure.
On January 15, the USDA released an interim rule to establish guidelines for quantifying, reporting, and verifying emissions associated with biofuel production, in essence defining climate-smart agriculture (CSA) practices required for biofuel producers to reduce their carbon scores and qualify for the 45Z credit. Ideally, these guidelines will be incorporated by Treasury into the final regulations.
The interim rule notably does not include the “bundling” of CSA practices but rather allows a producer to take credit for individual practices such as no-till planting, cover crops, timing of fertilizer application and its efficiency.
Using the USDA feedstock carbon intensity calculator
The USDA also
released a calculator to assist growers in projections of carbon scores. Given that 2025 crop planning is already well under way, it is important to get a handle on the math involved if a producer intends to qualify as a grower for programs with the ethanol producers.
To qualify for 45Z credit, ethanol producers must have a carbon intensity score of less than 50. Currently, most midwestern producers run at a score of about 55. In order to reduce their score, ethanol is relying on a reduction in the carbon score generated from the portion of the product chain within the producer’s control.
Midwestern corn farming averages a score of 29 on its own. Reductions in this score through the CSA practices will result in a 45Z credit to the ethanol producer and what should be premium pricing to cooperating producers.
We ran sample calc for a corn farmer in Bureau County, Illinois, noting that without any sustainability practices the producers CI score is 28.42. With the addition of only the cover crop practice the score falls to 19.88, and with multiple practices we achieved a score of 9.56.
The importance of CSA practices
Instituting CSA practices can have a big impact on the markets and pricing available for feedstocks and look especially attractive after the last two years of disappointing grain markets. In order to qualify, you’ll need to know your numbers and be willing to share them and your production practices.
Good documentation is key and a willingness to let your local elevator or ethanol processer (if you ship direct) to have insight into your operation and records. Some use the word “audit” when describing their grower programs, but that term is strong.
There is much more to come on 45Z and much to be determined after the new administration takes office. However, the calculators give producers a place to start as they look to premium pricing potential. We will
keep you updated as things move forward.
