The One Big Beautiful Bill (OBBB) delivered additional surety for the 45Z biofuel blender tax credit. After almost three years of talking about what could be spelled out by 45Z, Mitchell Hora says farmers can now get “locked in” to capitalize on the program.
“This 45Z deal could be absolutely game changing for my family’s farm, and I think it will be game changing for other family farmers across the country,” Hora says. “It’s going to have a ripple effect that could change global agriculture. So that’s why I’m just so adamant that we have got to get this right, and we’ve got to hit the ground running.”
Hora, an Iowa farmer and founder of Continuum Ag, says there are five things every farmer should know about what the OBBB has laid out. He also says there are unanswered questions.
1. It’s Happening!
“They [lawmakers] cut almost all of the other green funding programs within the Inflation Reduction Act. They cut a bunch of that old stuff, but they kept the 45Z program,” Hora says. “It’s alive, it’s locked in, it’s going to happen.”
What sets 45Z apart from previous biofuels tax provisions is how it measures the grain—the program uses a scorecard to assess every bushel (not acre) with a carbon intensity (CI). Any score under 50 points receives a tax credit to the biofuels producer.
“This program shows how you can score a farmer’s carbon footprint, how you can audit it, verify it, track it through the supply chain, and how to monetize it,” Hora says.
2. 45Z Given Extension
The 45Z program now has additional momentum behind it as the OBBB outlined an extension through 2029. The program is currently active for the 2025 tax year, which means farmers could be selling 2024 grain into the 2025 biofuels production year.
“Now biofuels producers [and farmers] have more time to really capitalize on this,” Hora says.
3. Only North American Feedstocks Are Eligible
Imported used cooking oil has become a focus for many who have critiqued previous blend credits, as feedstocks from other countries were not subject to the same limitations as those passed in the OBBB. Currently, only feedstocks from North American sources are eligible for use in this program. This includes corn, soybeans, used cooking oil, beef tallow, and canola.
“Without foreign feedstocks being included this drives more demand and more value for U.S. farmers,” Hora says.
4. ILUC Penalties Have Been Removed
The OBBB removed consideration of Indirect Land Use Change (ILUC) in its methodologies for calculating the carbon intensity (CI) score of fuels eligible under the program. ILUC is based on the idea that there are indirect environmental consequences of using land for biofuel production, specifically the impact on other land uses globally. The idea is that when land is used to grow crops for biofuels, it can displace other land uses, such as food production, potentially leading to the expansion of agricultural land into areas like forests, wetlands, and peatlands, which are often rich in carbon. The existence of ILUC and ILUC methodologies remains a topic of debate among scientists.
“This single thing lowers everyone’s CI score across the board. It definitely helps corn and corn based ethanol and the soybean side as well,” Hora says.
5. Tax credits Are Transferrable
Biofuels producers can sell their tax credits to another buyer if they aren’t going to use them themselves. Additionally, this makes it easier for farmer-owned co-op ethanol plants to manage their tax processing.
Additional Considerations and Unanswered Questions
Farmer Data Key to Unlock Potential
“The overall 45Z impact is ag data is extremely valuable. It’s setting a precedent as to the value for data,” Hora says. “Iin order for the ethanol plant to generate 45Z credit using your low carbon farming practices, they have to prove it in an audit, and likely an audit at every point of aggregation, so that farmer data is really the key to unlock value here.”
As for the monetary value of the CI score, Hora says after talking to hundreds of ethanol plants, the range of sharing the value of the credit varies between 30% to 50% of the value.
45Z Program Update Impacts SAF
“Under the current version of 45z the alcohol to jet pathway not going to happen at any type of real pace, not at any type of accelerated rate of innovation. The math just doesn’t work out,” Hora says. “You’d be much better off under the current 45Z rules to just sell it as ethanol.”
The Final IRS Guidance Matters
Forthcoming final rules from the IRS will set which of the two calculators will be used: GREET FD-CIC or USDA FD-CIC
Also, the IRS sets if the credits will be tracked with mass balance or book and claim method.
“Here’s the takeaway for farmers. You can continue to wait. But you’re money ahead to get your data organized,” he says.
The Money Is Flowing
“There may be small amounts, pennies on the dollar to get things started and get farmers enrolled. This didn’t unlock the flood gates. But it locked it in. It’s here to stay. They are going to get these rules out. We’ve got to get some movement on the work ahead to get the data and the people ready,” Hora says.
You may want to pump the brakes on signing up for a new private carbon program, Hora says. Because all previous guidance has not allowed for signing up an acre for one program and selling a bushel under 45Z from the same land.
Ripple Effect Opportunities
Hora says, “If you are in animal ag, talk to people in your supply chain. And talk about how to capitalize on this precedent setting program.”
Originally shared by AgWeb by Farm Journal. Article and title updated for purpose and clarity.
Notice: The Michigan Advanced Biofuels Coalition (MiABC) does not lobby or influence policy in any way. The policy interests of Michigan soybean farmers and biodiesel producers are supported by the Michigan Soybean Association and Clean Fuels Alliance America, respectively.