Some sectors of the biofuel industry are optimistic the Biden administration's framework for the 45Z tax credit will boost clean fuel production and support farm income, but it's not a slam dunk that the proposals survive the incoming Trump administration.
In the final weeks of the Biden administration, the Treasury Department, USDA and Department of Energy revealed their vision of how the 45Z tax credit for clean fuel producers could be implemented. The credit, which took effect Jan. 1, was established under the Inflation Reduction Act, and replaced expired biofuel and sustainable aviation fuel credits.
Treasury’s notice of proposed guidance delivered some wins by acknowledging the role of agriculture in fuel production and appeared to restrict eligibility of imported used cooking oil.
Details on how the credit could affect agricultural feedstocks, however, came days later when USDA released its interim rule on climate-smart agriculture. It adds sorghum as an eligible feedstock, expands the qualifying practices and removes a bundling requirement on practices.
The agency also published a feedstock carbon intensity calculator that provided county-based estimates for each crop and farm practice. The calculator is expected to be incorporated into DOE’s 45ZCF-GREET model, which also was released last week, that determines carbon intensity scores and equivalent credit amounts. (GREET is a tool that assesses life cycle energy, emissions and environmental impacts and can be used to guide decision-making.)
If the USDA rule is finalized and incorporated into Treasury’s 45Z guidance, groups say it could yield significant economic benefits for farmers and biofuel producers. However, carrying the rule to the finish line is up to the Trump administration and could be slowed by a busy agenda.
“It sort of feels like the Biden administration on its way out, has kind of taken this jigsaw puzzle and dumped the pieces out on the table,” said Geoff Cooper, president and CEO of the Renewable Fuel Association. “And now it’s going to be up to the Trump administration to put those pieces together.”
Geoff CooperThe incoming president created some uncertainty about the future of biofuel policy by issuing an executive order Monday on "terminating the Green New Deal." The EO pauses all funding under the Inflation Reduction Act and orders agencies to review policies. Another order freezes pending regulatory actions."Maybe ag and energy lobbies will be willing to fight for it in Congress, but any IRA tax credit now officially has a Scarlet Letter attached to it," University of Illinois economist Scott Irwin said in a post on X Tuesday.
Overall, groups representing ethanol, soybeans, sorghum, biodiesel and other clean fuels were pleased with USDA’s interim rule and said it was clear the agency listened to their input on bundling and practice flexibility.
Cooper said what USDA released on climate-smart agriculture was a huge improvement from those provisions under 40B. On the updated GREET model, Cooper said DOE further reduced and refined an indirect land use change penalty for corn ethanol.
Matt Durler, managing director of National Sorghum Producers, celebrated the inclusion of sorghum in the proposals and said the crop is important to biofuel production and said it shows a “balanced approach” by USDA.
Durler said he was also pleased to see county-level scoring in the USDA calculator and the flexibility in practices. He said this shows an understanding that there is no single approach to sustainable agriculture, even within the same state or region.
Under other low-carbon fuel standard markets like those in California or Europe, it has not been clear that fuel producers could pay farmers a premium for sorghum feedstock and climate-smart practices, Durler said. If the recent proposals are finalized, it will provide more certainty and a “baseline” that allows ethanol producers to strengthen relationships with growers.
These proposals could allow the industry to start engaging growers about the importance of their role in biofuels, as well as economic potential, Durler said. He said the extra income tied to the tax credits could be the difference between profit and loss on a farm. The credit could be worth more than $1 a bushel in parts of the country, depending on the practices farmers use.
Under the updated GREET model, soy-based biodiesel producers could receive a credit of 33 cents per gallon, based on estimated averages, said Alexa Combelic, director of government affairs at the American Soybean Association. Renewable diesel producers are expected to get 19 to 20 cents per gallon and SAF made with soy could get 33 cents per gallon.
Alexa CombelicThe carbon score of a typical 100-million-gallon ethanol plant using natural gas will fall below the threshold, said Brian Jennings, CEO of American Coalition for Ethanol. This means a typical plant will likely be able to earn some credit from 45Z. For plants incorporating carbon sequestration, the new model greatly improves the carbon intensity score.
Jennings added that values contained in the feedstock carbon intensity calculator are also promising. In some parts of the country, no-till practices can remove about nine points from a carbon intensity score, he said.
“This is frankly better than I expected,” Jennings said. “I can’t say enough about the USDA technical guidelines or the initial reaction we have to the 45ZCF-GREET model.”
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The exact amount a grower could get from the credit varies by location and farming practices. But Jennings sees “tremendous potential” and economic benefit for farmers based on preliminary numbers.
The USDA feedstock calculator holds a lot of potential for the tax credit and the growth of the biofuel industry, said ASA's Combelic. But those benefits can’t be accessed until the rule is finalized and incorporated into the Treasury guidance.
She noted that the USDA calculator offers benefits outside the 45Z credit. The climate-smart agriculture guidelines could be applied to 45Z and also can be used in other biofuel programs like California’s LCFS market.
Combelic said as the state updates its sustainability guardrails and reporting for agricultural feedstocks in the program, this is an opportunity to pitch the work USDA released.
“I think it really gives us a fantastic opportunity to differentiate ourselves from other soybean producers in the world,” Combelic said. “This is a great way to quantify a lot of the work that is already being done on farms.”
While the reaction to the USDA, DOE and Treasury proposals were generally positive, groups detailed some gaps they hope to engage the next administration during comment periods.
One concern is USDA’s mass-balance approach to supply chain management. In response to a request for information groups overwhelmingly pushed for a book-and-claim approach instead.
Brian JenningsCooper acknowledged there is no platform available for farmers to trade climate-smart agriculture certificates and have those purchased by biofuel producers. However, he said groups have been pushing USDA to develop this platform since the IRA passed.
Cooper suggested the agency likely ran out of time to fully develop the platform and instead prioritized establishing methods for estimating the carbon intensity of different practices.
Jennings said ACE's top priority will be encouraging the next agriculture secretary to adopt the CSA technical guidelines. From there, the next big push will be getting Trump’s Treasury Department to incorporate the calculator into the final 45Z guidance.
He said that interest groups will also be leaning on Congress to ensure they take a surgical approach to the tax credits included in the IRA, rather than ending all of them, and they'll have support from lawmakers representing biofuel-producing states.
While Trump has criticized the IRA, biofuel groups say the groundwork laid by the Biden administration contains bipartisan wins they hope will persuade the Trump team to carry on.
For some parts of the biofuel industry, the delay in guidance has already taken a toll.
The biodiesel and renewable diesel side of the industry is already struggling because the tax credit pieces are crucial to margins, said RFA's Cooper. Without clarity on 45Z and the expired blenders tax credit, it’s been difficult to make investments, contract feedstocks and price fuel.
“We're months away, truly, at least months away from having the sort of certainty around 45Z that industry needs,” he said.
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