On Feb. 3, the Treasury Department confirmed farmers will have a seat at the table to benefit from 45Z tax credits with its release of a 170-page document stating its proposed rule.
“They made a bunch of clarifications for the biofuel producers today — who qualifies, what qualifies, how to calculate and how to register,” says Mitchell Hora, an Iowa farmer and founder of Continuum Ag. “It says farmers are going to a have a seat at the table, too, which is what we’ve been advocating for this whole time.”
There have been questions over the past nearly four years since 45Z was first proposed as a biofuel producer tax credit based on carbon intensity of feedstocks. It’s had iterations through the Biden administration’s Inflation Reduction Act, and now the Trump administration’s “One Big Beautiful Bill.”
As written in the proposed rule, biofuels feedstocks would be limited to be sourced from the U.S., Canada and Mexico.
“Clearly, the Treasury has been very concerned about foreign feedstock, especially foreign used coconut oil and palm oil,” Hora says.
For farmers, three big questions remain.
1. What’s the model used to calculate carbon intensity?
Before today’s announcement, there were two competing models, one from the Department of Energy (known as GREET) and one from USDA announced last January. Today, the Treasury confirmed it’ll be a model from USDA, though it’s a new version now called 45Z FDFCIC.
“It’s going to be something different altogether, which is a combo of the two,“ Hora says. “We don’t know all the details yet, but we know they are going to utilize the language from USDA regarding verification, traceability and audits.”
Hora expects the model to use ag practices in its calculations, including cover crops, reduced tillage, fertilizer efficiency, manure and yield.
As for when the final USDA-driven 45Z FDFCIC will be released, Hora’s best guess is late summer.
2. Which chain of custody methodology will be used?
Hora is advocating for book and claim, which he says is more straightforward and would allow a farmer to sell their crop based on the carbon intensity (CI) score of a field, avoiding identity preservation or blending. The alternative is mass balance.
“The big thing that we want to see happen in the USDA rules is that the farmer data should be accounted for via a book and claim,” he says.
3. How much is this worth to the farmer?
Hora says today’s announcement clarifies a lot of the rule for the biofuels producer, which is the recipient of the tax credit. How much of that value will be shared with the farmer is still unknown.
“We’ve shown that farmers could contribute an average CI reduction of 18 CI points, which could translate to pretty substantial value, upwards of close to a dollar a bushel,” he says. “That’s to the ethanol plant, though. The biofuel producer gets the money. A farmer would get a portion of that, and we don’t know how the pie is going to be split, but the total pie that the farmers could contribute to, under the current models, the math ends up being $1.08 per bushel.”
While today’s announcement doesn’t mean money will start moving, Hora says we’re closer than ever to having opportunities for farmers.
Moving Forward With What is Known
Hora says while those questions have yet to be answered, he knows record keeping is paramount to seize on the opportunity. As such, he’s encouraging farmers to get their field-level data in order, including as applied maps, receipts, shape files, aerial imagery, etc.
“At least we got clarity today that this thing is going to happen. [There’s] still a process ahead, but farmers have a seat at the table. It’s a huge day for American ag,” Hora says.
Industry groups reacted in support of the Treasury’s proposed rule.
“Treasury’s proposal is a definite step in the right direction and will allow corn growers to transition into and supply the aviation sector,” Ohio farmer and National Corn Growers Association President Jed Bower says in a news release. “Being able to fuel commercial planes with fuel derived from corn would be important to the long-term economic viability of farming. After today we are one step closer to that possibility.”
The American Soybean Association (ASA) and the National Oilseed Processors Association (NOPA) sent a joint release emphasizing how the 45Z rule should be in conjunction with a final Renewable Fuel Standard (RFS) blend target announcement.
“Updating federal biofuel policies to prioritize soy-based fuels is a key ASA priority, and we applaud Treasury for this action which will help build domestic markets for U.S. soybeans,” says Scott Metzger, ASA president and Ohio farmer. “While Treasury’s work to update tax guidance is critical, ASA strongly urges the administration to immediately finalize RFS blending targets that complement the work of Treasury and Congress, by setting robust biofuel volumes and implementing new policies that will prioritize the utilization of U.S. soybeans in production.”
“These policies work hand in hand,” says Devin Mogler, NOPA president and CEO. “Treasury’s updated 45Z guidance is an important step forward, but it must be reinforced by finalizing the RFS as proposed. A strong RFS that includes the import RIN reduction mechanism is critical to putting American farmers and rural manufacturing first and providing the certainty our industry needs to continue to invest and grow so we can crush more soybeans right here in the U.S.”