In the ever-evolving landscape of agricultural and energy policy, few programs hold the transformative potential of 45Z. As we face the upcoming sunset of the long-standing 40A tax credit, it’s clear that 45Z is not just a replacement—it’s a catalyst for change. Implemented correctly, 45Z has the potential to revolutionize conservation agriculture, reshape global agricultural supply chains, and unlock new financial opportunities for farmers and biofuel producers alike.
Understanding the Transition: From 40A to 45Z
For decades, the 40A blender’s tax credit has supported the ethanol and biodiesel industries by providing a $1 per gallon subsidy to fuel blenders who integrate renewable fuels into their gasoline. While this subsidy has indirectly bolstered soybean and corn prices,the program phased out ethanol years ago and its total phase-out of soybean based fuels at the end of this year marks a significant turning point. The question is: How will 45Z fill the void left by 40A?
45Z, established under the Inflation Reduction Act, is designed to incentivize low-carbon biofuel production. Unlike 40A, which offered a flat subsidy, 45Z bases financial rewards on carbon intensity (CI) scores. The lower the CI score, the greater the incentive—a structure that aligns economic benefits with environmental impact. This shift could profoundly influence how biofuels are produced and how data is managed across agricultural supply chains.
As Paige Hilbrands, CPA and tax credit finance expert at Mickelson & Company, explains, “Section 45Z Clean Fuels Production Credit provides a tax credit for the production of low-carbon transportation fuels, which incentivizes biofuel producers to reduce the carbon footprint of their production processes and rewards participants for lowering their carbon intensity. The nature of the 45Z tax credit ensures it is economically feasible for biofuel producers to make investments in costly decarbonization technologies and infrastructure such as carbon capture technology, combined heat and power generation, energy efficiency upgrades, and renewable energy property.”
Financial Impacts on Ethanol and Soybean Markets
Ethanol plants, a critical market for U.S. corn growers, stand to be significantly affected by this transition. Currently, one-third of U.S. corn—approximately 5.4 billion bushels—is used in ethanol production. Without a timely implementation of 45Z we could see declining ethanol production and lower corn prices. Similarly, soybean prices, already under pressure, could see further declines as biodiesel and renewable diesel supply chains adjust to the absence of 40A.
Farmers are eagerly anticipating the roll-out of 45Z as a new “scoreboard” for agriculture. By adopting conservation practices and leveraging tools like the Argonne GREET model for on-farm CI calculations, farmers can improve their scores and unlock financial incentives. For example, a CI score of 11 kg CO2 equivalent per MMBTU could translate to a 45Z shareable value of over $1 per bushel—a potentially game-changing opportunity for both farmers and biofuel producers to pursue together.
Beyond Biofuels: Sustainable Aviation Fuel and the Future
The impact of 45Z extends far beyond traditional biofuels. Sustainable aviation fuel (SAF) represents a massive growth area, with the U.S. targeting 35 billion gallons of SAF production by 2050—more than double today’s ethanol market. By supporting the diversification of feedstocks and encouraging innovation in agricultural practices, 45Z can help agriculture play a pivotal role in decarbonizing hard-to-abate sectors like aviation and marine transport.
The Road Ahead
The timely implementation of 45Z is critical. By law, the rules are supposed to be finalized by December 31, but even partial progress could provide much-needed clarity for farmers, biofuel producers, and other stakeholders. Policymakers have an opportunity to set the stage for a new era of agricultural and energy collaboration, with billions of dollars in potential tax credits driving economic growth and environmental benefits.
At Continuum Ag, we see firsthand the excitement and momentum building around 45Z. Farmers are lining up to participate, leveraging their CI scores to unlock new revenue streams and drive sustainability at scale. As we await the final rules, the potential ripple effect of 45Z remains immense—not only for agriculture but for the broader economy and global sustainability efforts.
The stakes are high, but so are the opportunities. Done right, 45Z could mark a defining moment for agriculture and renewable energy, proving that decarbonization and economic growth can go hand in hand.