Farm Policy News Summary

Treasury Releases Proposed 45Z Clean Fuels Credit Rule

  • Ryan Hanrahan
  • biofuels
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Reuters reported that “the U.S. Treasury Department on Tuesday issued a proposed rule governing how biofuel makers can access a $1-per-gallon tax credit for low-carbon transportation fuels, including aviation fuel.”

“The rule was welcomed by biofuel trade groups that said the plan could provide more certainty for producers of ethanol, biodiesel and other products seeking the credit,” Reuters reported. “The program, dubbed 45Z, was created under former President Joe Biden’s Inflation Reduction Act and was amended last year in President Donald Trump’s One Big Beautiful Bill.”

“Changes included allowing for low-carbon fuel produced with feedstocks grown in Canada and Mexico as well as tweaks to the methodology for calculating a feedstock’s land use intensity,” Reuters reported. “‘Today’s 45Z proposed rule is a step in the right direction toward providing the clarity and certainty that ethanol producers are seeking,’ said Geoff Cooper, president and CEO of the Renewable Fuels Association.”

Proposed Rule for the Section 45Z Clean Fuel Production Credit. Courtesy of the EPA.

Progressive Farmer’s Todd Neeley reported that “a public hearing is scheduled for May 28, 2026, with requests to attend the hearing due on May 26, 2026, according to the proposal.”

“The proposal also calls for integrating a feedstock carbon intensity calculator under development by USDA. This will allow for carbon intensity adjustments for feedstocks produced using no-till farming, cover crops and nutrient management practices,” Neeley reported. “So, farmers producing corn and soybeans or other feedstocks with lower carbon intensity would benefit from making the crops more valuable to biofuels producers seeking higher credits.”

Also “according to the proposal, fuels produced after Dec. 31, 2025, must be derived exclusively from feedstocks produced or grown in the U.S., Canada and Mexico, with no foreign feedstocks allowed,” Neeley reported. “The rules would be in effect for fuels production after Dec. 31, 2024, since the credit originally went into effect in 2025.”

“The proposal is designed to protect U.S. farmers from foreign competition for biofuels feedstocks and to secure a domestic market for U.S. corn, soybeans and other crops,” Neeley reported. “The 45Z credit would require producers to sell fuel to an unrelated person in their trade or business and the credit could only be claimed for the year of sale.”

Questions Remain for Farmers Despite Proposed Rule

AgWeb’s Margy Eckelkamp reported that “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 FD-CIC,” Eckelkamp reported. “… (Mitchell) Hora (Iowa farmer and founder of Continuum Ag) 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 FD-CIC will be released, Hora says ‘hopefully soon.'”

“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,” Eckelkamp reported. “The alternative is mass balance.”

“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,” Eckelkamp reported. “‘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.”

Biofuels Groups React Positively

Successful Farming’s Natalina Sents Bausch and Mariah Squire reported that “the Treasury Department and Internal Revenue Service (IRS) released long-awaited 45Z updates Tuesday, fueling applause from agricultural and biofuel groups.”

“‘We greatly appreciate Treasury for moving forward with formal rules for the 45Z Clean Fuel Production Credit. The agency responded to many taxpayer concerns and resolved some uncertainties from the guidance issued a year ago. We anticipate this proposal will provide additional market certainty for biodiesel and renewable diesel producers,’ said Kurt Kovarik, Clean Fuels’ vice president of Federal Affairs, in a press statement,” Sents Bausch and Squire reported. “Kovarik added, ‘The delay in rulemaking led to market uncertainty that took a heavy toll on our industry, undercutting fuel production and the value added to agriculture.'”

“‘Today’s 45Z proposed rule is a step in the right direction toward providing the clarity and certainty that ethanol producers are seeking,’ said RFA resident and CEO Geoff Cooper in a press statement,” according to Sents Bausch and Squire’s reporting. “‘However, much work remains to be done and many questions still need to be answered,’ he said. ‘First and foremost, ethanol producers are anxiously awaiting a new, revised version of the 45ZCF-GREET model, which will help shed light and provide clearer direction on several critical issues. In addition, questions remain to be resolved around the quantification of emissions related to low-carbon feedstock production at the farm level, implementation of foreign feedstock prohibitions, and provisions related to the use of energy attribute credits.'”

Ryan Hanrahan is the Farm Policy News editor and social media director for the farmdoc project. He has previously worked in local news, primarily as an agriculture journalist in the American West. He is a graduate of the University of Missouri (B.S. Science & Agricultural Journalism). He can be reached at rrh@illinois.edu.

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