After over a year of anticipation, the U.S. Treasury has released long-awaited guidance on the 40B Sustainable Aviation Fuel (SAF) tax credit, along with updates to the GREET model – both impacting agriculture and biofuels sectors.
The release of this guidance has sparked more questions, primarily concerning carbon intensity (CI) and how farmers and ethanol producers can capture tax benefits. Pinion advisors sort through the noise to simplify and answer the most pressing questions surrounding these tax credits and the latest guidelines.
What benefits or payments are farmers receiving today?
Farmers are being promised a CI premium (today and in the future), for their corn and for their farming practice data. However, any actual payments today, are most likely from ethanol plants for two purposes: first, to gather data in anticipation of upcoming 45Z regulations, and second, to assess the potential for sourcing low CI corn which will contribute to calculating their overall plant CI score.
Each ethanol plant will take a different approach to how they share the low CI payments depending on:
- Final 45Z guidance
- How much farmer-direct grain they can secure
- How close to zero or negative the ethanol plant can get their CI score
It is important to note that not every ethanol plant and not every farmer has the exact same carbon profile, and they cannot all get to zero.
What is the ethanol plant getting today vs. in 2025-2027?
Remember, unless extended, the 45Z is only a three-year program. While it can be very lucrative for those three years, it is not a long-term program right now. That’s not to say it won’t be extended – things can change very quickly depending on the presidential and congressional elections just around the corner.
Also, not every plant will qualify for the full $1.00 per gallon of 45Z tax credit. To convert these credits into cash, they must be sold on the open market, typically at a rate below their face value.
How can the farmer and the ethanol producer work together to make sure they both benefit?
Open communication between farmers and ethanol producers is critical to ensure mutual benefits from the 45Z tax credit and carbon intensity initiatives. While both parties may be inclined to withhold certain information to maintain competitive advantage, transparent dialogue is essential.
Farmers can provide detailed data about their crops’ carbon intensity, while ethanol plants can share insights into the CI scores they are aiming for. By exchanging information, they can align their goals, with farmers adopting practices that produce low-CI corn suitable for ethanol plants striving for better tax credits.
How do farmers and ethanol plants establish their CI score?
The farmer and the ethanol plant do not get to independently determine their CI score – they will have to apply the GREET model, which can be changed for the 45Z tax credit. Not all farming practices and not all grains will be treated the same, and some very good low CI or CI reducing farming practices might not be accepted in the model.
More news to come
Pinion will be keeping a close eye on the evolving discussions around tax credits, applicability and strategy expected to come from 45Z. Stay up to date with the latest changes and thought leadership around tax and legislative impacts to your business by following Pinion’s timely updates or by signing up to get insights right to your inbox.
