If you are a newcomer to 45Z and what it could mean for you economically and environmentally, this article is for you! The 45Z tax credit is a major component of the Inflation Reduction Act (IRA) that rewards farmers for promoting clean energy production and reducing greenhouse gas emissions. The initiative provides financial incentives to biofuel producers, who then pay the farmers based on a CI gradient. In other words, the less carbon-intensive the farmer’s feedstock, the more they get paid. So how exactly does it all work? Am I eligible? If so, should I participate? Without further delay, let’s find out!

Key Features

Eligibility for Farmers 

Farmers eligible for the 45Z tax credit must produce feedstocks viable for renewable fuels like ethanol, biodiesel, and sustainable aviation fuel (SAF). If you grow corn, soy, wheat, or sugarcane, you may be ideal for the program. To qualify:

• Farmers must adopt sustainable practices that reduce the Carbon Intensity (CI) Scores of their feedstocks. More information about CI Scores may be found here.
• These practices include but are not limited to reducing fertilizer use, implementing cover crops, and using no-till farming.
• Farmers must provide detailed records of these practices and feedstock production to biofuel producers, who then use these records to calculate CI scores using the GREET model.

Carbon Intensity (CI) Scores

CI Scores are the primary metric in the 45Z framework. They represent the amount of carbon dioxide emissions produced per unit of energy. Lower CI scores indicate more environmentally friendly fuels. The GREET model, developed by the Department of Energy’s Argonne National Laboratory is used to calculate these scores.

Financial Incentives

Payments to farmers are determined based on a CI Gradient. In a nutshell, here is how the scale works:

• A CI Score of 0.0 (net carbon-neutral) can result in a payment of up to $1.57 per bushel.
• Each point below the average CI score of 29.1 can yield approximately $0.054 in tax credits per bushel.

For example, a corn farmer who adopts recommended practices that reduce his CI Score to 0 and, having a productive year, has an average yield of 175 bushels over 100 acres could receive a maximum of $27,475 in revenue from the program. 

• This gradient incentivizes farmers to continually adopt and maintain sustainable practices to reduce their CI Scores and maximize their payments, setting a new standard for carbon intensity in conventional agriculture.

Potential Benefits

The 45Z tax credit presents several potential benefits:

• Increased Revenue: 45Z, especially for farmers who already employ more traditional agricultural practices, represents significant passive income. If recommended practices are feasible for your property, you could receive tens of thousands of dollars in direct payments.
• Soil-friendly Practices: The program encourages the adoption of environmentally mindful farming methods; this bolsters your soil’s health and biodiversity, making it more resilient during tough years and possibly increasing long-term yields.
• Market Advantage: Participation in the 45Z program can give farmers a competitive edge in the market as demand for low-CI Score feedstocks increases. As demand for low CI biofuels increases, the supply will follow.

Timeline of the Tax Credit

The 45Z tax credit is set to begin in 2025. Participating farmers and biofuel producers should start preparing now by adopting recommended practices and keeping detailed records to maximize benefit. The program is scheduled to conclude at the end of 2027 unless renewed.

Conclusion

45Z is an important step toward a fairer, more rewarding relationship between sustainability and conventional agriculture. By providing farmers and biofuel producers with financial incentives for lower CI Scores, it benefits both the environment and the economy. If you or someone you know matches the description of the ideal 45Z participant, you may be inclined to investigate more.

Stay tuned to the latest updates at 45Z.org as the program draws nearer!