45Z Clean Fuel Production Tax Credit New Guidance for Farmers

The 45Z Clean Fuel Production Tax Credit took effect on January 1, 2025, replacing the expired 40B Tax Credit (SAF) and the Blenders Tax Credit (BTC). Unlike previous volume-based incentives, the 45Z tax credit is emissions-based and could create new opportunities for farmers producing feedstocks with lower carbon intensity (CI) scores. While USDA guidance for the 45Z tax credit eligibility is still pending, the USDA has established technical guidelines for measuring, reporting, and verifying the GHG emissions from biofuel feedstock production, which are essential for determining CI scores.

Key Differences Between 40B and 45Z

40B Tax Credit
Producers of Sustainable Aviation Fuel (SAF) were eligible for a tax credit of $1.25 per gallon. Qualifying SAF had to reduce greenhouse gas (GHG) emissions by at least 50%. SAF that exceeded a 50% GHG emissions reduction received an additional $0.01 per gallon for each percent above 50%, with a maximum incentive of $0.50 per gallon.

45Z Tax Credit
Available from 2025 to 2027, it is based on CI rather than individual feedstocks. While farm-level practices are not currently credited, there may be opportunities to influence the CI of the finished biofuel through production efficiencies, which could impact the biofuel market.

What Farmers Can Do Now

The following guidelines are not currently tied to the U.S. Treasury or active under the 45Z tax credit but may help farmers prepare for eligibility once final guidance is released:

• Consider regenerative agriculture practices such as no-till farming, cover cropping, and optimized nitrogen use.
  

• Track and calculate farm-level CI score using the USDA’s Feedstock Carbon Intensity Calculator (FD-CIC).
  

• Maintain detailed farm records such as:

  1. Field and Management Data
     Track crop types, planting dates, yields, and inputs at the field level.
  2. Conservation and Nutrient Practices
     Document practices such as reduced tillage, cover cropping, and nitrogen use.
  3. Biofuel Feedstock Report
     Ensure accurate reporting, avoid double counting GHG benefits, and confirm compliance with no-till and land use rules.

• Understand the opportunities and risks of how their revenue could be impacted. Because the credit is emissions-based, its value will depend on the CI score of their feedstocks. It's also important to know whether the tax credit will be passed directly to the farmer or if intermediaries, like biofuel producers or aggregators, will capture part of the benefit.
  While USDA guidance offers insights into carbon intensity, it does not yet define specific farm-level actions to reduce CI for the 45Z tax credit. Farmers can collaborate with industry partners to better understand feedstock demand and CI score thresholds.

Stay informed on the 45Z Clean Fuel Production Tax Credit by creating a free ForGround by Bayer account. We’ll share the latest information as it becomes available.

Source:
USDA Technical Guidelines for Climate-Smart Agriculture Crops Used as Biofuel Feedstock