Breaking Down the Proposed Tax Bill and 45Z: What It Means for Farmers
🔎Breaking Down The Proposed Tax Bill and 45Z: What It Means for Farmers
The proposed tax bill extends the 45Z tax credit to 2031 for biofuel producers and provides some detail on eligibility. While this is a step forward, questions remain about how farmers can directly benefit from the tax credit.
Let’s start with the basics: What is Carbon Intensity, and Why Does It Matter?
For biofuels producers, think of carbon intensity like a fuel’s eco-score—the lower the number, the cleaner the fuel. Tax credit amounts depend on how much carbon pollution a fuel produces from start to finish.
For example:
🚜 Soy-based biodiesel gets a higher carbon intensity score because it takes energy and resources to grow soybeans before they’re converted into fuel.
♻️ Waste oils (like used cooking oil) already exist and don’t require additional production, meaning they have a lower carbon intensity score, making them eligible for bigger tax credits.
This system favors waste oils over U.S.-grown crops like soybeans, which raises concerns for farmer participation and potential market impacts.
Key Takeaways Based on What We Know Today:
1. Carbon Intensity is the Gatekeeper – Biofuel producers must prove their fuels meet carbon intensity standards, which could indirectly benefit farmers using regenerative practices (like no-till farming and cover crops) if these biofuel producers are willing to pay a premium for crops that have a lower carbon intensity score.
2. Domestic Feedstocks Prioritized – The bill restricts imported used cooking oil (UCO) from qualifying, potentially boosting demand for U.S. soybean-based biofuels.
3. Uncertain Participation Path for Farmers – While the credit supports clean fuel producers, farmers still face uncertainty on how their individual practices will be recognized or benefited.
4. Measurement: There are many tools and services out there these days that help you calculate your CI but ultimately what matters is what data and verification will be required by the bio-fuel producer to incorporate into their overall scoring in alignment with the 45ZCF-GREET Model released by the Department of Energy in January.
🚜 What’s Next?
The industry is pushing for more transparency on how farm-level practices will be incorporated into carbon intensity scoring. Will farmers see direct financial incentives, or will the benefits remain tied to biofuel producers?
To date, the real financial benefit to farmers remains niche, and many advocating for farmer participation are selling a service rather than creating broad-based solutions. So, what steps should you take today?
✅ If you’re already using regenerative practices, you’re ahead of the game!
Make sure you explore all opportunities that can benefit you and generate revenue or offset costs, including carbon offset programs, CI-based incentives, supply chain partnerships, and NRCS programs.
✅ If you already deliver to a biofuels processor—or could—you should reach out.
Ask them if they anticipate launching a program and how you could qualify. Make sure you are developing a relationship there and will be one of the first farms they call when/if they start paying a premium.
❓ Confused about carbon markets and need extra support?
We can help you navigate the landscape—providing neutral, informed insights to help uncover opportunities tailored to your farm. www.bounceag.com
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