New guidance for the federal 45Z tax credit is expected to provide greater clarity for biofuel producers while creating new opportunities for farmers supplying renewable fuel feedstocks. A recent report highlighted long-awaited updates from the U.S. Department of Energy regarding the Clean Fuel Production Tax Credit, including how incentives will be calculated using the GREET model.
Brian Glenn, Director of Government Affairs for the American Farm Bureau Federation, said the updated guidance gives producers a better understanding of how carbon intensity will be measured and how those calculations influence tax incentives.
“It’s used to help determine the level of tax credit given,” Glenn explained.
The 45Z tax credit is designed to encourage the production of cleaner transportation fuels by rewarding lower greenhouse gas emissions throughout the fuel production process.
45Z Tax Credit Uses GREET Model for Carbon Scores
Under the updated guidance, the GREET model will be used to calculate the greenhouse gas emissions associated with each stage of the biofuel supply chain.
“So the GREET model consolidates all of the greenhouse gas emissions of each step of the biofuel supply chain, dependent on things like the form of transportation and farming practices, into a specific emission rate for a gallon of fuel,” Glenn said.
That emissions rate is then converted into a carbon intensity score. According to Glenn, fuels with lower carbon intensity scores qualify for larger tax incentives under the program.
The approach is intended to reward practices that reduce emissions while encouraging continued innovation throughout the renewable fuels industry.
45Z Tax Credit Could Benefit Farmers
Agricultural leaders believe the updated tax credit could strengthen demand for U.S.-grown feedstocks used in biofuel production, creating additional market opportunities for farmers.
Glenn said producers who adopt practices that lower emissions should be recognized for those efforts.
“Farmers should be supported for lowering emissions of feedstocks and should be adequately compensated for that,” he said.
Supporters say the updated guidance provides a clearer pathway for connecting conservation-minded farming practices with economic incentives. As renewable fuel markets continue to evolve, the 45Z tax credit could become an important tool for supporting both biofuel production and American agriculture.
Hear more about the updated 45Z tax credit and what it could mean for farmers and the biofuels industry by listening to the interview below.