High-stakes 45Z rules stoke hopes for farm economy revival

Farmers eager to take advantage of freshly incentivized biofuel markets are getting a heavy dose of Washington’s “hurry-up-and-wait” culture.

Growers of corn, soybeans and other crops used to make renewable fuels have been waiting more than a year to start fully benefiting from the 45Z national tax credit. The incentive, which originated in the 2022 Inflation Reduction Act passed by Congress during the Biden era, is meant to boost domestic production of biofuels that power cars, trucks, airplanes and other types of transportation.

After a mishmash of regulatory and legislative hurdles across two administrations and multiple federal agencies, 45Z is edging closer to the finish line, but agriculture and biofuel producers are still waiting for final regulations.  

While USDA recently finished key rules that the industry is counting on to be folded into a final 45Z framework, the Energy and Treasury departments still must take action.

“Those last two pieces are still hanging out there,” Clean Fuels Alliance America CEO Donnell Rehagen said in an interview with Agri-Pulse. “We’d like to see that sooner rather than later because it won't be too many months from now that our growers will be making their plans for what they're going to do for next growing season.”

Donnell Rehagen (Clean Fuels Alliance America)

USDA provided a big piece of the puzzle for farmers in late June with the release of a Regenerative Feedstock Rule, aimed at enabling farmers to voluntarily capture value from sustainable agricultural practices through biofuel markets.

The agency also released a Feedstock Carbon Intensity Calculator to help producers quantify lower-emitting farming techniques, like cover cropping, and see full financial gains from participating in expanding low-carbon markets such as for ethanol, biodiesel and sustainable aviation fuel.

The USDA ag guidelines still must be included in a final 45Z rule, something the Treasury Department has said it intends to do, though the timing is unclear.

DOE also needs to integrate the feedstock rule into its GREET model, which stands for Greenhouse gases, Regulated Emissions, and Energy use in Technologies. It measures the total lifecycle emissions of a fuel so producers then can calculate their carbon intensity (CI) score, which determines the value of 45Z.

Such gains could be lifelines for crop producers facing squeezed margins amid soaring production costs.

“The farm economy is not in a great place currently,” Jordan Scott, a fifth-generation South Dakota farmer of corn and soybeans, told Agri-Pulse. “Sustainable to me is being able to farm next year, and we're always paying attention to that and seeing what options there are out there to continue to do that.”

Yet while U.S. producers of corn-based ethanol can lower CI scores through reducing or offsetting fossil-based electricity, or capturing and sequestering carbon emissions, “everything happening on the farm still is not monetizable by the ethanol producer,” Renewable Fuels Association CEO Geoff Cooper said on “CI Chit Chat,” an online show hosted by Mitchell Hora, an Iowa farmer and founder of soil health and data company Continuum Ag.

“They have no way of baking in the CI of the feedstock today,” Cooper said. “Corn is corn is corn, according to the Treasury, and it doesn't matter what practices were used or where it was grown, it gets one score, and so that's how the industry has been operating this past year and a half.”

Hora has said the USDA biofuel feedstock rule is a huge step forward. The updated feedstock calculator covers corn, soybeans, sorghum, and spring canola. Hora describes many features as highly positive, including the calculator’s inclusion of manure to reduce CI scores, something the former beta version of the tool didn’t include.

A major complaint, though, is the USDA saying crops will be tracked using “mass balance chain-of-custody,” referring to the physical tracking of a product and its traits from the field to the fuel tank. 

Hora, farm-state members of Congress and others have pushed for a “book and claim” accounting model that separates the physical product from its regenerative traits.

A big worry is the impact on non-biofuel grain buyers, like livestock producers who use grain for feed. Hora notes that his corn is sold to feed pigs, but pork producers don’t currently have a low CI corn program.

“Due to mass balance, my corn and data have to remain in tandem and will be sold to an ethanol plant together. This hurts my local pork producer, who will have to look further out for corn and increase the price of trucking, or they will have to change bases to try to keep my corn in their supply chain,” he said. “Book and Claim would decouple the grain from the data and would level the playing field, allowing all grain farmers an opportunity to participate, while minimizing cost and carbon emissions.”

Game changer?

The passage of 45Z has been broadly viewed as a breakthrough for U.S. biofuels, both back in 2022 and again last year, when the Republican-led Congress expanded and revamped the credit. This included removing 45Z’s indirect land use change penalties on ag feedstocks.

"That basically doubles the value of the tax credit for soy-based biodiesel from about 30 cents to 60 cents a gallon, and 20 cents to 40 cents for renewable diesel,” said Scott, who serves as secretary of the American Soybean Association.

Another change was limiting the credit to biofuels made with feedstocks sourced within the U.S., Canada and Mexico. The bipartisan provision was in response to an outcry from the ag industry over a flood of foreign raw materials coming into the U.S., like Chinese used cooking oil and Brazilian tallow, that were cutting into demand for domestic feedstocks, such as soybeans.

The focus on ensuring farmers aren’t left out once 45Z rules are completed is stirring up some policy awkwardness.

The tax credit’s initial passage was as part of a bill hailed by Democrats as former President Joe Biden’s landmark climate change legislation. President Donald Trump has long decried “green” initiatives that he often calls a "scam." 

Still, when it comes to the 45Z rules out of USDA, the biggest change appears to be in name only, with the Trump administration touting “regenerative” agriculture versus the former administration’s preferred phrase of “climate-smart” ag.

“I don’t care what name you use,” said former Agriculture Secretary Tom Vilsack, who served under Biden as well as for all eight years of the Obama administration.

Climate-smart skepticism 

Vilsack, speaking last month at a Continuum Ag TopSoil Summit in Iowa, relayed the difficulty he had in pushing for a biofuel feedstocks rule in the Biden administration.

For USDA, it was "like pulling teeth to get stuff through” the White House Office of Management and Budget, said Vilsack, a former Democratic governor of Iowa.

Tom Vilsack (World Food Prize Foundation) 

His effort to publish interim guidelines for climate-smart ag used as biofuel feedstocks was met with skepticism. “They didn't quite trust the idea of farmers basically saying this is what I'm doing on my farm, and so I needed to elevate this, and to elevate it, there's only one other place you can go, which is the White House,” Vilsack said.

Vilsack said he told John Podesta, then Biden’s top international climate policy adviser, he wasn’t taking “no” for an answer unless he got a verdict directly from the president.

“When you play that card, all hell breaks loose, and it did,” Vilsack said. “But you know what happened? OMB signed off. We got the interim rule through. They knew if I talked to the president, I'd convince them this was the right thing to do.”

USDA issued the interim biofuel feedstock rule, along with a beta version of the CI calculator that was upgraded and released by the department last month, just five days before Trump was sworn in for his second term on Jan. 20, 2025. At the time, Vilsack told reporters he was hopeful the new administration would run with the rule and eventually include it in 45Z regulatory guidelines.

Vilsack, who got a standing ovation at the conclusion of his talk in Iowa, said farmers and the biofuels industry need “persistent” voices within the executive branch who will fight for them.

“You may have somebody like that at USDA now, I don't know, you may have somebody like that. If you do, great, but you need somebody like that at USDA, at Energy and Treasury, at OMB, and the White House,” he said. “I can guarantee you, the people that have an interest in this issue, from the oil industry to the timber industry to the restaurant industry, they all have people in those departments, and so it's incredibly essential that you understand your voice has to be added, and it has to be a powerful voice.”

“This is too important not to get done, and the only way it gets done is for you guys to actually engage consistently and persistently, and with a passion and emotion,” Vilsack said.