By: Donna Funk, CPA, Pinion
Inflation Reduction Act provides economic opportunities beyond the obvious beneficiaries
While we continue to celebrate what it means to clean energy and U.S. biofuels production, the Inflation
Reduction Act (IRA) represents one of the largest boosts to the nation’s ethanol industry and will be a significant driver for rural economies. By rewarding ethanol producers who source corn grown using climate-friendly practices, the IRA created a win-win scenario.
CLEAN FUEL PRODUCTION CREDIT: BENEFITS FOR SOURCING CONSERVATION-FOCUSED GROWERS
The IRA’s expansive law includes new tax credits, extends existing tax credits, provides funding for biofuel infrastructure and expands tax credits for carbon capture and storage. Section 45Z of the IRA, known as the Clean Fuel Production Credit, offers a tax credit for domestically produced clean transportation fuels, encompassing ethanol, biodiesel and sustainable aviation fuels. To maximize the
credit, ethanol producers must engage America’s corn growers, sourcing from operations that implement practices aimed at reducing carbon emissions.
Farmers who embrace conservation practices are well-positioned to benefit financially. The Clean Fuel Production Credit (45Z) is structured on a sliding scale, so ethanol producers become eligible for larger credits as the carbon intensity (CI) of the fuels produced approaches zero. This provision establishes a base credit of $.20/gallon for ethanol produced at a qualified facility ($.35/gallon for aviation fuel). Alternatively, ethanol can qualify for a $1/gallon credit ($1.75/gallon for aviation fuel) if the fuel is classified as
sufficiently low carbon based on a lifecycle assessment of the fuel production.
“This creates a direct market demand for sustainably produced corn providing farmers who implement conservation practices such as cover crops, reduced tillage, precision agriculture and improved nitrogen management with additional income opportunities,” notes Lisa Becker, Pinion sustainability manager.
CARBON INTENSITY SCORES BASED ON GHG EMISSIONS AND GREET
The federal government has determined a CI score can be based on the Greenhouse Gases, Regulated Emissions, and Energy Use in Technologies (GREET) model. The model is a publicly available lifecycle analysis tool that examines the impacts of vehicle technologies and fuel products. The GREET model allows the Department of Treasury to determine ethanol’s carbon score. Allowing the use of the GREET model ensures fuel made from corn-based feedstocks will qualify for tax credits under the IRA.
GREET models are developed for specific use cases and the Department of Energy, in conjunction with other federal agencies such as the Department of Agriculture, developed the 40BSAF-GREET to calculate the emissions reduction percentages for sustainable aviation fuel under the IRA. The modified GREET model integrates other categories of ethanol production’s indirect emissions, such as crop production and livestock activity.
DOCUMENTATION NEEDED FOR 45Z BENEFITS
To take advantage of this opportunity, it will be crucial for corn growers to gather data, document farm production practices and know their CI score. Ethanol producers aiming to benefit from the 45Z credit will require this information.