Federal Tax Credits for Reduced Carbon Intensity Scores
Growers share of tax credits become available in 2025 for climate-smart ethanol corn crops used to produce biofuels.
Corn and soybeans are crucial for the successful development of biofuels. Beginning in 2025, federal tax credits for crops with a lower carbon footprint means growers are poised to not only help build a more sustainable environment, but they stand to reap greater profits as well.
The U.S. Department of Treasury’s clean fuel production credit determined under Section 45Z of the Internal Revenue Code, becomes available in 2025, incentivizing the effort to make ethanol processing more earth-friendly by reducing the fuel’s carbon intensity (CI) score. To qualify for tax credits, growers and biofuel producers need to account for all carbon emissions related to the crop, from planting to delivery. That number, divided by yield, is the crop’s CI score. Corn ethanol manufacturing plants that can prove their purchase of corn has a CI score of less than 29.1 — the current default value for corn — will qualify for a credit of up to 5.4 cents per point of reduction.
“The tax incentive will go to the biofuel producer,” says Liz Hunt, head of sustainable and responsible business at Syngenta. “The expectation is a portion of that would go back to the farmer for adopting the carbon intensity reduction practices.”
While there’s currently no standard model for how growers receive their piece of the pie, Jason Neff, Ph.D., Syngenta’s soil and climate innovation principal scientist and member of the global soil health team, is confident they’ll qualify.
“There are already some agreements in place that have a guaranteed flow of funds back to the grower,” he says. “It’s hard to imagine this working if the grower doesn’t get paid.” Another potential opportunity for growers is getting a higher price up front, by virtue of the carbon intensity reduction.
Tax Credits for Sustainable Aviation Fuel Production
Guidance on the 40B credits for production of sustainable aviation fuel (SAF) came out in April 2022, along with a new 40BSAF-GREET 2024 model and user guide from the U.S. Department of Energy.
40B details have been released and can be summarized pretty easily. “Any participating grower has to have grown their crop using three conservation practices: reduced or no-till, cover crops and fertilizer nitrogen stabilizers in their production. Then it’s a flat rate carbon intensity reduction for those producers,” says Hunt.
“It would require them to retroactively document their crop production data and traceability, and not all farmers are prepared for that level of detail,” she says, adding that Syngenta is working to help growers collect and manage the data needed to prepare them to verify their crop production practices in the future.
“We’ll consider different calculators as needed and as demand exists,” she says. “We’ve already done an integration with Cool Farm Tool, a calculator to help growers estimate their on-farm greenhouse gas emissions,” she says, “so if there’s demand for that field-level calculation of carbon intensity, that can be built. We don’t have a finalized model from the IRS right now, so it makes sense to wait and see what the final guidance requires.” The Cool Farm Tool was integrated into the Cropwise™ Sustainability application from Syngenta in July 2024.
In the meantime, she says, growers need to keep good field-level records.
“Whether they’re eligible for this, or other programs in the future, it’s all going to rely on field-level data to document the practices and calculate the impact they’re having.”
A Push for More Climate-Focused Programming
John Fuher, vice president of government affairs at biofuel trade association Growth Energy, says there will indeed be more climate-friendly ag programs going forward.
Over the next several decades, we’re going to see further restrictions of energy products based on their carbon intensity. To open new markets — domestically and internationally — we’ll need a lower carbon intensity ethanol. Reducing carbon emissions continues to be one of the best ways for farms to stay competitive.
“Over the next several decades, we’re going to see further restrictions of energy products based on their carbon intensity,” Fuher says. “To open new markets — domestically and internationally — we’ll need a lower carbon intensity ethanol. Reducing carbon emissions continues to be one of the best ways for farms to stay competitive.”
He’s also confident future programs will recognize additional Climate-Smart Agriculture (CSA) practices, providing opportunity to more growers.
“The treasury made it clear it will do further work to credit CSA practices for 45Z, and U.S. Secretary of Agriculture Tom Vilsack has said they’ll look beyond no-till, cover crop and energy-efficient fertilizer,” Fuher says. “Our hope is the White House empowers USDA to lead that effort, to send a strong market signal that all low-carbon innovations will be properly rewarded. Ultimately, SAF producers and their farm partners need the flexibility to find the path that works best for them.”
This article has been prepared for informational purposes only and is not intended to provide and should not be relied on for tax advice.
- Federal tax credits for the production of climate-friendly ethanol become available in 2025.
- Reducing a crop’s carbon intensity (CI) score, accounting for all greenhouse gas emissions made in crop production, is one way for ethanol plants to receive the tax credits.
- Growers who lower their CI scores by reducing carbon emissions may receive premium payments from the tax credits.
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