It’s been a year since the Inflation Reduction Act (IRA) passed, and there are myriad opinions on the legislation both for and against. From a biofuel perspective, one thing is clear: the policies that came out of this legislation have the potential to transform the industry through incentivizing investment in technologies that will rapidly accelerate decarbonization.
The Clean Fuel Production Credit (45Z) is a tax credit that incentivizes production of clean transportation fuel, including bioethanol. This tax credit applies to fuel produced after December 31, 2024 and sold before December 31, 2027. 45Z has a base credit of $0.20 per gallon and utilizes an emissions factor that increases the base credit value as the lifecycle greenhouse gas (GHG) emissions of bioethanol approaches zero, where the credit is worth $1.00 per gallon.
Importantly, the model governing on-road transportation fuel in 45Z is the Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation (GREET) model developed by the U.S. Department of Energy’s (DOE) Argonne National Laboratory. This model is the gold standard for carbon intensity lifecycle analysis for biofuels.
Growth Energy, the nation’s largest biofuels trade association, released a study analyzing 45Z implementation’s impact on the U.S. economy. The study found that, if implemented properly, the 45Z tax credit would add $21.2 billion to the U.S. economy, generate roughly $13.4 billion in household income, support more than 192,000 jobs across all sectors of the national economy, and provide farmers with a 10% premium price on low carbon intensity (CI) corn used at a bioethanol plant.
But, making sure the credit is implemented correctly is key to unleashing the potential of 45Z. “45Z represents an historic opportunity for the American bioeconomy, but the bill’s final impact will depend on its implementation,” said Growth Energy CEO Emily Skor. “This new research not only illustrates the enormous economic potential of this key tax credit — it also underscores why it is so important for the U.S. Treasury to adopt the right approach in administering the credit. To deliver on its potential, 45Z must reward the full array of innovations taking place on the farm and in America’s bioprocessing facilities, including technologies like carbon capture and sequestration and climate smart agriculture.”
If implemented correctly, the study finds that 45Z will provide ample incentive for bioethanol producers to invest in technologies like carbon capture utilization and storage (CCUS), renewable natural gas as process fuel, and using low CI corn to further reduce the lifecycle GHG emissions of bioethanol production.
“The U.S. Treasury can unleash these benefits by fully adopting the U.S. Department of Energy’s (DOE) GREET model — the best, most accurate lifecycle analysis (LCA) model available today for both aviation and non-aviation fuels,” Skor added. “Regulators cannot afford to miss this opportunity. We look forward to working with our champions in Congress and the administration to make sure we implement the IRA in a way that maximizes both its environmental and its economic benefits.”
45Z can be transformative for bioethanol producers, corn growers, agriculture, and rural communities, while achieving significant gains toward reducing GHG emissions. POET, its industry allies, and champions in Congress are working to ensure that 45Z’s implementation reaches its full potential.