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DTN Headline News

Irwin: Trump May Eliminate 45Z Credit

04-Dec-2024
03:52:00

LINCOLN, Neb. (DTN) -- Whether the Biden administration releases 45Z Clean Fuels Production tax credit guidance may be a moot point, an agricultural economist said during a webinar on Wednesday, because the Inflation Reduction Act and its various tax incentives may be on the chopping block by the incoming Trump administration.

On Tuesday, DTN reported the Biden administration plans to release guidance on 45Z -- which is considered a vital incentive for a sustainable aviation fuel industry -- prior to Jan. 20, 2025, when Donald Trump is inaugurated. Read the story here: https://www.dtnpf.com/…

During a FarmDoc biofuels webinar on Wednesday, University of Illinois Agricultural Economist Scott Irwin said not only would it be nearly "impossible" for sustainable aviation fuel to develop, but carbon sequestration by farms and ethanol plants would be less important if the next Trump administration eliminates 45Z.

Irwin laid out scenarios where tax incentives, along with other state-level low-carbon fuel standards, are the only way to bridge the price gap between SAF and fossil jet fuel.

SAF production would become far less viable, he said, if the 45Z credit never materializes.

"The 45Z tax credit really looks like it's on shaky legs," Irwin said, "whether it will even be implemented at all."

The 40B tax credit, which ends at the end of 2024, has provided up to a $1.75 per-gallon credit for SAF produced.

The 45Z will also be based on carbon-intensity (CI) scores -- as fuels that reduce carbon emissions more would receive higher tax credits.

For instance, the 40B credit pays about $1.30 per gallon of jet fuel produced with a carbon-intensity (CI) score of 45. Currently, most ethanol plants have CI scores of 45 to 60, for instance. The California low-carbon fuel standard, for example, scores corn ethanol at a CI of 57.7.

Irwin said SAF can benefit from a stack of policies, including tax credits, renewable identification numbers (RINs) of credits from the Renewable Fuel Standard, low-carbon fuel standards and state tax credits.

In Illinois, for example, the state recently passed a $1.50 per gallon tax credit for SAF.

Irwin said that credit along with 40B and RINs, would allow SAF producers in Illinois to completely bridge the price gap between SAF and fossil jet fuel.

With 40B expiring, what happens if 45Z doesn't materialize or is eliminated by the Trump administration?

"You can see if we take out the 40B tax credit line entirely for SAF it's dead in the waters economically," Irwin said.

"So that will be something to pay very careful attention to going forward is what happens to 45Z. Will anything replace it? Will it be rolled into some other kind of extension of 40B? Will the old biodiesel tax credit begin to apply to SAF? I don't know the answer. But it's something that's going to have a big impact on the potential expansion of SAF moving forward."

The current biodiesel tax credit will expire at the end of December and there's been some rumbling in Congress about extending that credit in absence of the 45Z.

"To say the least, SAF outlook is very uncertain," Irwin said.

"The policy stack was large enough to incentivize some production pre-election. The whole 45Z tax credit is critical, and we really don't know what's going to happen. It could easily be on the chopping block post-election and that would be a major problem."

In addition, many farmers have been working to calculate their on-farm CI scores and to implement tools to help lower those scores -- preparing to provide feedstocks to future SAF plants.

One of the primary reasons why companies like Summit Carbon Solutions are working through regulatory and other hurdles across five states, Irwin said, is to be able to take advantage of the 45Z credit.

Summit plans to capture and store carbon from 57 ethanol plants across the Midwest. Doing so is seen as the ethanol industry's most viable option for reducing carbon emissions low enough to be a part of an SAF industry.

"A personal opinion -- CI scoring, carbon-smart agriculture -- I believe it's going out the window," Irwin said.

"Maybe you can make the argument that you can attempt to make corn ethanol an advanced biofuel, so you can get maybe a little bit more money from RINs. But one of the big value propositions, I think, is about to be yanked out."

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on social platform X @DTNeeley

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In July 2016, Farm Credit marked 100 years of support for rural communities and agriculture, a milestone celebrated throughout the year and now drawing to a close. See highlights from Farm Credit's year-long centennial celebration. 

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