The Illinois Soybean Association (ISA) Agronomy Team has been working toward education and research directly related to management tools, including reduced tillage, nutrient management, and cover crops. These practices are targeted in incentive-based programs across Illinois. Understanding the agronomics behind adapting these systems is important to avoid compromising yield and return on investment.

Recently, we’ve received many questions about one program in particular: 45Z. I asked David Kubik, Biofuels and Trade Policy Manager at ISA, to tackle some commonly asked questions and explain what it means specifically for soybean production. If you have more questions, feel free to contact David at david.kubik@ilsoy.org.

Q: The Argonne GREET model can be used to determine Carbon Intensity (CI) scores. What does that mean for the agricultural industry?

A: The Biden administration released temporary and preliminary guidance, providing some clarity on the direction of this policy. However, it’s important to note that the legislation grants authority to the Treasury Department and Argonne National Laboratory to decide credit amounts. Additionally, because these rules are not complete, the Trump administration could change them. The legislation leaves massive uncertainty in the industry by giving too much authority to unelected bureaucrats and not directly outlining credit amounts.

Q: Is the Argonne GREET model void of politics and purely a science-based model?

A: Unfortunately, the answer is unequivocally NO. Argonne has communicated frustration to stakeholders over indirect land use change (ILUC). The laboratory does not believe in the ILUC numbers it publishes for soybean oil in its model but feels compelled to include them as a compromise. These ‘adjustments’ result in real losses to farmers.

Currently, Clean Fuels Alliance America believes these erroneous ILUC carbon intensity charges are significant enough to substantially diminish or outright disqualify soybean oil from receiving the Sustainable Aviation Fuel (SAF) production tax credit. SAF is a drop-in replacement biofuel for jet fuel made from renewable sources.

Regarding on-road diesel replacement fuels, 45Z provides financial advantages to other ‘waste’ feedstocks, resulting in an estimated tax credit for biodiesel of 60-70 cents for feedstocks such as imported Chinese used cooking oil (UCO) laced with palm oil from Southeast Asia, compared with only 33 cents for soybean oil feedstocks. These uneven tax credits make domestically grown soybean oil grown a second-class feedstock compared with UCO from China.

Instead of regulating the models, agricultural stakeholders should push for guardrails in CI scoring models to prevent penalties based on pseudoscience, such as land-use change. Additionally, programs should pay based on practice rather than the CI score determined by a bureaucrat who has never farmed before.

Q: The Clean Fuel Production Credit (45z) replaces the Biodiesel Blenders’ Credit (40A). Is the blenders’ credit or production credit better?

A: In theory, a production credit would be better than a blenders’ credit because it would stop imports from entering the marketplace. On the surface, this makes sense because U.S. taxpayer dollars should stay at home.

However, the producer credit pays more money to alleged ‘waste’ feedstocks and is expected to promote the importation of feedstocks such as UCO from China or sugarcane from Brazil. This might work for producers, but for farmers, demand for their feedstocks is likely to fall under this legislation as producers look for feedstocks with more favorable legislative and regulatory rules.

Soy’s market share in the biomass-based diesel industry has fallen from 57% to about 40% in recent years. In California, where stringent CI scoring policies are in place, soybean oil’s market share is under 25%. The production credit is expected to further boost demand for imported feedstocks at the expense of domestic soybeans.

The ability to blend biodiesel on-site allows gas stations to make market-based decisions and add more biodiesel to the fuel supply when prices are low. This helps stabilize the industry by increasing demand when the price of biodiesel falls.

For agriculture, the bigger concern is which feedstocks are being promoted and where they are coming from – not where the fuel is produced.

Q: How much does a farmer receive under the 45Z tax credit compared to the 40A blenders’ credit?

A: The short answer is nothing. The credit goes to domestic fuel producers, with the hope that it will drive demand for agricultural feedstocks.

The credit for soy-based biodiesel has been drastically reduced – it is expected to be around 33 cents per gallon for soy once the numbers are released. Alleged ‘waste’ feedstocks, whether imported or not, are expected to receive around 60-70 cents per gallon in incentives. The 45Z credit puts soybean oil at a huge financial disadvantage.

To make the answer more nuanced and complicated, soybeans and corn with low CI scores should become more valuable to producers, as they will receive more money for using lower-CI feedstocks. However, these payments are not expected to make up the difference between waste and soy feedstocks. Additionally, lowering CI scores requires farmers to invest in practices that may not yield a return on investment. Under the first iteration of rules, the federal government left only a very narrow pathway for farmers to lower their CI scores because the practices were bundle – leaving fewer than 1% of farmers eligible.

The American Soybean Association estimates that a farmer in McLean County could receive a premium of just under $15 per acre if they use both cover crops and no-till. However, that $15 would be split between the farmer, the fuel producer, and programmatic regulatory burdens and fees.

Q: Does 45Z have a positive impact on Illinois’ soybean-based biodiesel industry?

A: No. The 45Z credit intentionally gives other feedstocks and fuels certain financial advantages over soybean oil, pushing soybean oil out of the biofuels marketplace in favor of alleged ‘waste’ feedstocks.

Q: How do fuel producers collect the credit?

A: Fuel producers must navigate a complex web to certify the CI score of their fuels and then sell their credits on the open market to parties that will be able to cash them in. This process adds costs, including fees for selling the credit, certification, and credit insurance. If a soy-based biodiesel producer receives a credit, they will also bear the burden of these compliance costs. In this system, finance and tax professionals benefit the most.

This is a stark change from the blenders’ credit, which was a refundable credit claimed on a fuel producer’s taxes and paid out similarly to the child tax credit for families. The blenders’ credit was not considered income, meaning blenders were not taxed on it at the corporate rate. This change further weakens the financial incentive to use soy.

Q: Does 45Z provide industry certainty for renewable fuels?

A: The 45Z Clean Fuel Production credit adds uncertainty to the industry compared with the $1-per- gallon blenders’ tax credit it replaced. This tax credit is only in effect until the end of 2027, and the official rules are not yet published. The tax incentive is NOT set by law but is decided through the rulemaking process by federal bureaucrats and pseudo-government entities. This means the credit levels can change in the future, depending on who controls certain agencies and other organizations that may be influenced by anti-agricultural politics.

Q: How do the temporary UCO prohibitions impact the industry?

A: It is a positive first step. However, it is important to note that the used cooking oil ban applies only to imports and is in place only until the Treasury Department can publish verification standards. It is also important to note that the ban applies only to biodiesel and renewable diesel – fuel producers can still use imported UCO for SAF and receive massive credits.

Conclusion:

As this issue evolves, agricultural stakeholders must stay vigilant and push for clearer, more consistent policies that protect domestic interests and ensure fair opportunities for U.S. farmers.