So, how much money could farmers reap from Section 45Z tax credits gleaned by biofuel producers?
Payments shared between biofuel plants, farmers, grain merchandisers and others of $100 to $400 per acre have been batted around in recent years. Current legislation is silent about biofuel manufacturers sharing any money they garner from Section 45Z. Still, it’s likely farmers will obtain something, says Monte Shaw, Iowa Renewable Fuels Association executive director.
For example, say an ethanol plant lowers its carbon intensification (CI) score by 30 points via processing low-carbon corn and gleans 2 cents per CI point in tax credits. This tallies 60 cents per gallon, or $1.80 per bushel of corn, if the plant uses three bushels to make each gallon of ethanol.
“No one can sit here today and tell you what portion of that $1.80 [per bushel] will find its way back to the farmer,” Shaw says. “But I can say with a basis in history that we’ve never added $1.80 [per bushel] to the value of a commodity like corn where the farmer didn’t get some [additional value].”
Massive SAF market
Still, Shaw believes the most value from Section 45Z tax credits will come from using ethanol in the aviation industry’s sustainable aviation fuel (SAF).
“I think we’re missing the forest by seeing just the trees,” he says.
Over the last 40 years, average U.S. corn production has annually increased 210 million bushels, Shaw says. “That means that in 20 years, we will need a forest to chew up the [additional] 5 billion bushels of corn,” he adds.
Shaw thinks SAF could chew up this increase and more.
The airline currently accounts for 10% of global greenhouse gas emissions and is aiming for net-zero emissions by 2050, says Meg Whitty, vice president of corporate affairs and marketing for LanzaJet, a sustainable fuels technology company. It’s estimated that SAF — a share of which comes from corn ethanol — could contribute about 65% of the emission reductions needed by the aviation industry to reach net-zero emissions by 2025, according to an analysis by the International Air Transport Association.
Growth potential is excellent, as SAF in 2024 represented only 340 million gallons out of a 100 billion-gallon jet fuel global market, Whitty says.
“The opportunity is massive,” she adds.
Facing hurdles
SAF fared poorly in current 45Z legislation, as Congress clipped its tax credit from a maximum of $1.75 to $1 per gallon.
“This is going to hinder the ability to turn ethanol into sustainable aviation fuel under the current version of 45Z,” says Mitchell Hora, a Washington, Iowa, farmer and founder and CEO of the software company Continuum Ag.
“It’s going to be very expensive [for SAF] to break into the sustainable aviation market,” Shaw adds. He says it will take the majority of the 45Z tax credit for SAF producers to document farm practices, increase plant operational efficiencies and replace natural gas — used in SAF manufacturing — with renewable natural gas.
ETHANOL OPPORTUNITY: New opportunities for ethanol produced in plants such as this Lincolnway Energy facility in Nevada, Iowa, could result from new markets. (Iowa Renewable Fuels Association)
However, hope exists. Sen. Joni Ernst, R-Iowa, has moved to amend SAF’s tax treatment. And if long-term projections for aviation industry de-carbonization hold, Shaw says SAF demand for corn ethanol could grow to a point where U.S. corn farmers — who currently grow about 15 billion bushels annually — would have difficulty meeting it.
“When was the last time American famers had a market that wanted everything they could responsibly grow?” Shaw says. “I’m not saying that will happen, but that’s the potential size of this market.”
Politics
Still, biofuel growth is subject to political whims, says Owen Wagner, vice president of grains and an oilseeds analyst with Rabobank. “Fifteen to 20 years ago, when we were talking about grain markets, it would have been fundamentals,” he says. “Now, the growth and relative importance of biofuels requires a totally different way of analyzing markets.
“All this also has a strong political component in that it’s dictated by agricultural policy,” he adds. “We could have a future administration that shifts emphasis back to [vehicle] electrification rather than liquid fuels.”
If so, this could negatively alter the outlook for biofuels. “It all depends on what the energy priorities are coming out of D.C.,” Wagner says.