Corn grown for ethanol has taken some hits for fueling poor water quality due to nutrient runoff.
However, corn-derived ethanol and other biofuels may be the ticket for boosting water quality.
That’s due to Section 45Z — tucked inside the Inflation Reduction Act of 2022 — which grants federal tax credits to biofuel manufacturers who make low-carbon fuels.
The tax credit’s worth is based on a carbon intensity (CI) score that tracks the supply chain’s carbon footprint. This includes greenhouse gas emissions such as carbon dioxide, nitrous oxide and methane that can fuel climate change.
The fewer emissions used to produce a gallon of biofuel, such as ethanol or biodiesel, the more tax credits — and money — biofuel makers glean. The intent is they will pass part of the money garnered by these tax credits to farmers who grow the crops to make low-carbon fuels.
Low CI scores fuel premiums
Soil health practices farmers implement — such as cover crops, reduced tillage and efficient fertilizer use — can lower their CI score. The lower their CI score, the higher their potential payments, said Mitchell Hora, Washington, Iowa, farmer and founder and CEO of the software company Continuum Ag.
He noted that each ethanol plant will have its own premium structure. For ethanol plants that have announced premiums so far, the lowest CI scores have generated payments of more than 50 cents per bushel in some cases, Hora said.
Coincidentally, practices that result in low CI scores also improve water quality, said Monte Shaw, executive director of the Iowa Renewable Fuels Association.
“Section 45Z will be the biggest clean-water program in the history of the United States government,” he said, adding that it is all tied to biofuel production.
Unlike current carbon programs, there’s no contract to sign. Nor are farmers who have installed prior greenhouse gas-sapping practices excluded.
“That program will spur adoption of practices like cover crops, no-till [and] precision fertility on a much larger scale than we've ever seen before,” added Dave Walton, a Wilton, Iowa, farmer who serves as vice president of the American Soybean Association. “There will also be a nice incentive payment for farmers who adopt those practices.”