New Biofuel Tax Credit

Robert Bell, CPA, Tax & Audit Manager

The Inflation Reduction Act created a new tax credit for biofuel that rewards producers for creating low-carbon options.

What is the 45z tax credit?

This tax credit rewards biofuel producers who can demonstrate a lower carbon intensity (CI) score in the crops used to create biofuels. The CI score considers emissions throughout the crop lifecycle, from fertilizer production to transportation.

For the first time, a federal tax credit creates a financial incentive for farmers who use sustainable practices that reduce emissions in their crops.

Biofuel producers receive a higher credit per gallon as the net emissions of their feedstocks approach zero. This encourages farmers to adopt practices that lower their CI score (e.g., cover cropping, reduced tillage).

How much is the credit?

Biofuel producers receive 2 cents per gallon for each point of carbon intensity reduced below a baseline set by the government. This translates to a maximum credit of $1 per gallon for non-aviation fuels and $1.75 per gallon for sustainable aviation fuel (SAF).

The tax credit applies to biofuels sold from 2025 to 2027. Since farmers are planning now for crops harvested in 2024, companies need to act quickly to involve farmers and establish procedures for collecting data following the GREET (U.S. Department of Energy’s Greenhouse Gases, Regulated Emissions and Energy Use in Transportation) model requirements.