Farming For Fuel

Will Farmers Benefit From Clean Fuel Tax Credits? 

Perhaps the better question is, will it be feasible for corn and soybean farmers to take advantage of clean fuel incentives utilizing the new 45Z rules? Had these guidelines been issued amid an agricultural boom, we might have replied with a wholehearted, yes. But, the reality is that new clean fuel tax credits have been presented late in the game for farmers navigating financial difficulties. 

Sifting through eighty pages of regulations to ascertain whether it's cost effective to implement the necessary carbon cutting practices or not seems daunting considering most farms have made major planting decisions for 2025 already. Determining feasibility is a game of weighing the positives against the unknowns.

How Will 45Z Create Opportunity for American Farmers?

The new regulations coupled with policy appear to be creating a strategic pathway for feedstock fuels that considers the role of American farmers. Banning imports of used cooking oils is a significant win for farmers who have recently struggled to compete with the foreign supply of seed oils used in fuel production.  While the ban has largely been touted as a means of quality control in the industry, in theory, eliminating the competition should boost demand for feedstocks grown in the United States. 

Tax credit incentives go to producers, but should have a trickle down effect that benefits farmers. Soybean and corn farmers utilizing climate-smart methods could earn more from producers who are looking to enhance their data through partnerships with farms using specific practices and, in theory, producers would be willing to pay top dollar to the farmer with the data. With more money to go around and decreased competition for it, U.S. farmers could experience income boosts if they partner with fuel producers.

Another significant win for farmers under 45Z rules is that it separates conservation regulations from sustainable regulations. Whereas former tax credits bundled these practices altogether making it difficult for farms to adhere to all of the rules, new guidelines allow farmers to select best practices for their farms from a variety of methods. More farms may be able to take advantage of the possible financial benefits.

Is 45Z Bad News for American Farmers?

Even with additional information and clarity around 45Z guidelines, both producers and farmers were fearful that the Inflation Reduction Act, which provides for these tax credits, would be eliminated under the new administration. The unknown made producers slow to lean into 45Z which prompted speculation that corn and soybean farmers who are dependent on the decisions these producers make would experience a negative trickle down effect.  As of February 20, 2025, the USDA is committed to honoring all current contracts with farmers under the Inflation Reduction Act.

Benefits will be reserved for corn or soybeans used in biofuel, sustainable aviation fuel or ethanol and come via fuel producers not as a direct benefit from a government subsidy. The tricky part is that farms primarily ship harvests to granaries where the corn or soybeans are then used for multiple purposes from fuel to livestock feed. Tracking could become costly at a time when few corn and soybean farmers have the cashflow to make investments in new technology, equipment or farming methods. The tracking process will be complicated and also require additional financial investments which could cancel out any financial benefit farmers stand to gain by participating.  

Perhaps the greatest fear surrounding 45Z in the agricultural sector is that by not directly rewarding farmers who invest in practices to adhere to these guidelines, the 45Z pie will be left to cut itself and farmers will receive just a sliver of the benefit. It’s possible that the 45Z guidelines will work to create a new, and higher, baseline for corn and soybeans where everyone is producing premium crops and therefore no one is experiencing added benefit. That train of thought may cause farmers to play it safe, opting not to be part of building a new baseline based on climate smart practices and subsidized fuel production..

The need for feasibility studies is great and time is of the essence. Exactly what an individual farm needs to change to comply with regulations and how much those changes will cost will vary across the board. Will farmers choose to navigate a complicated and costly process or will the unknown elements bring sustainable fuel industries and the farming operations that support them to a standstill? The new administration aims to supply the world with fuel. Though they favor fossil fuels, feedstocks may yet see an increased demand given this goal.

A shift back to manufacturing in multiple sectors could bolster clean fuel production, but it has also been cause for concern. Will sustainable fuel products ever be viable options or will they forever require some type of subsidy or tax credit to close price gaps?  If clean fuel continues to be extremely expensive to produce, farmers may never experience significant income gains from the industry. 

What Can We Conclude About 45Z?

If fuel derived from feedstocks grows into a robust sector here in the United States and develops further into one that can claim significant carbon reduction methods, farmers will play an import role. As it stands, the new clean fuel tax credits are a win in that they give consideration to farmers and could lay the foundation for future earning potential for corn and soybean farmers.  But 45Z is unlikely to give immediate relief to farm families.