The IRS is moving to finalize the long-awaited Section 45Z Clean Fuel Production Credit, a major development for ethanol producers, renewable fuel facilities, and farmers navigating a period of policy uncertainty and market volatility. With final 45Z regulations delayed across administrations, producers have faced significant challenges in pricing feedstocks, forecasting credit revenue, and running plants consistently — all factors that have contributed to instability across corn and soybean markets.

The Clean Fuel Production Credit is a significant incentive for ethanol producers, renewable fuel facilities, and farmers navigating a period of policy uncertainty and market volatility.

Proposed Incentives and Benefits Are Welcome News

The proposed 45Z rule offers a clearer path forward by shifting federal fuel incentives toward lifecycle-based carbon scoring both at the production facility as well as in farming practices, opening new revenue opportunities for both processors and growers. Producers are especially well‑positioned to benefit from this transition as the market begins to reward cleaner production, improved efficiency, and documented sustainability practices.

Key Highlights From the Proposed Guidance:

  • ILUC penalty removed: The guidance eliminates the indirect land‑use‑change penalty — a long‑time barrier based on outdated modeling — and makes additional feedstocks such as canola oil newly eligible.
  • North American feedstock requirement: Eligible fuels must be produced using U.S., Canadian, or Mexican feedstocks, reinforcing domestic demand for corn, sorghum, soybeans, and other key commodities.
  • Agricultural inputs become carbon assets: Carbon intensity (CI) of feedstocks — including corn, soybeans, animal fats, crop residues, and manure — are better positioned to directly influence the value of the credit, once the USDA ag practice model is finalized and incorporated into the 45ZCF-GREET model. Practices such as no‑till, cover crops, improved nutrient management, and higher yields translate into premium low‑CI feedstock contracts. There is finally a path of more certainty that farming practices will be included in the CI scoring.
  • Fuels derived from animal manure may qualify for negative CI values after 2025, positioning dairy, swine, and poultry operations to become some of the highest‑value feedstock suppliers in the clean fuels sector.
  • The guidance outlines requirements for using the 45ZCF‑GREET model to calculate lifecycle GHG emissions, including provisions to incorporate climate‑smart agriculture (CSA) practices into CI scoring for corn, soy, and sorghum.
  • The 45Z credit is extended an additional two years, now available through 2029, providing producers more time to invest in carbon‑efficient improvements and realize meaningful returns.

Next Steps: Takeaways for Processors, Farmers, and Producers

Benefits of Farm Adoption

As 45Z places a tangible dollar value on carbon efficiency, farms adopting regenerative and low‑emission practices will become preferred suppliers for biofuel processors seeking to maximize credit value.

“How much of the 45Z credit value ultimately makes its way back to the farmer’s wallet is still a major unknown, and will likely vary by plant, contracting strategy, and regional supply dynamics,” cautions Keaton Dugan, lead commodity crops advisor at Pinion.

“At the same time, the specific farming practices that will be required to qualify for a certified carbon intensity (CI) score aren’t fully finalized, leaving producers evaluating which agronomic changes are worthwhile and which may not pencil out.”

On the flipside, Dugan praises the movement, “Even with these uncertainties, it’s clear that farmers are becoming key players in the low‑carbon energy economy — and that shift represents a major win for the American producer.”

Benefits of Producer and Grower Partnerships

For ethanol producers and renewable fuel facilities, partnering with growers on documented sustainability and data‑driven CI strategies can unlock new revenue streams and strengthen competitive positioning.

“This guidance provides clarity on some important items that were either vague or misleading in the previously issued guidance,” said Donna Funk, Pinion principal and lead biofuels advisor. “These parameters allow producers to move forward with more certainty. The guidance is not perfect but is definitely a step in the right direction.”

Actions and Preparations

  • Operations who invest early in carbon‑smart data systems, CI modeling, supply‑chain traceability, and agronomic improvements will be well‑positioned as the industry shifts to performance‑based incentives. The 45Z framework will also strengthen collaboration between ethanol plants and growers by aligning both sides around measurable, low‑carbon outcomes.
  • To prepare:
    • Ethanol plants should enhance their data and traceability systems to integrate seamlessly with growers and meet IRS documentation requirements. Staying closely connected with an advisor who specializes in this area will allow your operation to act quickly as final guidance is released and new credit opportunities become available.
    • Farmers and producers should begin documenting field‑level and facility‑level sustainability practices and identify opportunities to adopt low‑carbon practices — such as improved nutrient management, reduced tillage, manure management, and optimized logistics — that improve CI scores and contract value.

“The new 45Z tax credit guidance represents a meaningful opportunity for farmers by recognizing and rewarding the good practices many are already implementing to protect soil health and build soil carbon,” says Quint Shambaugh, lead land advisor for Pinion.

  • To fully capture this value, it’s critical for producers to intentionally track their conservation and sustainability efforts and effectively leverage USDA Natural Resource Conservation Service (NRCS) programs — both to ensure the practices are implemented correctly and to document them in a way that supports eligibility and compliance.

Shambaugh adds, “Practices such as nutrient management and no‑till not only strengthen long‑term productivity and resilience, but when verified and recorded appropriately, can translate into measurable economic returns.”

Unresolved Issues

Awaiting GREET model update: While the proposed regulations provide important clarity, several issues still need to be resolved, including updates to the 45Z GREET model used in calculating GHG emissions and methods for quantifying emissions reductions at the farm level. At this time, The Department of Energy is expected to update the GREET model to reflect changes in the IRS proposal and legislation, but no expected timeframe has been provided yet.

E15 uncertainty remains unknown: Additionally, broader policy uncertainty remains, particularly as Congress continues to stall action on year‑round E15, which would further strengthen corn demand and support rural economies.

Timeline for 45Z: A public hearing on the proposed 45Z regulations is scheduled for May 28, 2026, with attendance requests due May 26, 2026.

Pinion is actively working to ensure we can assist ethanol plants, renewable fuel producers, and farmers in preparing for these new requirements. Our teams will continue to monitor developments closely and provide the guidance and tools needed to thrive in this new era of performance‑driven clean fuel incentives.

Reach out to a Pinion biofuels or Ag advisor with questions or to discuss the required preparations and positioning for these incentives. Additionally, Pinion’s land advisory and farm program teams work with producers to ensure proper enrollment, eligibility, documentation, and compliance with USDA and NRCS standards so that operations can confidently participate in these programs and maximize the benefits.