arrow right cross menu search arrow-left arrow-right menu open menu close plus minus

Unpacking 40B / 45Z

In late April, the US Treasury Department released guidance on the IRA 40B tax credit for Sustainable Aviation Fuel producers. While many in the industry had expected guidance for both 40B and 45Z, this new release from the Treasury Department only covers IRA Tax Credit 40B which deals with SAF and the feedstocks destined to SAF. It is unknown yet whether 45Z tax credits – which cover all biofuels (e.g. ethanol, SAF, biodiesel, etc) will follow similar guidance or be different. The 40B tax credit expires at the end of 2024 at which point 45Z supersedes 40B.

To qualify for a tax credit under 40B, the SAF must be certified as achieving a minimum 50% GHG emissions reduction vs conventional jet fuel. Achieving this minimum 50% reduction qualifies the SAF producer for a base credit of $1.25/gallon.

Additional tax credit supplements kick in after the initial 50% GHG emissions reduction threshold is met. Supplemental credits may increase the $1.25 base tax credit by 1 cent for each additional percentage point reduction after 50% for a total of $0.50. This brings the maximum possible SAF tax credit under 40B to $1.75/gallon which is very substantial.

The 40B tax credit goes to the SAF producer (i.e. the company making the fuel, not the farmer and not the feedstock producer). It is assumed that interested producers may create an incentive program to reward farmers and ensure their ability to source low CI (carbon intensity – a measure of the GHG emissions per bushel or Kg of yield) grains in order to achieve that bonus credit. However, tax credit sharing is not required by the law. There is a safeguard in place that farmers need to provide SAF producers with a certificate to enable the producers to be able to make claims on their grain.

Instead of allowing farmers to quantify and report to SAF producers the CI reductions they achieved through the use of regenerative and climate smart practices, the Treasury created an all-or-nothing approach. As outlined by the Iowa Renewable Fuels Association, “…the new qualifications require “bundling” climate smart agriculture practices to become eligible for SAF credits. Three practices (cover crops, no-till farming, and enhanced efficiency fertilizer) would be required for corn and two (cover crops and no-till farming) would be required for soybeans.” Farmers that produce feedstock using that specific bundle of practices allow the producer to claim a capped 10-point CI reduction for corn-based feedstock and 5-point reduction for soy-based feedstock to add to their 40B tax credit claim. It does not matter if the practices created a more significant reduction in CI, 10 points is all that can be claimed. Similarly, it doesn’t matter if the practice adoption created no reduction in CI, the 10 point reduction can still be claimed provided that the practices were verified.

The challenge for farmers is that requiring a specific bundle of practices does not work for all farmers and all soil types or climatic regions. Farmers need the flexibility to adopt the regenerative and climate smart practices that make the most sense for their geography and soil chemical composition and experience. Iowa RFA Executive Director Monte Shaw comments again, “The approved bundle of farm practices won’t work for many Iowa farmers, let alone farmers throughout the Midwest,” stated Shaw. “Given the range of climates and soil types, farmers do not want one-size-fits-all bundles mandated from D.C. Moving forward, it is paramount that many additional farming practices be recognized on an individual basis. Further, the carbon reduction given for the bundled practices appears to be much smaller than we’ve seen in other voluntary carbon programs. We urge the Treasury to continue to work to ensure farmers get full credit for carbon reduction practices. That is the only way to maximize farmer participation and, thereby, carbon benefits.”

It is well understood that the GHG emissions of corn and soy farming contribute greatly to the overall GHG emissions of ethanol and SAF. A full accounting of the reduction in the GHG emissions of farmed corn and soy destined for an ethanol-to-SAF process could greatly increase the available tax credit for SAF producers.  Agriculture, both on-farm and off, contribute nearly 50% to the overall Carbon Intensity of Ethanol production. If we can reduce that farming component by half, our total CI can be reduced by about 25%. This level of CI reduction is achievable with regenerative agricultural practices. Similar results hold for biodiesel.

Even so, the reporting and verification requirements of farming practices for the 40B credit are quite strict. Consult your tax accountant and regulatory affairs team for your specific details. In general, the data collection requirements are robust. ISO 14065 certified third party data verification partner is required, along with either a USDA Technical Service Provider or Certified Crop Advisor to validate the adoption of conservation practice to the standards defined in the 40B tax rule. The practice adoption standards are specified for no-till, cover crops, and EEFs. Detailed supply chain tracking is required to ensure the crops grown with the required climate smart practices actually are used by the SAF producer. Curiously, the SAF producer must have a direct supply relationship with the growers. This is curious because many SAF producers do not have direct relationships with farmers, rather they source ethanol or soy output as feedstock for their SAF production pathway. It is usually the ethanol producer who has a relationship with the farmer. Finally, 40B (and likely 45Z) cannot be stacked with other programs that are generating carbon assets

So what about 45Z? 

The current 40B guidance applies only for SAF and only through the end of 2024. However, many in the industry believe it may be a good indication of what the 45Z rules will entail. 45Z rules are still to be released by the Federal Government, given this, it is important to highlight that until these are defined, the details of 45Z rules, processes or requirements are speculation only.

With that caveat in mind, if 45Z does follow this same simplified methodology, and does not enable detailed field-level quantification, there will not be a use case for quantifying field level CI for the purposes of these tax credits. The 40B quantification approach modifies the carbon intensity output from the GREET 40B model based on the adoption (or not) of specifically bundled practices, and not the quantified CI impact of those practices. It can be viewed as similar to a “pay-for-practice” type of program like other NRCS programs. Many in the industry are pushing for more flexible rules on practices instead of this “all-or-nothing” bundling of the practices (see the note above from the Iowa RFA). Many others, including CIBO, believe that practice flexibility and a trusted, field level CI quantification each year is optimal. It remains to be seen what the government will decide.


What about GREET?

The GREET model is actually several different models owned and managed by Argonne National Labs and the DOE. They released a new model for the 40B tax credit known as 40BSAF-GREET. The model is used to calculate the GHG emissions reduction percentages for SAF producers that includes (but are not limited to) strategies like CCS, renewable electricity, etc. The model addresses two production routes to SAF: HEFA and ATJ-Ethanol. The biggest production pathway is ATJ-Ethanol from US Corn.

The new 40BSAF-GREET model does not address on-farm practices of feedstock production. Given the prominence of corn based ATJ-ethanol and Soybean HEFA in the US and the USDA created a Climate Smart Agriculture pilot program for 40B that allows additional 10 point GHG emissions reductions for CSA grown corn and 5 point reductions for CSA grown soy which are outlined above.

GREET FD-CIC is a field level carbon intensity quantification tool Argonne National Labs created for US row crops. It was speculated this tool would be adapted for 40B/45Z for field level quantification. It was not adapted to be part of the 40B requirements, but may still be adapted for 45Z.



The 10 CI point reduction for CSA farming practices allowed under 40B appears well below the value the GREET otherwise might quantify for the practices on a farm-by-farm basis. However, actual on-farm results will vary widely from region to region.

The larger issue that we are hearing beyond the 10 point flat reduction, is the lack of flexibility in the practices. Mandating three practices that may or may not make sense depending on the geographic location and sourcing area is a tough one-size-fits-all pill the government wants all farmers to swallow.


CIBO’s View

At this point in time, fuel producers can no longer take a wait-and-see approach, hoping that 45Z will provide the right incentives for practical farming practice adoption.  With the crop now in the ground for fuel produced in 2025, the time to act is now.  Ethanol and biodiesel /  renewable diesel producers should be developing and deploying regenerative agriculture programs to their growers this season.  It is the only way to be fully prepared to take maximum advantage of the 45Z credits on the horizon.

Understanding the CI scores of farms in your sourcing region and supply sheds are good starting points. The CIBO Impact platform can help you see this information today, without disrupting farmers. Identifying regions that are ideal for incentive and tax credit sharing programs, coupled automatic program qualification capability and practice verification is a critical next step, and CIBO is ready and able to deliver this insight and capability to you, today.