Section 45Z of the Inflation Reduction Act (IRA) provides a tax credit for the domestic production of clean transportation fuels including ethanol, biodiesel, and sustainable aviation fuels. Also known as the Clean Fuel Production Credit, the tax credit applies to fuels produced after December 31, 2024, and sold before Dec. 31, 2027. The base amount of the credit for nonaviation fuels is $0.20 a gallon multiplied by an emissions factor. This base credit can be increased to $1.00 per gallon (a multiple of five) for transportation fuel produced in facilities that meet prevailing wage and apprenticeship requirements outlined in the IRA.
The Section 45Z tax credit will provide significant financial incentive for ethanol producers to make necessary capital expenditures to capture and process CO2 and for farmers to increase production of low carbon intensive corn for ethanol production. These incentives are expected to more than double the current number of ethanol plants capturing CO2 (from 50 to 124) and capture of CO2 (from 9.5 million tons to 23.8 million tons) over the three-year period of the tax credit.
Qualification for the tax credits provided by §45Z is determined by reductions in the carbon intensity (CI) of ethanol. The main ways the CI of ethanol can be reduced are through increasing the recovery of CO2 by ethanol producers, use of renewable natural gas (RNG), and utilization of corn produced using practices that reduce its CI and, in turn, ethanol produced from low CI corn. Currently a relatively small percent of ethanol plants capture and market CO2.
A combination of operational changes by ethanol producers and increased use of low CI corn feedstock is expected to result in at least a 50 percent reduction in the carbon intensiveness of ethanol leading to a $0.55 per gallon tax credit. Since low CI corn plays a substantial role in this reduction, ethanol producers are expected to share $0.10 per gallon (3.3 cents per bushel) of the credit with farmers supplying low CI corn and pay a 10.3 percent premium for qualifying feedstock.
The ethanol industry is expected to increase capital expenditures by $2.3 billion. Corn growers are expected to spend $6.8 billion to produce 2.4 billion bushels of corn needed to produce the increased CO2 volume and will realize an additional $1.9 billion in revenue. As shown in Table ES1 these impacts are expected to provide $21.2 billion in GDP for the U.S. economy, nearly $13.4 billion in household income, and support more than 192,000 jobs in all sectors of the national economy.