Sustainable Feedstock Production: Another strategy to maximize 45Z

The 45Z Clean Fuel Production Tax Credit takes effect on January 1st, 2025. Do you have a plan to earn tax credits?

Biofuel producers have a massive opportunity in front of them to earn new revenue from tax credits based on reductions in carbon intensity.

Leveraging agricultural feedstocks is another tool in the toolkit for biofuel plants seeking to take advantage of 45Z. Plants have a valid pathway for CI reduction by sourcing crops produced using sustainable practices.

Three things to know about Low CI Feedstocks

While the specifics of the 45Z rule are unfinalized, the 40B Sustainable Aviation Fuel Tax Credit provides a framework for what to expect. Understanding a few key components of the regulation can help plants use sustainable agriculture to maximize their credit generation opportunity.

1. Some climate smart agricultural practices will influence CI calculations. There are a variety of sustainable practices that farmers can use to reduce carbon intensity of their crops, including cover crops, no-tillage, enhanced efficiency nitrogen fertilizer, crop rotation, and many more. These practices can reduce carbon dioxide emissions and sequester atmospheric carbon in the soil, which both contribute to lower feedstock CI. The GREET V45Z calculator used in the 45Z will include a subset of these practices - such as cover cropping, no-till and using enhanced efficiency nitrogen fertilizers - as a lever that influences feedstock CI.
2. The regulation will likely require plants to verify the use of climate-smart agriculture practices by third-party auditors. Although the level of verification required for 45Z is not finalized, the 40B guidance and Inflation Reduction Act have provided significant detail on what will be required for verification of the climate smart ag component. The 40B guidance states that a third-party verifier is required for CI scores submitted for the program.  For the purposes of climate smart agriculture, the verifier must have an accreditation from the ANSI National Accreditation Board (ANAB) for ISO 14065 and must demonstrate agricultural expertise through being either an accredited USDA technical service provider (practice codes 340, 329, and 590) or a certified crop advisor via the American Society of Agronomy.  Indigo Ag is the only company to have completed this kind of verification with an ANSI-approved third party. We've successfully completed this three times for the first three issuances of verified, registry-approved ag soil carbon credits, and are undergoing a 4th verification process this fall.
3. Traceability to the farmgate is likely required. While this additional complexity can be daunting for producers, Indigo Ag's technology enables traceability to the farmgate, using a group-level mass balance approach, which is likely to satisfy these requirements. Group-level mass balance allows mixing of crops from different sites (e.g., farms, aggregators), and requires knowing the share of a sustainable crop within the finished product from a group of sites over a period of time.

While designing programs to source, quantify, and verify sustainable ag feedstocks seems complex, Indigo Ag has 6 years of experience collecting data, generating verified carbon outcomes, and delivering sustainable crops into traceable supply chains. We're confident about delivering a seamless, program experience that meets the needs of your plant. We're even offering plants an opportunity to establish a program, risk-free. Reach out to Indigo Ag if you're ready to put together a plan to earn tax credits.

Ways to get started

1. Get smarter about the nature of your feedstock supply. Are the corn feedstocks you're sourcing produced with sustainable practices already? If they are, this represents a great opportunity for plants to advantage of a lower carbon intensity feedstock, starting as soon as the tax credit is announced. Feedstocks grown in the 2024 season can influence your plant's CI.
   
   Having a baseline understanding of what's happening in your plant can empower your decision-making around lowering CI. Indigo Ag's proprietary FieldExplorer tool enables plants to understand regenerative practice adoption in their sourcing regions and estimate carbon intensity of crops from a given field leveraging the GREET V45Z calculator. Plants can leverage this tool for an assessment to decide whether a low-CI feedstock program is the right fit, and how to optimize a program's design to maximize tax credit potential.
2. Leverage technology to comply with new market rules. Beyond the 45Z opportunity, Canada and California's low carbon fuel markets are requiring fuel producers to disclose more information about feedstocks. In Canada, rules that agricultural feedstocks are not sourced from areas with indirect land-use change or that pose a harm to wildlife are in effect now. California's rule proposes that producers will need to demonstrate feedstock traceability and land-use change history. Indigo Ag's proprietary technology seamlessly maps field boundaries, detects land-use change, and enables feedstock traceability to the farmgate. Our technology can help plants serving these markets comply with more stringent reporting requirements.
3. Start engaging your farmer-suppliers. Plants can leverage data on crops produced sustainably in 2024 to start generating credits when the rule takes effect in 2025. Engaging the farmers-suppliers from whom you're sourcing feedstocks and incentivizing them to share data can be an easy way to start.
   
   Thinking ahead about what's possible? Plants can influence what's happening in the field during the 2025 growing season to build a supply of low CI feedstocks. Incentivizing farmers to produce farmers to produce crops with practices that influence feedstock CI this spring can maximize credit potential over the course of the tax credit. Don't wait until it's too late to start engaging with your farmers.
   
   With experience engaging and collecting data from over 3,000 farmers, Indigo Ag can be your partner. Over our 6 years of sustainability program experience, we've made data collection easy and attractive for farmers to participate. They enter comprehensive data in just 30 minutes.