Grain Industry Opportunities Under 45Z

The grain industry is at a pivotal moment. Rising energy costs, evolving emissions expectations and growing demand for sustainable products are prompting companies to reassess their role within the agricultural value chain. While not direct producers of low-carbon fuels, grain industry participants influence the carbon profile of fuel feedstocks through farming practices, handling, storage and logistics.

For businesses seeking to remain competitive while advancing decarbonization, the Inflation Reduction Act (IRA) presents new opportunities across the supply chain. Among its provisions, the Section 45Z clean fuel production tax credit is driving demand for lower-emission feedstocks and reinforcing the importance of upstream practices in fuel eligibility.

Recent proposed regulations from the U.S. Department of the Treasury and the Internal Revenue Service (IRS) provide added clarity on eligibility, emissions calculations and certification requirements. These updates offer greater certainty in how the credit is applied and strengthen the framework for documenting and verifying emissions across the supply chain.

How the Section 45Z Credit Works

The Section 45Z clean fuel production tax credit rewards producers based on the lifecycle carbon intensity of their fuels. Although the credit is claimed by fuel producers, its value is closely tied to the emissions profile of the feedstocks used, creating demand for lower-emission agricultural inputs across the supply chain.

To claim the credit, eligible producers must register with the IRS and comply with documentation and reporting requirements. The credit applies to fuels produced after Dec. 31, 2024, and sold by Dec. 31, 2029.

As part of the General Business Credit under the Internal Revenue Code (IRC), the credit is reported using IRS Form 3800. Supporting documentation, including production data, emissions calculations and certification standards, is required to substantiate eligibility and credit value.

Who Qualifies for the Section 45Z Credit

Eligibility depends on the type of fuel produced and the associated lifecycle emissions. The credit is available to fuels that demonstrate lower emissions than conventional fossil fuels.

Eligible fuels fall into several broad categories:

• Biofuels: Derived from biological sources such as plant oils, sugars or algae. Ethanol and biodiesel are the most common examples.
• Renewable Diesel: A direct substitute for petroleum diesel made from plant oils, used cooking oils or animal fats.
• Sustainable Aviation Fuel: A lower-emission alternative to conventional jet fuel produced from renewable or waste-based materials.

While eligibility is determined at the fuel level, emissions performance is heavily influenced by feedstock sourcing and upstream practices.

The Value of Section 45Z Credits

Credit value is tied directly to lifecycle emissions reductions. Producers that achieve lower carbon intensity scores can qualify for higher credit values, generally ranging from $0.50 to $1.75 per gallon depending on emissions performance.

Scale also influences total credit value. Larger facilities can generate greater aggregate credits, with high-output operations potentially exceeding $1 million. Increased production can also improve efficiency by spreading fixed costs across greater volumes.

These incentives extend upstream. Grain companies that demonstrate lower-emission feedstocks may benefit from preferred supplier relationships, price premiums, and long-term contracts with fuel producers seeking to maximize credit value, alongside growing demand for low-carbon grain.

Common Grain and Feedstock Pathways for Support

Grain industry participants play a key role in supplying feedstocks that influence fuel emissions outcomes across the value chain. The following feedstocks represent common pathways for contributing to low-carbon fuel production:

• Corn: The primary feedstock for ethanol in the U.S. Emissions can be reduced through improved fertilizer efficiency, reduced tillage, precision agriculture and renewable energy use in processing.
• Wheat: Used in ethanol production in select regions, with emissions influenced by farming practices and handling efficiency.
• Barley: A secondary grain feedstock used in limited ethanol applications.
• Soybeans: A major oilseed used for biodiesel and renewable diesel, with performance influenced by yield efficiency and input management.
• Canola: A high-oil-content crop commonly used in renewable diesel production, offering strong yields and favorable emissions profiles under efficient systems.
• Sugarcane: A high-yield ethanol feedstock often associated with relatively low emissions, particularly where processing facilities utilize byproducts such as bagasse for energy.
• Cellulosic and Residue Feedstocks: Agricultural residues, forestry materials and dedicated energy crops that avoid competition with food production and can significantly reduce emissions.
• Waste-Based Feedstocks: Materials such as used cooking oil, animal fats and food processing byproducts that typically offer the lowest emissions profiles.

Emissions outcomes vary by feedstock and production method. Conventional corn ethanol typically reduces emissions by approximately 20–30% compared to gasoline, while cellulosic pathways can achieve reductions of 50–90%.

Low-Carbon Feedstock Supply Chains

Unlocking value from Section 45Z depends on improving emissions performance before commodities reach processing facilities. This requires coordinated efforts across production, handling and logistics.

Approaches include adopting climate-smart agriculture practices such as reduced tillage, cover cropping, precision nutrient management and optimized fertilizer use. They also involve improvements in grain handling and storage through energy-efficient drying systems, enhanced elevator operations and reduced spoilage. Optimizing transportation through streamlined logistics and improved fuel efficiency across transport networks further reduces emissions.

Operational efficiency also plays a role. Investments in energy-efficient infrastructure, such as upgraded equipment for drying, aeration and handling, can reduce energy use. Data and traceability systems support tracking grain origin, farming practices and emissions data, while loss reduction helps minimize inefficiencies during storage and transport.

Together, these practices directly influence emissions calculations used by downstream fuel producers.

Long-Term Strategies for Carbon Intensity Reduction

Sustained progress requires long-term investment and coordination across the supply chain. For the grain industry, this extends beyond day-to-day operations to broader, system-level efforts that address emissions from field to first point of delivery.

Feedstock selection is a top priority, incorporating lower-emission inputs where feasible, and on-farm emissions reduction, supporting practices that reduce nitrous oxide emissions and enhance soil carbon. Additional focus areas consist of supply chain transparency, improving visibility across sourcing and logistics, and life-cycle assessments, which quantify emissions across production and distribution.

Collaborative Approaches to Decarbonization

Collaboration with biofuel producers, agronomic advisors, technology providers and sustainability programs is essential. These partnerships support the measurement, implementation and verification of emissions reductions, while also providing access to data platforms, agronomic expertise and emerging technologies needed to meet evolving program requirements.

Companies that demonstrate verifiable low-emission supply chains can strengthen relationships with buyers, improve transparency and position themselves as preferred partners in low-carbon fuel markets. This can lead to greater access to long-term contracts, participation in sustainability programs and enhanced resilience as demand for lower-carbon feedstocks continues to grow.

Navigating Compliance and Documentation Requirements

Section 45Z requires robust documentation and compliance. The IRS administers the credit, supported by lifecycle emissions methodologies, informed in part by the Environmental Protection Agency (EPA) frameworks.

Although grain companies do not claim the credit directly, their data supports downstream eligibility. The following are some requirements:

• Feedstock Documentation: Records of origin, practices and inputs.
• Emissions Data Tracking: Information related to handling and transport.
• Supporting Documentation: Materials for fuel producer registration and tax filings.

Third-party verification may be required to confirm emissions data.

Conclusion: The Grain Industry and Section 45Z

The Section 45Z tax credit offers a combination of financial incentives, operational improvement and sustainability benefits across the entire grain value chain, not just in processing or fuel production.

By supplying verifiably lower-emission feedstocks and investing in efficient, transparent operations, grain industry participants can strengthen their market position and capture emerging opportunities tied to carbon performance.

Companies that align with these trends can contribute to decarbonization efforts while reinforcing the role of upstream agriculture in the transition to low-carbon fuels.

Christine is a seasoned writer with over 20 years of experience in FDA-regulated industries, where she has honed the ability to communicate complex data to regulatory and scientific audiences. With a background in English and Research Administration, she is dedicated to making technical content both clear and engaging. She is excited to connect with new readers in the grain handling and processing community, providing valuable insights on industry developments. She also holds a deep appreciation for her agricultural heritage, rooted in family farming on the coast of Lake Superior.