A recent University of Illinois farmdoc daily analysis provides a useful look at one of the harder questions surrounding 45Z: if a farmer lowers the carbon intensity of corn, how much economic value could that actually create?
Zhangliang Chen, Jonathan Coppess, and Kaiyu Guan used the USDA FD-CIC calculator to model cover crop adoption across Illinois counties. Their Champaign County example assumes a 220 bu/ac corn yield and converts the resulting feedstock CI reduction into the fuel-energy units used for 45Z.
Under the authors' middle set of assumptions, the estimated value is about $98.80 per acre. Across Illinois counties and the scenarios they tested, however, the calculated value ranges from $0 to $243 per acre.
That range is important because most of the variation does not come from the farming practice itself.
The biofuel facility matters as much as the farm
FD-CIC calculates the carbon intensity associated with producing the feedstock. But the 45Z credit is ultimately calculated at the fuel-production level, where the feedstock CI becomes only one component of the fuel's overall carbon intensity.
To illustrate that effect, the farmdoc analysis tests three assumptions for the emissions occurring outside of feedstock production: 15, 20, and 25 kg CO₂e/MMBtu.
Those assumptions materially change the value attributed to the same reduction in corn CI.
In practical terms, two farmers could produce corn with the same FD-CIC score and create very different 45Z value depending on where that corn is ultimately processed. Transportation, ethanol production efficiency, energy sources, and other facility-level emissions all affect the final fuel CI.
That distinction is easy to miss when looking at a per-acre number.
A farmer can determine much of the information needed to calculate an FD-CIC score. The farmer generally cannot determine the final 45Z value independently because part of that calculation depends on the biofuel facility purchasing the grain.
Credit value is not the same as a farmer premium
The farmdoc estimates should also not be interpreted as expected farmer payments.
The 45Z production credit belongs to the qualifying fuel producer. A reduction in feedstock CI may increase the producer's tax credit, but there is no automatic requirement that an equivalent amount be paid back to the farmer supplying the grain.
How much of that value reaches the farm will depend on the commercial structure of the low-CI feedstock program.
For example, a grain buyer could offer a fixed per-acre practice payment, a per-bushel premium, a payment linked to the verified CI reduction, or potentially some share of the economic value created for the biofuel facility. Those structures can produce very different outcomes even when the underlying FD-CIC score is identical.
That is why we recommend evaluating the economics of the purchasing program separately from the theoretical value generated under 45Z. Our due diligence checklist covers several of the questions that should be answered before entering one of these programs.
How to use the farmdoc numbers
The Illinois analysis is most useful as an illustration of the potential value associated with lower-CI feedstocks rather than as a prediction of what an individual farmer will receive.
Before treating a $50, $100, or $200-per-acre estimate as an expected payment, a farmer should understand three things:
Where is the grain going? The CI of the biofuel facility can materially affect the value created by reducing feedstock emissions.
How is the farmer being paid? A fixed practice payment is economically very different from a payment tied to bushels, CI reductions, or realized 45Z value.
What documentation will the buyer require? A favorable FD-CIC calculation only becomes commercially useful if the grain can satisfy the applicable eligibility, traceability, recordkeeping, and verification requirements for the purchasing program.
The farmdoc analysis therefore highlights something that will become increasingly important as 45Z-linked grain programs develop: an FD-CIC score tells a farmer how the feedstock performs, but it does not by itself tell the farmer what that performance is worth.
For a broader explanation of how the credit works, see 45Z for farmers.