DECATUR, Ill. – New guidance regarding IRS Section 45Z clean fuel production tax credits (PTCs) could trigger “explosive price action” for ethanol in 2026, according to a veteran University of Illinois farm economist and ethanol expert.

“There is a revised tax credit for biofuels from the 2022 45Z PTC,” announced Scott Irwin, the Laurence J. Norton chair of agricultural marketing for the U of I, during a live taping of WILL-FM Public Radio’s “farmdoc LIVE” program at the 2025 Farm Progress Show. “The second Trump administration has successfully and dramatically changed the rules for the 45Z tax credit. Now, probably almost every corn ethanol plant in the U.S. is going to be eligible for a 10 to 15 cent tax credit, at least, after not really getting anything since about 2011.”

Created under the Inflation Reduction Act of 2022 (IRA), the 45Z PTC was intended to incentivize the production of low-carbon transportation fuels. With the July 4 passage of the One Big Beautiful Bill Act (OBBBA), the program’s framework has shifted to align with the Trump administration’s priorities and, according to another biofuels expert, begun to show signs of stabilization.

“It now offers a longer timeline, more favorable parameters for crop-based fuels and greater clarity,” said McCord Pankonen, managing director, North America Biofuels, EcoEngineers, in a recent article he published in Biodiesel Magazine. Pankonen explained that the tax credit, originally set to expire in 2027, was extended through 2029. The new guidance, announced in late August, eliminates indirect land-use change (ILUC) penalties from carbon scoring. This is a big win for biofuels, according to Irwin.

“This puts plant-based vegetable oils in the biofuels tax credit on even footing with things like used cooking oil, tallow and animal-based oils,” he said. “There is also now a way small refineries can petition for exemptions from RVOs (recommended volume obligations). There was this incredible backlog of RVO exemption applications dating back to 2016 affecting millions of gallons of biofuels. There is now only one more domino to fall before we are set up for what I think will be an explosive price situation in 2026, and that is reallocation of the lost gallons from small to large refiners.”

American Farm Bureau Federation President Zippy Duvall commented on the EPA announcement regarding small refinery exemptions, urging the administration to take their actions a step further by issuing strong reallocation guidance: “With the proposed RFS rule increasing domestic fuel production and prioritizing home-grown crops, we urge EPA to build on this momentum in its reallocation guidance by ensuring the volume lost to exemptions is replaced,” Duvall said in a prepared statement.

Irwin estimates that there are at least 2 billion gallons of unallocated RINs (renewable identification numbers; the “currency” of renewable fuels) that will be redistributed to larger refiners when, as is expected, the administration takes this next step. “If this reallocation action comes in the next month or two, we are really setting up for the most explosive period for the RIN market and biofuels since 2012. This is a big, big deal for the ethanol industry,” he said.

Some ag groups, such as the Illinois Soybean Association, are backing away from 45Z entirely, instead promoting a return to the previous 40A “$1” tax credit. According to David Kubik, ISA biofuels and trade policy manager, the 45Z tax credit system is intended to promote waste feedstocks and dismantle the profitability of domestic soybean oil.

“Illinois soybean farmers should be aware of how the playing field tilts away from American growers in a bureaucratic LCFS policy in the rulemaking process,” Kubik warned in an Aug. 1 ISA article. “Carbon intensity-based fuel policy favors fuels using waste feedstocks, and these waste feedstocks are most often imported from other countries. Every gallon of waste, imported or domestic, used for biodiesel under these programs displace a gallon of soybean oil.”

The switch from a 40A PTC to the IRA 45Z PTC represents a 70 percent drop in biodiesel credits and an 85 percent drop in renewable diesel credits for soy, according to the ISA tax policy expert.

Ed Geils, Global and U.S. Tax Knowledge Management Leader, PwC US, explained in a recent article that a 45Z qualifying biofuels production facility is one used to produce transportation fuel for which no credit has been allowed under Section 45Q, 45V, or 48. This includes sustainable aviation fuel (SAV), the portion of a liquid fuel that is not kerosene, is sold for use in an aircraft, meets certain standards, and is not derived from palm fatty acid distillates or petroleum.

“Fuel qualifying for the credit must have a lifecycle greenhouse gas (GHG) emissions rate not greater than 50 kilograms of CO2e per mmBTU...Treasury is required to annually publish a table providing emissions rates for similar types and categories of transportation fuels. Emissions rates for nonaviation fuels must be determined based on the most recent Greenhouse gases, Regulated Emissions, and Energy use in Transportation (GREET) model developed by Argonne National Laboratory, or a successor model,” Geils stated.

For sustainable aviation fuel, emissions rates must be determined in accordance with the most recent Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) that has been adopted by the International Civil Aviation Organization with United States agreement, or through a similar methodology that satisfies the criteria of the Clean Air Act.

“The credit amount is an applicable amount per gallon or gallon equivalent multiplied by an emissions factor. The applicable amounts are 20 cents per gallon for transportation fuel that is not sustainable aviation fuel (nonaviation fuel) and 35 cents per gallon for sustainable aviation fuel, multiplied by five if the taxpayer meets prevailing wage and apprenticeship requirements or exceptions,” Geils noted.

Irwin speculated that the recent actions to adjust 45Z guidance and potentially reallocate lost RINs could eventually add 4 to 5 cents to the value of a bushel of corn.