In the race for 45Z “Readiness” related to the Inflation Reduction Act (IRA) Clean Fuel Production Credit, Ethanol producers and commercial grain aggregators are discovering that the challenge of preparing their corn supplier network for 45Z extends beyond compliance with anticipated treasury guidance. Baseline scores are excellent starting points, and pilot projects are necessary efforts to build comfort and expertise across the supply chain, but the ability for a feedstock supply shed to reduce its local ethanol plant’s fuel Carbon Intensity (CI) likely comes down to one word: volume.
Why “Dabbling” in CI Scoring May Not Be Sufficient
Over the last +12 months of preparation for 45Z, the biofuel supply chain continues to unearth the fact that it's not just low CI scores, but the volume of bushels sourced with those scores, that will likely make or break a supply shed’s ability to move the needle for an ethanol plant’s fuel CI. The case of a hypothetical ethanol plant—which closely mirrors the current position of many plants within the incite.ag network—illustrates the complexities and the critical need for large-scale CI scoring.
A Real World Scenario
Imagine an ethanol plant with an annual production capacity of 100 million gallons. This plant is thought to be in a favorable position regarding 45Z readiness due to strong corn supplier engagement and solid baseline scores from a 45Z readiness pilot they completed. After improved process efficiencies, the plant's fuel has an average CI score of 52.5 kg/MMBtu, positioning it seemingly close to "being in the money" under the IRA's 45Z tax credit scheme, if they can dip below 50 kg/MMBtu by sourcing low CI feedstocks?.
Scenario Breakdown
Initial Condition: The plant's baseline fuel CI is 52.5 kg/MMBtu with an ethanol yield of 2.75 gallon/bu.
Local CI Scores: The plant’s 45Z readiness project revealed a weighted average local CI score of ~20 kg/MMBtu from engaged corn suppliers—a strong score indicating excellent grower data quality, willingness to share scores, and somewhat widely adopted climate smart agricultural practices.
Participation Rate: 50% of corn suppliers participate in CI scoring for the 2024 crop year (18,181,818 bushels). The remaining 50% of the corn receives a default CI score based on the GREET model’s national average.
Resulting Average Corn CI: Assuming a mass balance takes place, the weighted average CI for the corn feedstock turns out to be 25.35 kg/MMBtu. This figure emerges by averaging the low CI scores (20 kg) with a higher default score (30.7 kg).
Impact on Fuel CI: The calculations indicate that the resulting average feedstock CI of 25.35 kg/MMBtu would only reduce the plant’s fuel CI by about 5.34 kg/MMBtu (assuming improvement from a 100% GREET default Corn CI Baseline), bringing it down to an end-year score of 47.15 kg/MMBtu. This reduction is significantly less than the anticipated 10-point drop.
Financial Implications
Both the corn suppliers and executive stakeholders within this hypothetical ethanol plant scoring scenario initially expected a substantial 45Z tax credit ($0.02 per gallon per CI point revealing ~$20M in potential reduction credits) with the assumed pilot Corn CI Score average of 20 kg/mmbtu. However, due to the partial volume of bushels sourced with CI scores, some of those CI reductions were “out of the money” as the fuel CI dropped from 52.5 to the credit threshold to 50, and with a less-than-hoped-for “in the money” 2.85 drop in CI score, the actual tax credit realized is considerably lower and estimated at $5.7M
Unfortunately, a corn supplier who may have been led to believe that their 10-point-lower-than-default feedstocks were worth $.55/bu “more” to an ethanol plant (~10 point drop * 2.75 conversion ratio * $.02/gal) find out that they may only be realizing a small fraction of that value.
Lessons Learned for Maximizing CI Scoring
This scenario underscores the importance of scoring every possible bushel of feedstocks rolling across an ethanol plant’s scales, and not just a small percentage of engaged and interested corn suppliers. It also highlights a few strategic lessons that the incite.ag team and it’s customers have discovered first-hand:
Increase Scoring Coverage: Ethanol producers and grain aggregators should seek to max-out the percentage of growers participating in CI scoring. Achieving near-complete participation may likely be the difference in all parties sharing in a CI-reduction benefit, or missing out on a credit altogether.
Invest in Grower Education and Relationships: Proposed incentives get a grower’s attention, but in order to get real engagement with corn suppliers, a high degree of transparency and education in CI scoring is required to build a grower’s comfort and willingness to participate in commercial CI scoring efforts. In every scenario we’ve seen corn CI scored, the higher the investment in education and grower communication, the higher the participation rates for those growers.
Let Software Lighten the Load: Software tools are fundamentally designed to automate manual processes and allow for systems to scale with a finite amount of human resources allocated to it. Across the industry, service and software providers are developing and launching innovative tools to help commodity managers, feedstock suppliers, and engaged stakeholders to more easily engage in commercial CI scoring efforts.
The scenario outlined above vividly demonstrates that while the potential for significant CI reductions and corresponding tax credits exists, achieving these benefits in practice requires a comprehensive approach to feedstock CI scoring and management. In the ethanol industry, where "Every Bushel Matters," it's clear that partial CI scoring measures will not suffice. The biofuel supply chain must strive for extensive feedstock scoring to fully realize the environmental and economic benefits the Clean Fuel Production Credit has put within our reach.
Riley Harbaugh
General Manager, Incite.ag
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Incite.ag guides producers across the agricultural supply chain to Turn Emissions into Income. Incite.ag’s CI scoring system unlocks novel revenue streams and empowers producers to take control of their unique CI Scores. Learn more by hitting the link below or reach out to the team directly at success@incite.ag or 815.373.0177.
