By ASA Chief Economist Scott Gerlt, PhD and ASA Sr. Economist Omid Karami, PhD

Since 2004, the U.S. government has put its money where the fuel tank is, and it has implemented policies such as the Biodiesel Blenders' Tax Credit (BTC) to reward the production biofuels. The rationale is straightforward: biofuels can displace petroleum and trim greenhouse gas emissions, so the production of biofuels deserves a policy nudge. The BTC provided $1.00 per gallon to blenders of biofuels for almost 20 years, but the climate benefit of a biofuel is not guaranteed. It depends on how the crop was grown and how its low-carbon story survives the trip from farm to fuel pump. To ensure the environmental benefits of biofuel production, the Clean Fuel Production Credit was signed into law on Aug.16, 2022, as part of the Inflation Reduction Act. The law replaced the flat $1.00-per-gallon in BTC policy with a value tied to the Carbon Intensity[1] (CI) of the fuel beginning in 2025. To translate that policy into actual CI scores, Treasury adapted the 45ZCF-GREET model (hereafter 45Z model) developed by Argonne National Laboratory. Because that model does not account for farm-level practices, USDA partnered with Argonne National Laboratory to build a companion tool, the Feedstock CI Calculator (FD-CIC). It estimates the on-farm emissions of producing given feedstock and credits growers for practices that fall below the national average. Together, the two models determine how much credit a gallon of biofuel, and potentially the crop behind it, can earn. The background for the first iteration of 45Z in the Inflation Reduction Act can be found here.

The tax credit enacted in the Inflation Reduction Act was modified in two important ways in the One Big Beautiful Bill Act, also known as the Working Families Tax Cut Act (WFTC), on July 4, 2025. Besides the removal of a $1.00 flat rate credit and considering CI as a criteria, WFTC had two more changes. First, feedstock eligibility was changed to more closely match biofuel eligibility. The 45Z tax credit is only available for domestically produced biofuels, but originally, feedstock from anywhere could be used. The WFTC revised that provision so only feedstocks sourced from the U.S., Mexico, or Canada could be used to claim the credit. Second, indirect land use change (ILUC) penalties were removed from the CI calculations for agricultural feedstocks. ILUC attempts to account for economically induced environmental effects. It is difficult to measure and has little consensus around the actual levels. In practice, ILUC has induced imports of feedstocks with very questionable environmental benefits. The new 45Z model is the first look at how much removing emissions due to ILUC improves the crediting for biofuel crops.

There are still two steps remaining for 45Z to be finalized: the Department of Energy (DOE) needs to incorporate USDA’s FD-CIC into 45Z, and then the Treasury Department should finalize the rules. While the Treasury Department has not issued final guidance, 45Z and FD-CIC models which are critical to determining the CI score of biofuels have been updated. In this article, we examine the CI scores and potential credits produced by the latest models. Our results should be read as a current best estimate rather than a settled figure because both models remain subject to finalization.

Comparing the Original and Updated 45Z Clean Fuel Production Credit

Both the original and updated 45Z credit prohibits CI values below zero for most fuels and is based upon $1.00 minus $0.02 for every CI point. Feedstocks with CI scores above 50 kg CO₂e/mmBTU are ineligible for the credit. The value scales linearly and inversely with the CI score produced by the 45Z model. Therefore, any CI reductions translate mechanically into higher credits. The credits should be adjusted for inflation compared to the base year of 2022[2]. They should also be rounded to the nearest $0.10 before the inflation factor is applied. As a result, the incremental value of reducing the CI score is either a multiple of $0.10 before adjusting for inflation or nothing.

As mentioned before, the decisive methodological change embedded in the updated model is the removal of the ILUC penalty, since the update incorporates provisions from the WFTC. Table 1 and Table 2 provide the CI score and potential credits for different types of biofuels by feedstock. Note that the 45Z credit is biofuel plant specific and the values reported below are based upon default and industry average numbers. Specific biofuel plants will differ from our results. The CI of soybean-based RD declined markedly from 42.60 to 26.36 kg CO₂e/MMBtu, a reduction of approximately 38%, and the associated credit rose fivefold from $0.11 to $0.55 per gallon. The biodiesel pathway follows the same trajectory with comparable force: the CI fell from 33.70 to 20.23, an improvement of roughly 40%, while the credit doubled from $0.33 to $0.66 per gallon. This paired movement – a large CI reduction accompanied by a substantial credit increase – is the signature effect of ILUC removal.

The updated model elevates soybean oil from a marginally credit-positive feedstock into one of the best crop biofuels in terms of CI scores. With ILUC removed, U.S. soybean oil for RD now carries a CI score of 26.36, with a corresponding 45Z credit of 55 cents per gallon, compressing the distance between soybean oil and tallow, used cooking oil (UCO), and distillers corn oil (DCO).

Similar results are obtained for canola. Canola emerges from a non-qualified baseline into positive territory, though its elevated absolute CI keeps it a tier below soybeans. One main reason that soybeans have a higher environmental benefit compared to canola is the lower demand for nitrogen from the former. On average, 50-60% of soybean nitrogen demand comes from biological nitrogen fixation[3].

Table 1. Carbon Intensity for Renewable Diesel (RD) and Biodiesel (BD) by feedstock under GREET 2025 and 2026 (kg CO₂e/mmBTU)

Table 2. Potential 45Z Renewable Diesel (RD) and Biodiesel (BD) Credits by Feedstock ($/Gallon) with 2026 Inflation Adjustment

The two cover-crop feedstocks (winter camelina and winter pennycress) permit a direct, fully scored comparison across both model years in both pathways. In the RD pathway, the two crops diverge from the outset: winter camelina carried a 2025 model CI of 51.30 kg CO₂e/MMBtu, while winter pennycress began substantially lower at 36.40. Under the 2026 model, winter camelina falls modestly to 45.19 (a reduction of roughly 12%), whereas winter pennycress declines only marginally to 35.18 (a reduction of roughly three percent), reflecting the fact that pennycress already sat near its revised level. The corresponding RD credits behave consistently with these starting positions: winter camelina, whose elevated CI left it below the crediting threshold in original model, moves from $0.00 to $0.11 per gallon of renewable diesel, while winter pennycress holds steady at $0.33 per gallon across both models. Similar outcomes occur for BD from the winter crops. Off-season crops were deemed to have no ILUC penalty at the outset. The removal of that penalty therefore confers no benefit for them. While soybean's BD credit doubled and its RD credit rose fivefold, camelina and pennycress advanced only marginally or held steady. It puts them in the lowest crop-feedstock credit tier among the pathways considered.

The waste-derived feedstocks exhibit near-complete stability in both CI and credit terms. UCO and tallow hold CI values near 20 kg CO₂e/MMBtu in both models, declining only slightly to approximately 19 kg CO₂e/MMBtu in updated model, and their credits remain fixed at $0.66 per gallon across both pathways and both model years. Distillers corn oil (DCO) is similarly invariant, retaining credits of $0.76 per gallon in RD and $0.87 per gallon in BD. Because these feedstocks never bore an ILUC penalty, their stability under the 2026 model isolates ILUC removal as the operative driver of change among the crop pathways. The gap between oilseed crops and waste-based feedstocks narrows under the revised framework.

Regenerative Ag Incentives

The 45Z model does not specifically include the ability to reduce the biofuel CI through regenerative agricultural practices. Instead, USDA worked with Argonne National Labs (the research lab behind the GREET model) to create a version of its FD-CIC for 45Z. The resulting model calculates the emission reductions from the feedstocks produced on a farm and compares it to the national average emission rate for the feedstock. Current crops in the model are soybeans, corn, canola, and sorghum.

Multiple practices can be utilized in the FD-CIC to lower the CI score of crops. These include cover crops, reduced till, no-till, nitrification inhibitors, and manure applications. Synthetic nitrogen application is a required input into the model, and the level affects the score of the crop with lower rates reducing CI.

The results are dependent on the county selected as local soil conditions and weather are taken into account. The county-specific results are compared to the national average CI for the crop. This means that a crop in a specific county will likely have a CI different than the national average even if using assumptions consistent with the national average. It also translates into different effects from adopting regenerative ag practices across locations.

The FD-CIC and 45Z models were used to determine potential premiums to farmers from using regenerative ag practices. Quite a few assumptions and caveats were required for these estimates:

• Guidance on how FD-CIC results will be incorporated into GREET has not been provided. Our analysis reduced the 45Z primary feedstock emissions by the reduction rate in FD-CIC for the farm CI score compared to the national average.
• The 45Z formula rounds the credit value to the nearest $0.10 before the inflation factor is applied. As a result, the marginal credit value is often nothing but could be about $0.11 per gallon. Our analysis below ignores the rounding.
• Traceability rules for regenerative agriculture crediting require that everyone in the supply chain for the crop participate in the program. Our analysis assumes that all farmers will be able to participate. However, the reality is this option will only be available to farmers whose soybean oil supplies a biofuel plant and if the crush plant also participates in the recordkeeping.
• The rules for claiming CI reductions through regenerative agriculture practices require the crop to be in the supply chain of the biofuel facility. As such, certain regions are unlikely to be able to participate even if they can achieve CI reductions. The maps below show where the biomass-based diesel facilities are for context.
• Our analysis assumes the average nitrogen use efficiency for soybeans and no inhibitors. It also does not consider CI reductions through manure applications.
• The 45Z tax credit goes to the biofuel producer, not the farmer. As such, it is unlikely 100% of credit will work on its way back to the farm gate. Our results below assume that it does in the form of a premium for soybeans. This should be treated as the maximum potential, not the likely outcome.

Figure 1: Potential 45Z Regenerative Agricultural Premium for Soybeans from Reduced Tillage

Figure 2: Potential 45Z Regenerative Agricultural Premium for Soybeans from No-Till

Figure 3: Potential 45Z Regenerative Agricultural Premium for Soybeans from Cover Crops

Figure 4: Potential 45Z Regenerative Agricultural Premium for Soybeans from Cover Crops Plus No-Till

Figure 1 through Figure 4 show the results in terms of premium per bushel of soy under the assumptions outlined above. The blue dots on the charts are biomass-based diesel plants. Reduced tillage provides little premium for soybeans, with almost the entire country earning less than $0.10 per bushel. No-till provides quite a bit more in tax credits with much of the country receiving a per bushel equivalent of at least $0.10 per bushel of additional credit. Much of Minnesota and Wisconsin as well as the Delta region achieve at least $0.20 per bushel. Parts of the Northeast top at over $0.40 per bushel with no-till.

Cover crops generate credits of at least $0.10 per bushel equivalent in the southern half of the soybean growing region as well as the Northeast portion of the country. Portions of the Southeast top $0.20 per bushel. However, this portion of the country tends to produce less soy and has few BBD plants. As a result, it is unlikely that cover crops as a standalone practice will generate many 45Z credits for soybeans.

The FD-CIC allows practices to be stacked, though. Combining cover crops with no-till provides substantially more benefits. Nearly the entire portion of the country that grows soybeans generates at least $0.10 per bushel equivalent to the combination of the practices with some counties topping $0.50 per bushel. Much of the primary soybean growing region generates with equivalent of $0.30 to $0.40 per bushel equivalent of 45Z credits.

Narrowing the credit-cost squeeze

In practice, the crediting is at the field level. The FD-CIC tool allows a custom CI reduction score for each field. Farmers must maintain all sales records for the crop to demonstrate that the sales of low CI crops do not exceed the production of the crops.

USDA has published rules for qualification, recordkeeping, and reporting of the practices. Interested readers are encouraged to consult the documentation. Farmers considering participation should weigh not only the cost of the regenerative ag practice but also the time spent on demonstrating compliance.

Even so, the 45Z credit allows farmers an extra option for monetizing regenerative practices on their farm, including practices already adopted. The update in the GREET model helped level the playing field for the biofuel tax credit between soybeans and competing feedstocks. All these changes are positive for soybean demand and help support the value.

Conclusion

The updated 45Z GREET 2026 model marks a turning point for soybean growers navigating the 45Z Clean Fuel Production Credit. By removing the ILUC penalty, the revised framework transforms soybean oil from a marginal feedstock into a robustly credit-positive one, quintupling its renewable diesel credit and doubling its biodiesel credit. Soybean oil now sits just behind the waste-derived feedstocks that have long dominated the crediting hierarchy, and canola similarly moves from a non-qualified baseline into positive territory. The changes have narrowed the gap between soybeans on one side and winter crops and waste feedstocks on another side. These figures precede integration of the finalized USDA farm-level practice adjustments into 45Z, which can lower crop-feedstock CI further.

Layered on top of these baseline gains, regenerative agricultural practices offer farmers an additional path to monetize lower CI. The most substantial premiums come not from any single practice but from stacking them: combining no-till with cover crops can generate the equivalent of $0.30 to $0.40 per bushel across much of the primary growing region and more in select counties. Standalone practices like reduced tillage deliver little, and geographic realities – proximity to biomass-based diesel plants and the traceability requirements running through the entire supply chain – mean these opportunities will not be uniformly available.

The GREET update levels the playing field between soybeans and competing feedstocks, while the regenerative ag provisions give farmers an added tool for capturing value from practices they may already employ. Farmers will need to weigh the cost of adopting and documenting these practices against the potential premiums at the field level. But taken together, these changes strengthen soybean demand and support the crop's value – a welcome development for U.S. growers who have waited months for this clarity.

Several assumptions have been made, and the results are subject to changes if there are any updates to the policies. Department of Energy (DOE) should include FD-CIC into 45Z model and final Treasury Department guidance remains outstanding, which makes the inflation adjustment factor and other parameters pending. Notably, the credits are provided to the biofuel producer rather than the farmer directly, so the extent to which it reaches the farm gate depends on market dynamics. The premium estimates presented here should be read as a ceiling rather than a likely outcome. Even with these qualifications, it is a clear and favorable direction for the soybean industry.

[1] Carbon Intensity is a measure of the amount of greenhouse gas emissions released per unit of economic output, activity, or energy consumed/produced.

[2] The 45Z inflation factor for 2025 is 1.0611 obtained from here: IRB 2025-30 (Rev. 7-21-2025). For 2026, it has not been published yet. We estimate the 2026 inflation adjustment factor to be 1.0928 and use that rate for this analysis.

[3] F. Salvagiotti, K.G. Cassman, J.E. Specht, D.T. Walters, A. Weiss, A. Dobermann, Nitrogen uptake, fixation and response to fertilizer N in soybeans: A review, Field Crops Research, Volume 108, Issue 1, 2008, Pages 1-13, ISSN 0378-4290, https://doi.org/10.1016/j.fcr.2008.03.001