Maximizing the 45Z Opportunity: From RECs to On-Field Practices

With new regulations recently submitted to the White House, guidance for the U.S. federal 45Z Clean Fuel Production Tax Credit (45Z) appears imminent. Pending final regulations, upstream CI reduction tactics like RECs and low CI ag feedstocks are likely to be critical for Biofuel plants seeking to lower their CI score and generate more 45Z credits.

RECs as Low Hanging Fruit 

One CI-reduction mechanism that’s been seeing strong activity is the purchase of Renewable Energy Certificates (RECs) – referred to as Energy Attribute Credits (EACs) in GREET. Each REC represents one megawatt-hour (MWh) of renewable electricity delivered to the grid.

By purchasing and retiring RECs, plants can effectively offset their grid electricity consumption and lower their CI score under 45Z. For example, a medium-sized ethanol plant consuming 60 million kWh annually can reduce its CI by almost 6 points by fully offsetting their grid electricity via qualifying RECs*.

What Makes a REC Qualify

This framework originates from proposed regulations under the 45V Clean Hydrogen Tax Credit, which established criteria for using EACs to claim emissions reductions. The 45ZCF-GREET model and instructions currently allow EAC usage when calculating CI, setting a clear precedent for REC-based reductions.

To qualify under current guidance, RECs must meet three core criteria:

• Deliverability: The electricity generator must be generated within the same broad grid region as the ethanol plant
• Temporal Matching: Electricity must be generated within the same year the 45Z credit is claimed
• Incrementality: The renewable generator must meet age and incremental supply requirements (i.e. not be a legacy asset)

RECS represent a practical, third-party-enabled way to quickly reduce CI and generate more value under 45Z.

But RECs alone can only do so much.

The Logical Next Step: On-Field Practices

RECs decarbonize the electricity that runs a plant; on-field practices decarbonize the grain that is supplied to the plant. Together they deliver the two largest controllable levers in lowering CI under 45Z in a fast, verifiable way with minimal capex.

Through verified, on-field practice changes, ethanol plants can source lower-carbon feedstocks from growers who implement practices such as:

• Reduced or no-tillage
• Cover cropping
• Nitrification inhibitors
• Optimized nutrient management

When properly measured and verified, these practices enable CI reductions at a rate of up to 3x greater than what RECs can achieve alone.

Maximize the Opportunity with RECs + On-Field Practices

Plants looking to take advantage of the on-field practices opportunity and familiar with RECs will find strong parallels between the two CI-reduction pathways:

1. Both replace high-emission inputs with certified low-carbon attributes

• A REC swaps grid electricity with renewable electricity attributes while an on-field practice-verified bushel swaps standard CI grain with a lower-emissions bushel. The utility and the field are the sources of supply in each, respective case.

2. Both require strong MRV (measurement, reporting, verification) and documentation to qualify

• RECs must be tracked, matched to plant load, and retired in a registry. On-field practices must have practices verified and data properly stored and organized in case of an audit. A proven and trusted MRV solution is absolutely critical in each case. Best case scenario, ethanol producers can go to a single provider for both.

3. Both are scalable but dependent on local conditions

• REC purchases are largely dependent on the renewable mix of the local grid region. On-field practice change availability depends on regional practice change adoption and grower economics. Geography matters in both cases.
  
  

Choosing the Right Technical Partner 

Any MRV provider working in the 45Z space should bring:

• Deep experience handing agronomic data and working directly with growers
• A strong record clear third-party audits
• Ideally: A combined REC/On-Field Practices solution that helps ethanol producers maximize their CI score
  
  

Interested in getting started? 

Reach out to Chris Malone, VP of Biofuels - cmalone@indigoag.com at Indigo Ag, for more information.

*Note: it is possible this policy may change in the upcoming proposed rulemaking for 45Z.