Three of the largest ethanol-producing companies in the United States recently announced plans to increase their corn-based ethanol production and add carbon capture and sequestration (CCS) capabilities at their facilities.
Scott H. Irwin, the Laurence J. Norton chair of agricultural marketing at the University of Illinois Urbana-Champaign, told Processing Journal that he expects there will be more expansion in the corn-based ethanol sector announced soon because of the 45Z Clean Fuel Production Credit, which will provide qualifying biofuel producers with lucrative tax credits they can use or sell.
“There is a very straightforward explanation about why the expansion is happening and why it will increase: 45Z tax credits,” Irwin said. “We haven’t had production expansions in the ethanol industry in 10 years, but we are going to have a mini boom in ethanol production because of the 45Z credit. It is one of the most underappreciated and below-the-radar issues in U.S. agriculture right now.”
A long-awaited update of the rules governing the biofuel production tax credit was announced February 3 by the Treasury Department and the Internal Revenue Service. The tax credit was originally contained in the Inflation Reduction Act of 2022. The rules announced Feb. 3 implement changes made to the original legislation by the so-called “One Big Beautiful Bill” passed in 2025. The update also extended the credit through 2029.
Tax credit to fuel expansion
Irwin, who is recognized as a leading authority on biofuels markets and policy, said the tax credit will fuel an expansion in ethanol production that is happening faster than he thought would occur as recently as last fall.
“The real measure of just how lucrative the 45Z tax credit will be is how fast the ethanol expansions have been announced,” he said. “Last fall, I was talking about how this expansion would eventually happen, but I never expected it to happen this quickly. That just goes to show how lucrative the tax credit will be. When I talk to people in the ethanol industry, everyone is talking about it.”
This year, Irwin estimates that 45Z will provide $1.5 billion to the ethanol industry, with the average ethanol plant generating 11 cents per gallon of ethanol produced because of the tax credit. The more carbon that a plant can sequester, the lower its carbon intensity score will be, and the more money the ethanol plant can receive from the 45Z tax credit.
Irwin noted that the average return for an ethanol plant from 2007 through 2025 was 11 cents a gallon for every gallon sold. That means the 45Z tax credit will double that return. “It’s not hard to see why an ethanol plant would want to expand.”
Irwin said that a rough estimate shows that if a plant can reduce its carbon intensity score by injecting the carbon dioxide it produces into an ethanol pipeline or by burying the carbon dioxide underground with onsite sequestration, an ethanol plant could increase the 45Z tax credit it receives by 50 to 60 cents a gallon.“It’s not magic. By taking advantage of 45Z, almost everybody can make 11 cents a gallon. But if you are a 200-million-gallon-a-year plant that is sequestering carbon and getting 60 cents a gallon from 45Z, that’s $120 million a year. It’s huge.”
If a plant can’t take advantage of the 45Z tax credits, they are tradable and can be sold to someone else, he added, another benefit bestowed by the legislation.
Ethanol industry applauds
Ethanol industry leaders applauded the updates provided by the Treasury and IRS but said more needs to be done.
Brian Jennings, CEO of the American Coalition for Ethanol, said he was grateful that the proposed rule provides ethanol producers and others with more certainty and answers about how to claim the 45Z credit going forward, but he is looking forward to additional clarity on how ethanol producers can monetize low-carbon farming practices through the tax credit.
“Since ag-based feedstocks represent about half of ethanol’s carbon intensity, ethanol producers need to have the opportunity to monetize low-carbon feedstocks to fully unlock the value of 45Z.”
Three ethanol production companies that recently announced plans to expand their plants and tap into carbon capture and sequestration projects are featured in this edition of Processing Journal.