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FRIDAY, SEPTEMBER 18, 2026   |   SPECIAL REPORT & ANALYSIS

SPECIAL REPORT  |  BIOFUELS, 45Z & THE RFS

Beyond RINs: 45Z, Carbon Scores and Trade Redraw the Biofuels Market

Tax credits, SAF demand and EPA rules reshape margins and agricultural demand

Analysis  ·  September 18, 2026

Policy status as of Sept. 18, 2026. Economic examples are illustrative.

The biofuels business is entering a more differentiated phase: producing an eligible gallon remains essential, but the value of that gallon increasingly depends on its carbon intensity, feedstock origin, destination and documentation. The IRS’ Sept. 8 guidance on the 45Z Clean Fuel Production Credit and DOE’s September modeling update bring farm practices more directly into that calculation. Meanwhile, EPA’s larger 2026–27 Renewable Fuel Standard requirements support demand while refinery exemptions and prospective trade restrictions complicate the outlook. IRS guidance, DOE model resources, EPA final standards.

The central commercial implication is that stronger biofuel demand does not guarantee stronger producer margins. Tax benefits can be competed into feedstock prices, passed to fuel buyers or offset by weaker credit markets. The best-positioned businesses will combine competitive operating costs with verifiable carbon reductions, reliable logistics and contracts that preserve their share of the resulting value.

Three revenue streams, three sets of rules

RINs, tax credits and carbon premiums pay for different things. Renewable Identification Numbers (RINs) are the tradable instruments used to demonstrate RFS compliance. The 45Z credit accrues to a qualifying domestic fuel producer. State low-carbon fuel programs reward qualifying emissions performance in their markets, while aviation buyers may pay additional premiums for qualifying SAF and associated environmental attributes. These revenues can interact, but their eligibility rules and ownership are separate. EPA RIN overview, IRS credit overview, California LCFS.

Table 1. What each value component pays for. Source: article analysis of EPA, IRS and CARB program rules.

For project evaluation, the relevant calculation is the fuel-and-coproduct margin plus incentives the business actually retains, less feedstock, operating, logistics, verification and financing costs. A quoted fuel price may already include RIN or environmental value; adding those components again overstates profitability.

45Z: who qualifies, and for how much

45Z changes the ranking of projects — and the rules have changed since the credit was created. The credit now covers qualifying domestic fuel produced beginning in 2025 and sold through Dec. 31, 2029. For fuel produced after 2025, eligible feedstocks must be produced or grown in the United States, Canada or Mexico. Fuel production itself must occur in the United States; importing finished Canadian fuel does not make its producer eligible for U.S. 45Z. IRS eligibility requirements.

For production after 2025, SAF and other eligible transportation fuels share the same statutory applicable amounts: $1 per gallon or gallon equivalent when the applicable prevailing-wage and apprenticeship requirements are satisfied, or 20 cents otherwise, before inflation adjustments. Those amounts are multiplied by an emissions factor. The former $1.75 SAF amount no longer applies to new 2026 production. Treasury’s February implementing regulations remain proposed in the latest IRS status update. Proposed regulations, IRS September update.

The law also excludes indirect land-use-change emissions from the 45Z calculation for production after 2025 and generally floors emissions rates at zero, with an exception for animal-manure-derived fuels. Removing a modeled land-use charge can improve a crop-based fuel’s tax economics without a corresponding physical change at the plant. That is a policy-driven improvement in the credit calculation, which should be distinguished from an actual operating emissions reduction. IRS Notice 2026-53.

Carbon intensity now carries a dollar value

Carbon intensity now has a measurable dollar value. For an eligible fuel, the emissions factor is calculated as (50 − emissions rate) ÷ 50, then rounded to the nearest tenth. The emissions rate uses kilograms of carbon-dioxide equivalent per million British thermal units—not the grams-per-megajoule units often used in other carbon markets. Scores must also use the correct program methodology. IRS calculation instructions.

Using the $1 statutory amount before inflation adjustments illustrates the relationship:

Table 2. Illustrative 45Z credit per gallon at the $1 statutory amount, before inflation adjustment. Source: IRS Form 7218 instructions; calculated examples.

These are calculated examples, not quoted 2026 credit rates. Actual claims reflect inflation adjustments and all eligibility requirements. At 100 million qualifying gallons annually, moving from 30 to 20 in this example increases gross credit value by $20 million. That provides a budget against which to compare cleaner energy, carbon capture or feedstock premiums. Rounding means smaller improvements can produce stepped rather than perfectly smooth changes in the credit.

Figure 1. Illustrative 45Z credit per gallon versus approved emissions rate; rounding to the nearest tenth produces stepped changes. Source: IRS Form 7218 instructions and Notice 2026-53; calculated examples.

The investment question is how much of that $20 million remains after the cost of achieving, verifying and financing the reduction. A project can improve its carbon score while reducing its return on invested capital if it pays too much for the improvement.

Feedstock inflation can absorb the benefit quickly. In an illustrative renewable-diesel operation using eight pounds of feedstock per gallon, a 2.5-cent-per-pound increase costs 20 cents per gallon—equal to the credit improvement above before other effects. This is why a successful RIN hedge can leave a producer exposed to a deteriorating overall margin. The eight-pound assumption is consistent with a University of Illinois benchmark, although actual yields vary. Farmdoc analysis.

Farm practices, documentation and farmer payments

Farm practices can influence fuel economics, but farmer payments depend on contracts. DOE’s September model incorporates qualifying practices for U.S.-grown corn, sorghum, soybeans and canola, including cover crops, tillage practices, nitrification inhibitors and manure application. It allocates the modeled agricultural emissions reductions entirely to ethanol in the relevant corn and sorghum pathways, while allocating oilseed reductions between oil and meal by mass. The same farm-level change therefore need not have the same value in different processing chains. DOE September model manual.

The latest IRS notice provides transition relief from certain advance nutrient-budget requirements for 2025 and 2026 production, while retaining substantiation requirements. It also addresses farm-specific manure-management histories. These provisions make records commercially relevant: unsupported practices cannot safely be priced as established tax benefits. Notice 2026-53.

A farmer’s return will depend on the premium negotiated with the elevator, processor or fuel producer. Useful terms include the baseline score, accepted practices, documentation costs, ownership of data and environmental attributes, payment timing, and responsibility if a claimed reduction is rejected. A stated premium should also be compared with extra hauling, segregation and agronomic costs.

For grain handlers, this creates an opportunity to aggregate documented supply. It also creates basis differences: a bushel delivered to a plant able to monetize its verified characteristics may be worth more than an otherwise identical bushel delivered elsewhere. That value is likely to be uneven across regions and buyers.

Manure RNG: the only negative scores in the program

Livestock manure is now the most valuable feedstock in the 45Z table, and by a wide margin. Every other fuel’s emissions rate is floored at zero, which caps the emissions factor at 1.0 and the credit at the statutory $1 per gallon-equivalent before inflation adjustment. Fuel derived from animal manure is the lone exception: its score may fall below zero, and the credit scales up without limit. The September model and the Sept. 8 notice provide that treatment for two feedstocks, dairy manure and swine manure, produced through anaerobic digestion and upgraded to renewable natural gas. The IRS says it expects to add poultry and beef manure in a later model update this year and is advising those producers to wait rather than pursue provisional rates. Until then, hog and dairy digesters hold the only negative-CI franchise in the program. IRS Notice 2026-53, DOE September model manual.

The arithmetic explains why the premium is so large. At an approved rate of -75 kg CO₂e/MMBtu, the emissions factor is (50 + 75) ÷ 50, or 2.5, which produces $2.50 per gallon-equivalent before inflation adjustment; one industry analysis translates that dairy example to roughly $2.60 after adjustment, or about $20 per MMBtu. A deeper score, such as -100, yields $3.00 (see Figure 6). The notice also lets a producer substitute the farm’s actual prior manure management, an uncovered lagoon or deep pit, for a national-average baseline, which is what drives scores that far below zero. Farms that begin operating after Sept. 8, 2026, cannot use that farm-specific baseline, a guardrail against building high-emitting systems in order to claim credit for cleaning them up. Crux analysis of the 45ZCF-GREET update.

Figure 6. Illustrative 45Z credit per gallon-equivalent at the $1 statutory amount, before inflation adjustment; only animal-manure fuels may score below zero. Source: IRS Notice 2026-53 and Form 7218 instructions; calculated examples.

That credit sits atop an already rich stack. Manure RNG generates cellulosic D3 RINs and, when delivered to California or other state programs, low-carbon-fuel credits. One published dairy-RNG analysis puts the combined value of gas, D3 RINs and LCFS credits at $60 to $90 per MMBtu against a commodity gas price near $3, or roughly 20 to 30 times Henry Hub, before 45Z is added. An estimate circulating in the pork industry this week puts the all-in premium for swine RNG at as much as 40 times Henry Hub. That figure is unconfirmed and should be treated as an industry estimate rather than a market quotation, but the direction is not in dispute: the program has turned a waste-disposal liability into one of the highest-value molecules in the fuel market. Dairy RNG project analysis.

Who captures it is the question worth watching. Most hog and dairy digesters are developer-owned, with the farm supplying manure under a 15- to 25-year contract while the developer retains the RINs, state credits and now the 45Z claim. Private equity moved into the space well before the negative-CI rule existed: TPG’s climate fund took a one-third stake in Monarch Bioenergy, the Smithfield Foods and Roeslein Alternative Energy hog-manure RNG venture, in 2022, on undisclosed terms. Investors who built portfolios on RIN and LCFS economics are now positioned for a federal tax credit that can exceed the value of the gas several times over. The National Pork Producers Council has told the IRS it sees “enormous potential” in 45Z for producers, while pressing for manure nutrients to count in the farm-level calculator; the more pointed question for producers is what share of the credit reaches the farm gate under existing contracts. For taxpayers, it is whether a credit of this size buys emissions reductions that would not otherwise have occurred. Axios on the TPG investment, NPPC comments.

Carbon capture and the 45Q trade-off

CCS can widen ethanol’s market access, but its economics require careful credit accounting. Carbon capture and storage can reduce the approved emissions rate of ethanol and improve its position as a fuel or SAF input. DOE’s model recognizes qualifying captured-and-stored carbon; simply capturing CO₂ for sale into another product does not receive the same modeled treatment. DOE CCS methodology.

Developers must compare 45Z with the separate 45Q sequestration credit. Section 45Z excludes facilities for which 45Q is allowed for the taxable year. Treasury’s proposed rules explicitly illustrate that third-party ownership of capture equipment does not automatically avoid that restriction. A financial model should therefore not simply add full 45Q and CCS-enhanced 45Z at the same facility. 45Z statute, Treasury’s proposed facility rules.

Commercially, the strongest CCS locations are those where capture, transportation, permitted storage and monitoring can be assembled at an acceptable cost and timetable. A pipeline announcement has little current earnings value until the system can operate. Delays matter especially because 45Z’s existing sales window ends in 2029: a late startup leaves fewer qualifying years to recover capital.

Cleaner corn-starch ethanol also does not automatically become an advanced or cellulosic RFS fuel. EPA’s classifications include feedstock and pathway requirements; advanced biofuel excludes corn starch. A substantial 45Z improvement can therefore coexist with unchanged D6 classification. EPA pathway requirements.

SAF: a new outlet, with competing feedstock uses

SAF creates a new outlet, but the competing uses of feedstocks remain decisive. Hydroprocessed esters and fatty acids, or HEFA, connect aviation demand to the fats and oils used in renewable diesel. Alcohol-to-jet creates a route from ethanol to jet fuel. These routes expose agriculture to different demand drivers and different construction, conversion and delivery costs. DOE emerging-fuels overview.

For a plant capable of varying its product mix, the relevant comparison is the return from producing SAF versus renewable diesel after accounting for yields, hydrogen, processing, credits and freight. An aviation premium can be insufficient if jet production sacrifices more valuable diesel output or requires substantial additional cost. The removal of SAF’s higher 45Z applicable amount makes that comparison more demanding.

For ethanol, aviation could expand demand beyond gasoline blending. But SAF announcements should not be converted directly into new corn demand. An alcohol-to-jet facility can initially draw ethanol away from exports or road fuel. Additional corn consumption occurs to the extent total ethanol production rises; its size also depends on conversion yields and coproduct economics.

Near-term ethanol growth still depends on outlets such as E15, higher blends and exports. More permissive sales rules help only as retailers, terminals and consumers expand actual use. CCS can raise the value of existing production before it raises the volume consumed. Investment analysis should therefore distinguish projects that improve margins on current gallons from projects that require a larger market.

There is another tax constraint: 45Z excludes fuel produced from a fuel for which a 45Z credit is allowable. Ethanol-to-SAF economics should not assume two full credits on successive stages of the same fuel chain, or that merely declining an upstream claim resolves eligibility. Section 45Z(d)(5).

Physical infrastructure will influence who captures the opportunity. Ethanol plants need a dependable route to conversion facilities; SAF suppliers need certified production, blending, storage and airport access. Long-term offtake is more useful to lenders when it specifies enforceable volumes, price support, accepted emissions credentials and remedies for delayed delivery. A nonbinding purchase ambition provides much less revenue certainty.

For soybean processors, additional oil demand can support crushing while increasing the supply of soybean meal. That can restrain meal prices and shift a larger share of the crush margin toward oil. Corn ethanol can also benefit through distillers corn oil demand, although model allocation rules determine which environmental benefits attach to which coproduct.

Trade policy and feedstock origin

Trade policy increasingly determines which feedstocks reach which plants. The 45Z origin restriction favors qualifying North American crops, oils and fats over otherwise competitive materials from outside the region. This is a tax-eligibility distinction, separate from a customs tariff. A cargo can enter the country legally and still yield fuel ineligible for 45Z.

The latest IRS notice specifically addresses Canadian and Mexican used cooking oil while excluding fuel made after 2025 from used cooking oil originating outside those three countries. Routing a cargo through a North American port does not establish qualifying feedstock origin. IRS feedstock guidance.

Figure 2. 45Z feedstock-origin rule: only feedstocks produced or grown in the United States, Canada or Mexico qualify for post-2025 production. Source: IRS eligibility guidance and Notice 2026-53.

The likely market response is a premium for verifiable eligible material, with displaced feedstocks seeking other destinations or uses. The amount of the premium depends on the credit advantage and the availability of substitutes. If eligible feedstocks become expensive enough, a producer may find that buying cheaper nonqualifying material and foregoing 45Z produces the better net margin, subject to its other obligations.

Tariffs can reinforce or counteract those incentives. A duty on imported feedstock raises a U.S. plant’s input cost; a duty on competing finished fuel may protect its selling price. Foreign retaliation against U.S. ethanol or renewable diesel can weaken export returns. A Canadian feedstock can satisfy 45Z’s geographic rule while remaining exposed to separate tariff or border measures.

These are material channels because exports already absorb meaningful output. EIA reported that about 20% of combined U.S. renewable diesel and “other biofuels” production was exported in the second half of 2025. That grouping includes SAF and other products and should not be described as a standalone SAF export share. Canada and the Netherlands were major destinations. EIA analysis.

For traders, the comparison is the delivered return after freight, duties, credit treatment and documentation. Exported renewable fuel also carries RFS retirement requirements; domestic RIN value cannot simply be added to an overseas sales price without accounting for those obligations.EPA exporter compliance overview.

Overseas carbon rules: CBAM and ReFuelEU

Overseas carbon rules can redirect flows even where no biofuel carbon tariff applies. The EU’s Carbon Border Adjustment Mechanism entered its definitive phase on Jan. 1, 2026, covering specified goods in cement, iron and steel, aluminum, fertilizers, electricity and hydrogen. It is not currently a general border levy on ethanol, biodiesel or SAF. European Commission CBAM scope.

Its nearer-term biofuel effects are indirect. Carbon costs on covered fertilizer or hydrogen imports can alter input economics and encourage producers to direct cleaner industrial products toward Europe. Those changes can affect the cost and emissions profile of agricultural and fuel supply chains. They should not be modeled as an automatic CBAM charge on every biofuel shipment.

For aviation, ReFuelEU is more directly consequential. It requires a 2% SAF share from 2025 and 6% in 2030, but excludes biofuels made from food and feed crops from the eligible scope. A low 45Z score therefore does not, by itself, qualify corn-ethanol-derived SAF or soybean-oil-derived SAF for that European mandate. The United Kingdom has a separate mandate rising from 2% in 2025 to 10% in 2030. EU rules, UK mandate.

Figure 3. European SAF mandates, 2025 and 2030; ReFuelEU excludes food- and feed-crop biofuels. Source: Council of the EU; UK Department for Transport.

The resulting market can divide by feedstock and certification. Qualifying waste-based fuels may be drawn toward European demand, while crop-based routes compete in markets recognizing their pathways. Producers should evaluate the actual destination rules before committing capital on the assumption that all global SAF demand is accessible.

EPA’s 2026–27 RFS: a larger demand base

EPA’s 2026–27 RFS provides a larger demand base, with important qualifications. The March final rule established the following total applicable volumes, including the small-refinery-exemption reallocation already adopted:

Table 3. EPA final RFS total applicable volumes, billion RINs, including adopted small-refinery-exemption reallocation. Source: EPA final rule, March 2026.

These are ethanol-equivalent credit volumes, not physical gallons of diesel. The categories are nested and must not be added together. Before reallocation, total requirements are 25.82 billion and 25.98 billion RINs; the adopted additions are 0.99 billion and 1.04 billion. EPA final volume table.

The pre-reallocation difference between total and advanced requirements remains 15 billion RINs in each year. That is an implied conventional opportunity, not an exclusive corn-ethanol purchase mandate: qualifying advanced credits can meet the broader total requirement. Thus, a larger headline RFS does not translate proportionately into more corn grinding. EPA nesting explanation.

Figure 4. EPA final 2026–27 RFS volumes by nested category, billion RINs. Source: EPA final rule and detailed fact sheet, March 2026.

EPA did not finalize the proposed reduction in RIN generation for imported fuels and fuels made from imported feedstocks in this rule. Its stated intention is to address that policy in a future action beginning in 2028. Applying a blanket half-RIN penalty to 2026–27 would misstate the final rule. The prospective RFS treatment also should not be assumed to share 45Z’s North American definition. EPA detailed fact sheet.

Refinery exemptions and compliance timing

Refinery exemptions make timing almost as important as the annual targets. On Aug. 31, EPA granted 18 full and 11 half exemptions for the 2025 compliance year. Reuters reported that relief totaled 1.76 billion RINs and that EPA planned a proposal to reallocate the difference between actual and previously estimated exemptions into 2026–27. That prospective adjustment is separate from the reallocation already embedded in the table. EPA decisions

Exemptions reduce retirement demand for the affected compliance year. A later reallocation can increase future obligations, producing different price pressures across RIN vintages. The aggregate effect depends on the amount, timing and final legal form of the adjustment. Commercial plans should not book an announced future proposal as a completed rule.

EPA extended the 2025 compliance-reporting deadline to Oct. 1, 2026. Its final notice says the 2026 deadline remains March 31, 2027. That makes vintage management, inventory availability and the timing of purchases immediate commercial considerations. EPA deadline rule.

Figure 5. Key policy dates, 2025–2030. Source: IRS, Treasury, EPA, DOE, European Commission and UK government documents cited in this report.

How 45Z, RINs and state credits interact

The interaction between 45Z and RINs can produce counterintuitive results. If 45Z lowers the net cost of additional production, more fuel and RINs may enter the market, easing credit prices. If feedstock scarcity absorbs most of the tax benefit, costs may remain high and RINs may need to provide more support. Lower RIN prices can therefore coexist with higher output, while higher RIN prices can coexist with poor margins at inefficient plants.

State carbon-credit markets add another variable. A plant’s lower score can improve its credits per unit while an oversupplied credit market reduces the value of each credit. Project models should distinguish physical emissions performance from the market price attached to it.

The following scenarios illustrate the commercial exposures; they are not price forecasts:

Table 4. Scenario exposures — commercial pressures and better-positioned businesses. Source: article analysis; not price forecasts.

Commercial strategy by participant

Analysts say commercial strategy should connect procurement, operations, tax and compliance. The practical priorities differ by participant:

Fuel producers: Evaluate investments on the net value of verified emissions reductions. Stress-test feedstock inflation, lower RINs, delayed startup and the end of the current 45Z window. Match output commitments to realistic utilization rather than nameplate capacity.

Refiners and obligated parties: Maintain a compliance position by RIN category and vintage, with explicit assumptions for exemptions and reallocation. Compare physical blending, term fuel purchases and separated RIN purchases on a consistent basis. A supplier’s tax credit matters only insofar as it affects the refiner’s actual purchase terms or supply security.

Traders and feedstock aggregators: Price origin, documentation, quality, freight and destination eligibility alongside the commodity. Contracts need clear responsibility for rejected feedstock credentials, changed tariffs and unavailable credits.

Farmers and processors: Negotiate how environmental value is shared and when it is paid. Evaluate crop premiums after participation costs; for crushers, assess oil and meal together rather than treating stronger oil demand as an automatic increase in the whole margin.

Compliance and finance teams: Reconcile feedstock records, approved models, production, sales and environmental-attribute ownership. Avoid assigning the same benefit twice across contracts or programs. Eligible taxpayers can transfer 45Z credits for cash, but timing, transaction discounts and verification costs affect the amount available to fund operations. IRS transfer provisions.

The 2029 sunset: four tax years to recover capital

Every incentive described in this report runs through Dec. 31, 2029, and no further. That leaves four tax years of qualifying sales, 2026 through 2029, for any project not already producing. A digester, a carbon-capture system or an alcohol-to-jet plant that breaks ground today and needs 18 to 36 months to reach commercial operation would claim the credit for two years, perhaps three. That is a short runway for the kind of capital-intensive, transformational investment the credit was designed to induce, and it explains why the current rush is concentrated in projects that were already permitted, financed or operating. Congress extended 45Z once, from 2027 to 2029, and the industry will lobby for another extension; a lender or board should not underwrite one. The practical result is that the sunset favors incumbents and fast-to-build retrofits over new capacity, and it rewards whoever already owns a negative-CI gas stream more than anyone trying to build one. Section 45Z.

Bottom line

The next decisions to watch are Treasury’s final 45Z regulations, EPA’s additional exemption-reallocation action, implementation of farm-level documentation, the proposed treatment of imports from 2028, the poultry and beef manure pathways due later this year, and any move to extend the credit beyond 2029. SAF offtake execution, CCS startup dates and actual plant utilization will determine how much of the policy opportunity becomes physical demand.

For agriculture, the greatest gains are likely to accrue where competitively priced crops and coproducts meet verifiable emissions performance and reliable access to the fuel markets willing to pay for them.

AG POLICY & MARKETS DAILY   |   SPECIAL REPORT  |  BIOFUELS, 45Z & THE RFS — FRIDAY, SEPTEMBER 18, 2026