In the early 2010s, the indirect (or induced) land use change (iLUC) debate took center stage in biofuels policy. It split scientists, policy makers, and industry stakeholders alike—between those who saw it as a necessary safeguard and those who saw it as an unjustified penalty.
More than a decade later, that debate is still not settled. But for producers participating in and around the 45Z Clean Fuel Production Credit, it may no longer matter.
Current drafts of the Budget reconciliation bill now advancing in both the House and Senate would make a technical, but hugely consequential change: removing iLUC from the Carbon Intensity (CI) scoring system for 45Z.
That single move, quietly embedded in legislative text, may finally end one of clean fuel policy’s longest-running fights, and provide clean fuel producers with a significant instantaneous reduction in their CI scores.
A Decade-Old Argument
To understand what’s changing, it helps to understand why this issue has been so persistent.
The idea behind iLUC is this: if you grow more corn, soy, or canola for fuel, it may displace crops grown for food or feed. That displacement might, in theory, push land conversion elsewhere—turning forests into farmland, releasing carbon, and wiping out the climate benefit of biofuel in the first place.
Rather than ignore those potential consequences, regulators tried to price them in. The California Air Resources Board began including iLUC in CI scoring in 2009. GREET models adopted it soon after. And scores changed dramatically as a result.
Depending on their marketplace and methodology, ethanol producers saw their carbon intensity numbers climb with tacked on LUC penalties from the mid-single digits up to nearly 20 g/mj in California’s LCFS. Most recently in updated GREET modeling, corn ethanol receives a total iLUC penalty of nearly 4.5 kg/mmbtu. For soybean or canola oil used in renewable diesel or Biodiesel, the penalties were even steeper—14 to +17 kg/MMBtu, enough to make some a path to commercial decarbonization and monetization unviable.
But the modeling behind those penalties was always controversial. It relied on well meaning but often flawed assumptions and measurements. It used global equilibrium models to forecast how international markets might respond. And crucially, it never allowed for a producer or farmer to “opt out”—even if they didn’t expand land or displace food.
Over a decade ago, the 2012 article The iLUC Debate: Four Years Later captured this frustration well. “The indirect land use change penalty... has become a flashpoint,” it wrote. “But the certainty once attached to the models is fading.” Scientific papers continued to surface showing how sensitive the results were to input assumptions. Others, like a decade old study 2015 Indirect land-use change and biofuels by Environmental Science & Policy, questioned whether iLUC penalties were defensible at all under lifecycle analysis best practices at all. Still, the penalties stuck—baked into California’s LCFS, Canada’s CFR, and the public GREET model.
iLUC and 45Z
Enter the Inflation Reduction Act’s 45Z Clean Fuel Production Credit, a performance-based incentive for low-CI fuels, effective in 2025. It uses GREET as its foundation and Treasury and DOE jointly shared that CI boundaries should emphasize direct emissions.
That guidance quietly made the case for an iLUC change. And now, the legislative fix is following suit.
Both the House and Senate versions of the “Big, Beautiful Bill” propose eliminating iLUC entirely from the 45Z CI scoring and tax credit monetization methodology. The move would remove a default 4.5-6.5 kg/MMBtu penalty for corn ethanol (nearly 10% of an average score) and a much larger burden for biodiesel and renewable diesel pathways using soybean oil.
For the incite.ag network, the impact is measurable and significant. In an recent analysis aggregating customer most-recent iLUCs under the 5.30.25 released updated 45ZCF-GREET model the total iLUC component—including corn, livestock, and “other crops” adjustments—came out to 4.597 kg CO₂e/MMBtu. With that removed, a majority of our network would see their CI score fall under the $0.10/gallon rounding threshold, putting them “in the money” for 45Z.
Impact of iLUC Removal
The removal of iLUC won’t surprise those who’ve followed the direction of federal carbon policy. 45Z is not California’s LCFS, and it’s not Canada’s CFR. It is not designed to model global economic risk—it is designed to reward measurable emissions reductions from American producers.
That’s not to say iLUC isn’t real. It is, by definition, a systems-level concern. But it’s one better addressed through land policy, conservation enforcement, or indirect incentives—not by attaching fixed penalties to individual CI scores where they can’t be verified, avoided, or improved.
For corn ethanol producers, this update clears a long-standing obstacle. For soybean and canola-based RD & BD producers, it may dramatically improve their GREET scores, so much so that it would provide a significant competitive advantage for their fuel scores.
More broadly, it shifts 45Z toward a more empirical carbon accounting framework. One where what you do—your fertilizer rate, your tillage passes, your processing energy—determines your CI score. Not what a model thinks someone in another country might do in response to you or what a historic penalty should be for land converted a generation ago.
A Necessary Shift
With iLUC off the table, many, if not most, ethanol plants will now find themselves “in the money” for 45Z, with CI scores dropping into key payout ranges. That shift provides an immediate financial boost for clean fuel producers preparing for scoring and reporting, and a strong signal to others still on the fence. By removing a modeling penalty fuel and feedstock producers could never mitigate, 45Z begins to reward what they can control; management practices, process energy, and real-world efficiencies. It marks a long-overdue alignment between decarbonization incentives and measurable outcomes on the ground.
The implications go beyond any single plant. This change injects new value into rural economies, strengthens the role of domestic biofuels in national energy security, and offers farmers a clearer, more direct way to participate in, and benefit from, decarbonization. After more than a decade of fighting a model-driven penalty, with one major policy victory the biofuels sector is set to enter a new era of practical, performance-based carbon accounting. One where better data, better decisions, and better outcomes drive value.
Incite.ag Staff
Incite.ag
success@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.
