Boosting Ethanol Profits with Anaerobic Digestion (AD) Co-Location

Ethanol producers face a dual challenge: lowering carbon intensity while improving operating margins and growing market demand. The industry has already proven its ability to deliver large-scale renewable fuel, but pressure from regulators, investors, and consumers continues to rise. In today’s market, carbon intensity (CI) scores are more than a compliance metric—they are the scoreboard for long-term competitiveness and access to new markets such as sustainable aviation fuel feedstock.

One of the most practical and profitable strategies available today is colocating anaerobic digestion (AD) facilities alongside ethanol plants. By processing waste feedstocks such as dairy manure,  thin stillage, or wet distillers’ grains, AD can upgrade these ethanol plant co-products to higher value renewable natural gas for low-carbon transportation markets. Potentially turning what was once a liability into a strategic asset.

Why AD Colocation Works

AD Colocation works when digester feedstock is from low-value organic waste, such as dairy farm manure. This can result in significant cost reductions and a reduction in carbon intensity.

Every ethanol facility produces high volumes of organic byproducts. Traditionally, these are dried, sold as feed with value on par with the corn feedstock.. But these streams are also rich in chemical oxygen demand (COD) and volatile solids—perfect fuel for a digester. When co-located, AD facilities can operate as closed-loop partners, consuming what the ethanol plant produces daily.

The benefits are straightforward:

• Energy efficiency: Biogas displaces natural gas in boilers or combined heat and power (CHP) units (Calgren Renewable Fuels).
• Carbon reduction: Capturing methane and lowering CI scores makes each gallon of ethanol more valuable under LCFS and IRA programs (Ethanol Producer Magazine).
• Revenue diversification: Upgraded RNG qualifies for RINs and low-carbon fuel credits in markets like California (IEA Bioenergy Report on Biogas Integration).

 Policy Tailwinds After OBBBA

The passage of the One Big Beautiful Bill Act (OBBBA) in July 2025 made AD even more compelling. Among its key updates:

• Section 45Z extension: The Clean Fuel Production Credit now runs through 2029, extending the runway for ethanol plants to capture CI-based incentives (American Farm Bureau Market Intel).
• Sourcing rules: Feedstocks must be of North American origin, encouraging domestic supply chains (RSM Analysis).
• Manure pathways clarified: While negative emissions factors are generally prohibited, Treasury guidance allows them for transportation fuels derived from animal manure (McDermott Will & Emery Client Alert).
• FEOC diligence: Restrictions on foreign entities of concern apply to both producers and credit buyers (American Action Forum Summary).

For ethanol producers, this policy clarity reinforces AD as one of the most powerful strategies for cutting CI while unlocking new revenue streams.

LEC’s Advantage

With 150+ world-class experts across biofuels, anaerobic digestion, and carbon capture, LEC Partners helps ethanol producers capture new value from existing assets. From feasibility and CI modeling to financing and regulatory alignment, we guide clients from concept to implementation—and ensure projects are built to last  (LEC Partners Overview).

Proof on the Ground

Across the industry, co-located AD is already proving its worth:

• Aemetis (Keyes, CA): In 2025, California regulators granted provisional LCFS pathways for seven dairy digesters linked to Aemetis. The company reports an average CI of about –384 gCO₂e/MJ for dairy RNG (Decarbonfuse Summary).
• Calgren Renewable Fuels (Pixley, CA): Calgren’s adjacent digester cluster not only powers its ethanol refinery with biogas, but also upgrades RNG for vehicle fuel—a dual model that combines cost reduction with new income streams (Calgren).

These examples show how co-locating AD can reduce operating costs, generate new revenue, and significantly lower CI scores.

Integration Considerations

While the benefits are compelling, successful projects require careful design:

• Feedstock management: Ethanol coproducts are excellent substrates, but variability and pretreatment requirements must be managed (ScienceDirect AD Study).
• Technology selection: Wet digesters are common, though modular or hybrid systems may add flexibility (IEA Bioenergy Report).
• Utility tie-ins: Choosing between boilers, CHP, or upgrading pathways determines revenue profiles.
• Permitting: Environmental approvals and interconnection requirements can be complex (R&E Facility White Paper).
• Financing: Volatile credit markets (LCFS, RINs) demand robust modeling and hedging (IRS Notice 2025-10).

LEC’s Role

At LEC Partners, we don’t just analyze—we implement. With over 25 years of experience and more than $3B in projects evaluated, our team brings together engineers, financiers, and regulatory specialists. For ethanol producers, we provide:

• Feasibility and CI modeling: Running scenarios under updated GREET assumptions and OBBBA rules.
• Financing support: Aligning projects with IRA credits, USDA/DOE programs, and private capital.
• Engineering oversight: Ensuring operability, compliance, and cost efficiency.
• Regulatory navigation: Guiding LCFS filings, credit stacking strategies, and FEOC compliance.

We’ve built our reputation by helping clients move projects from concept to operating reality—and by ensuring the numbers hold up once the plant is running.

The Bottom Line

Co-locating AD with ethanol plants is no longer just about sustainability—it’s about long-term profitability and resilience. It lowers operating costs, reduces emissions, strengthens compliance, and opens new revenue channels.

With OBBBA extending the incentive horizon and clarifying rules, the opportunity has never been stronger. The question isn’t whether ethanol producers should pursue AD—it’s how to do it smartly. With the right partner, co-located AD becomes a strategic growth lever in the evolving bioeconomy.