While the sustainable aviation fuel (SAF) industry buzzes with excitement over the recent 40-B tax credit guidance, a subtle yet potentially explosive shift is occurring within Gevo, Inc. Beyond the headlines of ethanol-to-jet fuel and DOE loan guarantees, Gevo is quietly laying the groundwork for a carbon accounting empire through its wholly-owned subsidiary, Verity. This overlooked development could be the key to unlocking immense value for Gevo and its shareholders, surpassing even the potential windfall from SAF production.

The buzz surrounding 40-B is understandable. The guidance offers a glimpse into the future of the industry, with the promise of generous 45-Z tax credits looming on the horizon. Gevo, a vocal advocate for robust carbon accounting, is poised to benefit immensely from these developments, potentially achieving a carbon intensity score of zero for its NZ1 project, translating to a remarkable $1.75 per gallon tax credit.

However, the real game-changer might be Verity, Gevo's truth platform. While initial revenue projections for 2024 are modest, pegged at a few million dollars, the potential reach of this software-as-a-service platform extends far beyond Gevo's own SAF ambitions. Verity offers a comprehensive, end-to-end carbon tracking solution, spanning from the farm field to the airplane seat or even the fleet truck. This approach addresses a critical need in the emerging carbon market: transparency and trust.

Consider the scale of the opportunity. Gevo already tracks ethanol plant customers representing 2% of the U.S. ethanol industry by volume. With 190 operating ethanol plants in the U.S., even a modest penetration rate could rapidly propel Verity's revenue into hundreds of millions of dollars. But the platform's potential extends far beyond biofuels. Imagine tracking the carbon footprint of animal feed for low-carbon beef, or quantifying the emissions reductions of sustainable agricultural practices. Verity's scalability positions it to capitalize on a vast and rapidly expanding market for carbon accounting across diverse industries.

Here's the hypothesis: As regulations tighten and consumer demand for transparency grows, Verity could become the gold standard for carbon accounting, much like Intuit's TurboTax for personal finance. This dominance would grant Gevo immense pricing power and potentially generate billions in annual revenue.

Let's delve into the numbers. The initial target market for Verity in the U.S. is estimated at $1.5 billion to $3 billion. Assuming Verity captures 10% of this market, a conservative estimate given the platform's unique advantages, that translates to $150 million to $300 million in annual revenue. As the carbon market expands globally, and Verity extends its reach beyond biofuels, these numbers could easily swell to billions of dollars.

The beauty of Verity lies in its capital-light, fee-based business model. Unlike NZ1, which requires significant upfront investment, Verity's growth trajectory is fueled by software development and customer acquisition, offering rapid scalability and high margins. This dynamic presents a compelling investment thesis: while NZ1 promises a substantial yet delayed payoff, Verity offers near-term revenue growth with exponential upside potential, essentially mitigating the risk associated with the capital-intensive SAF venture.

Gevo's management team clearly recognizes this potential. They are actively pursuing partnerships and expanding Verity's reach into adjacent markets, including heavy-duty vehicle fleets. While the 40-B guidance rightfully dominates the headlines, savvy investors should be paying close attention to the quiet yet relentless rise of Gevo's carbon accounting empire. Verity could be the secret weapon that propels Gevo from a promising SAF player to a global leader in the burgeoning carbon economy.

Gevo's Financials

Projected RNG EBITDA

Gevo projects its RNG business could generate significant EBITDA in the coming years, with substantial upside potential depending on LCFS prices and tax credits. (Q4 2023 Transcript)

"Fun Fact: Gevo's CEO, Dr. Patrick Gruber, holds a Ph.D. in biochemistry, highlighting the company's deep-rooted understanding of the science underpinning its carbon abatement technologies. This scientific rigor likely contributed to Gevo's instrumental role in advocating for the GREET model's inclusion in 40-B and 45-Z policies, a major victory for the company and the broader SAF industry."