When the U.S. Treasury Department finally released its long overdue guidance for implementing the Inflation Reduction Act’s sustainable aviation fuel tax credit, Agriculture Secretary Tom Vilsack joined with industry partners in celebration.
“This is a big, big deal for American agriculture and for farming,” Vilsack told reporters.
The guidance was also a victory for the ag secretary, who had sparred with other departments and agencies over the tax credit rules. The credit was designed to incentivize the production of SAF that achieves a lifecycle greenhouse gas emissions reduction of at least 50% as compared with petroleum-based jet fuel, but some critics did not want to include homegrown biofuels.
Here’s why it matters for what could potentially become a huge new market for agriculture: The guidance on how to apply for a new SAF tax credit will allow agricultural commodities to qualify as SAF feedstocks under an updated version of the Department of Energy’s relatively ag-friendly model for calculating the carbon intensity of biofuels, administration officials say.
The Inflation Reduction Act left it up to Treasury to make the final decision on the standard that would be used to measure the climate impact of SAF feedstocks. Under the law, the Treasury could use an existing international standard, known by the acronym CORSIA or a “similar methodology.”
Because of the way it measures the indirect land use effects of growing crops such as corn, a CORSIA standard would be difficult for many ag feedstocks to meet. The airlines joined biofuel producers and the oil industry in lobbying Treasury to allow use of DOE’s GREET model.
A range of crops can be used directly for making SAF, including soybean and canola oil, and corn ethanol can be converted into fuel as well. Animal fats and waste grease also have been used for SAF, but supplies are relatively limited.
Producers of SAF are eligible for a tax credit of $1.25 to $1.75 per gallon. The SAF that decreases GHG emissions by 50% is eligible for the $1.25 credit per gallon amount, and SAF that decreases GHG emissions by more than 50% is eligible for an additional $0.01 per gallon for each percentage point the reduction exceeds 50%, up to $0.50 per gallon, according to the Treasury Department.
The tax break was included in the Inflation Reduction Act to serve as a bridge to a broader clean fuels production credit that takes effect in 2025 under the law.
The updates to DOE’s GREET model will include the latest information on farming practices and will be completed by March 1, Vilsack said.
However, some biofuels groups—while celebrating the guidance with Vilsack—are also anxiously awaiting the fine print that is due to be published on March 1.
Emily Skor, CEO of Growth Energy, an ethanol industry group, called the guidance “an important first step.”
“America’s biofuel producers and their farm partners continue to innovate with myriad technologies that are reducing the carbon intensity of bioethanol, and we are ready to lead the aviation sector into a lower-carbon future. This guidance signals our potential ability to participate in the market,” she said.
Brian Jennings, CEO of the American Coalition for Ethanol, said, “Today’s decision helps clear the runway for ethanol-to-jet. Treasury made the right call to enable the use of GREET to determine the carbon intensity of SAF because it is the global gold standard for calculating GHGs from transportation fuels and GREET is the most up-to-date, accurate model reflecting the best-available science, including farm practices.”
Renewable Fuels Association President and CEO Geoff Cooper also acknowledged the guidance is “a big step forward toward opening the door for ethanol producers in the sustainable aviation fuel opportunity.” But he added there’s work left to be done.
“There are some updates and some modifications that need to be made to the model first,” Cooper said on The Ethanol Report.
An interagency SAF workgroup, including U.S. Department of Agriculture, DOE, Environmental Protection Agency, Treasury and others, are working to update the GREET model to incorporate ways of estimating other indirect emissions related to changes in livestock and crop production. For example, “if we’re producing more corn or more soybeans for sustainable aviation fuel that’s going to replace some other crops, there will be some emissions reductions or increases associated with that,” Cooper explained. “They are also working to make sure the model does a better job of capturing some of the efficiencies and new technologies that are being adopted on farms.”
He added that, “unfortunately, the GREET model sort of treats all corn the same” by incorporating national averages.
“We know there’s a lot of variability and new and innovative practices happening on the farm and so part of this work will attempt to integrate that data into the GREET model as well.”
Overall, Cooper thinks the modeling changes are going to have a positive impact on the carbon intensity for ethanol and should continue to show that corn ethanol is getting better and more efficient than previously estimated.
However, as with so many federal regulations, the “devil” is always in the details.
Cooper said there are still a lot of unanswered questions.
“This is a little bit like when you take a nice chocolate cake out of the oven. It smells good, it looks good, but then you put the fork in the middle and it’s still kind of gooey in the center and it’s not fully baked. So, you got to put it back in the oven and let it finish. That’s sort of where we’re at in this process.
If the final GREET model finally meets expectations, industry analysts expect the SAF market to boost biofuels and the overall ag economy.
Airlines have pledged to use 3 billion gallons of SAF by 2030, 10% of their projected fuel consumption, and are counting on tax credits to offset much of the premium they have to pay for the biofuel.
According to a Rabobank analysis issued this summer, U.S. SAF production capacity is expected to total 750 million gallons in 2024 and reach 2.2 billion gallons by 2026.
Editor’s note: Sara Wyant is publisher of Agri-Pulse Communications, Inc., www.Agri-Pulse.
