The Biden administration’s long-awaited guidance for a new tax subsidy for sustainable aviation fuel does little by itself to jump-start the production of SAF made from agricultural feedstocks like corn ethanol.
However, it may be the start of a journey that will enable some farmers to participate in what is expected to be an important new market for biofuels.
The Treasury Department issued 41 pages of guidance April 30 for the new SAF tax credit, known as 40B, that would allow corn ethanol to qualify if the grain is grown with three practices that are considered climate-smart: no-till, cover crops and energy-efficient fertilizer.
Details, details, details
Soy oil would qualify only if the soybeans were grown using no-till and cover crops on the same acreage.
SAF producers will be required to have certification that USDA standards for climate-smart agriculture practices were followed for eligible crops. The certifier would have to audit records from farmers and from the crop’s supply chain.
CSA certificates that would accompany eligible crops would include a statement that the “farmer understands that fraudulent use of the certificate may subject the … farmer and all parties making such fraudulent use to a fine or imprisonment, or both, together with the costs of prosecution.”
A relatively small amount of U.S. corn production would meet all three conditions, and the cover crop requirement would limit eligibility for soybeans, but administration officials say that’s not all that important because SAF isn’t yet being made from corn ethanol anyway. What’s more critical is the guidance that will be issued for a tax credit, called 45Z, that will replace 40B in 2025.
The airline industry has committed to using 3 billion gallons of SAF annually by 2030, or 10% of its projected fuel needs. Agricultural commodities, used cooking oil and animal fats are the largest near-term sources of feedstocks.
Secretary of Agriculture Tom Vilsack said the 40B guidance lays the groundwork for ensuring that agricultural feedstocks qualify for 45Z. “This is the first time that we will see the recognition of the climate benefits of climate-smart agricultural practices,” he said.
He suggested that more farming practices, and varying commodities, will qualify for the subsidy as more is learned about the impact of conservation measures on greenhouse gas emissions.
Lawmaker: Rework guidelines
Democrat Rep. Angie Craig, who represents Minnesota’s second district, was not impressed, however, and called for the Biden administration to rework the guidelines.
“The new and emerging SAF market offers tremendous growth opportunities for Minnesota’s farmers and biofuel producers, including the ones in my district—farmers the administration has committed to supporting. Today’s guidelines do the opposite. In fact, this announcement will significantly hinder farmers and producers’ ability to participate in the SAF market,” Craig said in a release. “These guidelines fail to support the Minnesota farmers I represent, and they stifle the emerging SAF industry that creates a once-in-a-lifetime opportunity for airlines to meet their carbon reduction goals.
The American Soybean Association said the guidance “goes sideways” for soybeans by requiring farmers to use both conservation tillage and cover crops.
“ASA is very supportive of using climate-smart agriculture practices to improve CI reductions, but specifying only two practices out of a variety of sustainability measures will further restrict soybean oil use as an SAF feedstock” the group said. “Adding to concerns, no-till and cover cropping are feasible only for soybean farmers in certain parts of the soy growing region, which means regional disparity is likely.”
More expected soon
The Treasury Department is expected to quickly issue a formal request for information on what should be in the 45Z guidance.
Industry officials were particularly frustrated that farmers would be required to employ all of the climate-smart practices for their crops to qualify as eligible SAF feedstocks. “It’s really going to disadvantage producers in some areas of the country in some years,” one industry official said.
That official is hopeful based on what he heard from the administration that Treasury will loosen the rules for 45Z. He said a senior USDA official told industry groups on Monday that the 45Z guidance won’t be nearly as prescriptive as it is for 40B.
Time lag expected
The 45Z rules will take a significant amount of time to develop, too, the official said. Treasury has “a ton of substantive, technical scientific work to do, which will take time.”
The administration separately released updates to the Energy Department’s GREET model for estimating the carbon intensity of biofuel feedstocks. The changes included an update to how the model accounts for indirect land use changes from biofuel crop production. The model is intended to be used with the 45Z credit.
Both tax credits were created by the Inflation Reduction Act that Democrats pushed through Congress in 2022.
The 40B credit starts at $1.25 per gallon and can be worth as much as $1.75 per gallon, based on the carbon intensity of the fuel. The Treasury Department allows ethanol to qualify as an SAF feedstock if the three climate-smart farming practices are used in production of the corn.
The 45Z tax credit will be worth a maximum of $1.75 a gallon for SAF.
Geoff Cooper, president and CEO of the Renewable Fuels Association, said he was glad that the GREET model was updated to include the impact of carbon capture and sequestration and use of renewables in biorefineries.
“However, RFA believes less prescription on ag practices, more flexibility and additional low-carbon technologies and practices should be added to the modeling framework to better reflect the innovation occurring throughout the supply chain,” Cooper said in a release.
He also said that “45Z is where the rubber really meets the road. We look forward to working with USDA and other agencies across the administration to ensure 45Z is implemented in a way that truly swings the door wide open for farmers and ethanol producers to participate in the enormous decarbonization opportunity.”
Editor’s note: Sara Wyant is publisher of Agri-Pulse Communications, Inc., www.Agri-Pulse.com
