The Biden administration released updated modeling for sustainable aviation fuel subsidies April 30, giving corn ethanol producers a chance of qualifying for an Inflation Reduction Act tax credit provided they can adopt three climate-smart agricultural practices to reduce emissions.
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Register NowThe updated guidance, announced by the US Department of the Treasury after a lengthy interagency process that missed its initial March 1 deadline, gave ethanol producers "important clarity" on the requirements to qualify for the IRA's 40B tax credit, senior White House advisor John Podesta said.
"We've been laser focused on getting this methodology right to boost the SAF industry, to spur innovation, to create new economic opportunities for America's farmers and rural communities and meaningfully lower emissions to tackle the climate crisis," Podesta said.
Under the new GREET model, called 40B SAF-GREET 2024, ethanol will not automatically qualify for the IRA's SAF tax credit, which incentivizes the production of SAF that achieves a life cycle greenhouse gas emissions reduction of at least 50% as compared with petroleum-based jet fuel. For ethanol to become eligible for 40B, producers must adopt what Treasury called a "bundle" of three climate-oriented ag practices: no-tilling, cover crop, and enhanced efficiency fertilizer. Similar requirements apply to soybean-based biofuels.
Those requirements, if adopted, would allow both fuels to reach the 50% emissions reduction standard under the new model.
"The Biden Administration is providing an important tailwind for corn ethanol produced with no-till, cover crops and enhanced efficiency fertilizers to qualify as a feedstock for SAF under 40B so long as all three of these climate-smart agriculture practices are adopted," American Coalition for Ethanol President CEO Brian Jennings said in a statement. "This marks the first time a regulatory body has formally acknowledged the role CSA practices play in reducing corn ethanol's GHG emissions, in this case enabling some ethanol-to-jet to qualify for the 40B credit."
"The United States Departments of Agriculture and Energy deserve praise for diligently ensuring this first step is being taken with respect to CSA practices," Jennings said.
Lengthy symbolic struggle
The GREET model is a US Department of Energy tool to measure the full life cycle emissions and environmental impact of various technologies and production processes. The model was first scheduled for update in late December, when the US Department of the Treasury announced new guidance on the eligibility of SAF tax credits in the IRA. An interagency process to update the model to help corn growers and ethanol producers become eligible was announced with a March 1 deadline.
The Biden administration missed that deadline by nearly two months, a sign of the struggle among agencies and stakeholders in deciding how to model the climate impacts of ethanol production.
The US Department of Agriculture, led by former Iowa governor Tom Vilsack, has been seen as broadly supportive of the efforts to include ethanol among the eligible feedstocks. Recently, USDA provided $25 million for a Regional Conservation Partnership Program to incentivize corn farmers to adopt and measure climate-smart ag practices that could grant them access to clean fuel markets in the future.
But environmentalists have long decried the idea of repurposing land used for food growth into fuel production, land use emissions penalties that are reflected in the model, too. Both sides of the issue -- climate activists and corn farmers from Midwestern states -- reflect important constituencies to Biden in the 2024 US presidential election.
In his statement, Jennings called the land use change penalties in the 40B GREET model "artificially inflated" and described them as one of the "headwinds" ethanol faces to achieve acceptance under the credit. Adoption of the listed climate-smart ag techniques is scattershot. "The current adoption rates of these practices are varied," one senior administration official said. "A relatively large number of farmers are using no-till, but lower numbers are using cover crops." The official said just 15 million acres of corn farmland currently use cover crops.
Meanwhile, biofuels trade groups lamented the timing of the announcement -- in the middle of the spring planting season -- and the Dec. 31, 2024 expiration of the credit, as a matter of symbolism more than immediate fuel qualification.
"Treasury's SAF guidance speaks more to the administration codifying the important role CSA practices play in decarbonizing liquid fuels than the amount of ethanol-to-jet that will qualify for the 40B credit," Jennings said.
45Z Credit to Come
The Biden administration has made transportation decarbonization the core of its climate agenda. It has pushed the rapid electrification of of the ground fleet, both for passenger vehicles and medium- and heavy-duty trucks, but with no immediately viable electric or hydrogen fuel technologies for air travel, the administration considers SAF the best hope for decarbonizing a sector of US transport which accounts for 11% of all transportation-related GHG emissions.
Still, SAF accounts for just 0.05% of jet fuel worldwide. In 2022, the administration launched the SAF Grand Challenge, which aims to boost SAF production by at least 3 billion gallons/year by 2030 and 35 billion gallons/year by 2050.
The biofuels industry is eager to meet those goals. Facing the possibility of a long-term decline in ethanol and traditional petroleum fuel demand, producers see SAF as a lifeline.
"Our members are eager to supply the world with sustainable low-carbon fuels, but their full production potential cannot be met without government cooperation," Advanced Biofuels Association President Michael McAdams said.
Some concerns could be alleviated in weeks to come, as the administration mulls expanded eligibility for the IRA's 45Z tax credit, the Clean Fuel Production Credit. The CFPC is designed to encourage the production of clean transportation fuels, and according to the Congressional Research Service will replace several biofuels-related credits scheduled to expire at the end of 2024.
"The guidance provided by the Treasury Department is going to provide a clear pathway for how best to qualify for the 40B tax credit, but also create a process to expand opportunities under 45Z," Vilsack said. "It sends a clear signal to the market that they are going to be a part of this exciting new future in 2025 and beyond."
A new 45Z model is expected in weeks to come. Another senior administration official declined to provide a specific timeline.
"We view today's 40B announcement as the starting point -- not the ending point -- for additional modeling improvements, further integration of individual climate-smart agriculture practices, and emerging biorefinery technologies," Geoff Cooper, CEO of the Renewable Fuels Association, one of the largest biofuels trade groups, said. "45Z is where the rubber really meets the road."