Ag Policy Blog

OMAHA (DTN) -- Biofuel and farm groups on Tuesday came out of the chute both declaring the importance of new guidelines for Sustainable Aviation Fuel tax credits while also arguing the new rules are too prescriptive on farm practices such as making demands to grow cover crops.

A collection of groups and interests immediately weighed in after the U.S. Treasury Department released its long-awaited guidance for U.S. biofuel producers to receive sustainable aviation fuel (SAF) 40B tax credits of $1.25 a gallon or higher, depending on the reduction of greenhouse gases compared to petroleum jet fuels. The Biden administration also updated the model used to score fuel lifecycle emissions, the Greenhouse Gases, Regulated Emissions and Energy use in Technologies (GREET) model.

Some biofuel groups were encouraged the guidance would recognize climate-smart farm practices for the first time in ethanol or biodiesel's carbon intensity score. Others said the guidance hurts them because their producers have a hard time growing cover crops or carbon scoring shouldn't be limited to a few specific farming practices. Environmental groups said there isn't enough hard science to prove the benefit of those farm practices.

Politicians from both parties searched for the right verb to express their hostility without fully explaining why they felt they should "slam" or "condemn" the tax-credit guidance.

To garner tax credits for 2023 and 2024, Treasury said it would accept, on a pilot basis, corn ethanol for jet fuel if the farmers delivering corn to the ethanol plant are using a bundle of climate-smart practices that includes no-till farming, cover crops and enhanced efficiency fertilizer. For soybean oil going to jet fuel, the climate-smart bundle requires no-till and cover crop practices.

A more detailed Treasury guidance is expected before the end of the year to spell out how biofuel plants will qualify for the Clean Fuel Production Credit, or the 45Z tax credit that begins in 2025.

Gevo Inc., a company with big ambitions in the SAF space, said the Treasury rules both reinforce the importance of climate-smart farming practices and other decarbonization methods such as carbon capture and storage (CCS), which are "core tenets of Gevo's business model" for SAF, said Patrick Gruber, Gevo's CEO.

"Today, the Administration's actions recognize the power of agriculture and lay the groundwork for implementation of future SAF tax credits. A science-based approach to the Section 45Z credit will ensure that biofuel producers, supported by American farmers, play a vital role in scaling the hard-to-decarbonize aviation industry."

Geoff Cooper, president of the Renewable Fuels Association said in a load of airline puns that the guidance and updated GREET model will "help position ethanol-based SAF for takeoff, but more work is needed to fully clear the runway and get this opportunity off the ground." Still, RFA said more work is needed to fully open up the SAF market.

"We are encouraged that, for the first time ever, this carbon scoring framework will recognize and credit certain climate-smart agricultural practices," Cooper said. "We're also pleased to see the integration of other carbon reduction strategies--like renewable process energy and carbon capture and sequestration--into the model. 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."

Emily Skor, CEO of Growth Energy, also noted out the guidance reflects the first time in federal policy that conservation practices on the farm can reduce the carbon intensity of crops and ethanol production. It also is the first time Treasury has used the GREET model to set tax policy. "Still, the administration's restrictive all-or-nothing approach to recognizing the value of climate smart agriculture practices may ultimately limit innovation and make farmers, blenders, and producers less -- not more -- likely to invest in emissions-reducing technologies," Skor said. "America's potential SAF producers and their farm partners need flexibility to find the path that works best for them, but these rigid guidelines will leave carbon reductions on the table."

Josh Gackle, a North Dakota farmer and president of the American Soybean Association (ASA) said the guidance "goes sideways for soy" by requiring soybeans going into a jet fuel to be grown using no-till and cover crops. Gackle said ASA was supportive that climate-smart practices were being used to lower carbon-intensity scores, but cover crops aren't feasible in every region soybeans are grown.

"For growers like me here in North Dakota, short growing seasons and unpredictable fall weather make the cover crop requirement alone next to impossible," Gackle said. "Growers in the Northern Plains do so when possible. However, employing both no till and cover cropping is contrary to what Mother Nature will allow, no matter what the guidance specifies."

While there are concerns about who qualifies, the states that have the highest production of ethanol and biodiesel also are the states that have some of the highest planting of cover crops as well. Farmers grew just under 18 million acres of cover crops in 2022, according to the USDA Ag Census released earlier this year. Among ethanol-producing states, eight of the top states for cover crops nationally also were among the top ten states for ethanol production. The top five states for biodiesel production also are among the top ten states for cover crops as well.

Not everyone had major issues over cover crops.

Michael McAdams, president of the Advanced Biofuels Association, noted the Treasury guidance provides more flexibility for measuring carbon intensity. Pointing to the Biden administration's goal of producing 3 billion gallons of SAF a year by 2030, the 40B rule "greatly increases the likelihood of meeting these targets," McAdams said.

"This move will facilitate greater production of SAF and pave the way for its widespread adoption," he said.

On the flip side, Environmental Defense Fund questioned the "scientific rigor" of the Treasury guidance for accepting climate-smart farming practices without any specific measurement or verification.

"Today's actions highlight that significant questions remain as to whether and how to credit certain beneficial agricultural practices in the context of implementing the 40B sustainable aviation fuel tax credit," said Mark Brownstein, senior vice president of energy transition, Environmental Defense Fund. "The science matters and we are concerned this decision may have missed the mark, but we are carefully reviewing the details before reaching any final conclusions.

The bottom line is that to decarbonize aviation, U.S. airlines need a volume of alternative fuels that sustainable biomass alone cannot meet.

Some lawmakers in both parties also bristled. Sen. Chuck Grassley, R-Iowa, "condemned" the guidance. Rep. Angie Craig, D-Minn., "slammed" it. Sen. Joni Ernst, R-Iowa, called out the administration for "picking winners and losers."

RFA, Growth Energy and the American Coalition for Ethanol each needed the SAF market is just getting off the ground. While there may be a target of 3 billion gallons annually by 2030, EPA data shows there was only about 24.5 million gallons of SAF produced in 2023.

"Today's announcement provides ACE a roadmap for how to prevent the conditions placed on CSA (climate-smart) practices in 40B from being applied as 45Z is implemented," said Brian Jennings, CEO of ACE. "Ultimately, we need to enable farmers and ethanol companies to recoup value from these tax credits for their investments to reduce GHG emissions."

Also see, "SAF Tax Credit Rules for Biofuels," https://www.dtnpf.com/…

Chris Clayton can be reached at Chris.Clayton@dtn.com

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