Ag Policy Blog

Seth Meyer, USDA's chief economist, explained Monday at an agricultural outlook conference in Kansas City, Missouri, that he didn't want to get too deep into the weeds, but he told the audience of agribusiness leaders that climate and lifecycle analysis modeling needs to change.

Corn and soybean farmers need domestic markets for biofuels to grow sustainably, whether it's in the Renewable Fuels Standard, state low-carbon policies or sustainable aviation fuels, and U.S. agriculture shouldn't lose out to Brazilian ethanol or corn or used cooking oil from China.

Right now, the climate models aren't helping.

For farmers, this means that the current systems and policies designed to measure the environmental impact of biofuels are not working in their favor.

Talking about barriers to SAF production, Meyer said the productivity gains of farmers need to be reflected in carbon intensity scores "in a way that they aren't today."

Because of U.S. biofuel policies, lifecycle analysis over the past two decades have reached a point that Brazilian corn is scored with a zero greenhouse-gas emissions score -- implying that it has no carbon impact whatsoever. The models suggest Brazilian corn "grows at no consequence. It doesn't involve any land-use change at all."

"A lot of times modeling fails to reflect the reality of the way things are today," Meyer said.

U.S. corn production has a carbon-intensity score showing that it adds to greenhouse-gas emissions but is also penalized for causing indirect land-use change in countries such as Brazil.

"So, the Brazilian corn gets a zero and yet U.S. corn is penalized for indirect land use. That is, on its face, a non-economically reasonable outcome."

Meyer said climate models have essentially built in guidelines "that work the opposite of what they think it does."

Brazilian producers -- most significantly larger than U.S. counterparts -- decide what their land is worth and whether to put it into production and what to grow.

"So, to envision that the part of the crop has no effect on the value of that land, on the value of land conversion, it just makes no economic sense," Meyer said.

Geoff Cooper, president and CEO of the Renewable Fuels Association, told DTN that U.S. corn ethanol "is saddled with a sizable penalty for theoretical land-use change" in the California low-carbon fuel standard based on modeling. Yet, cropland continues to shrink in the U.S. while cropland is expanding significantly in Brazil, mainly to supply soybeans to China.

As noted, a majority of Brazil's corn is double-cropped after soybeans and Brazilian capacity to process this corn into ethanol has been expanding rapidly in recent years. However, since corn is not the primary crop, Brazilian ethanol produced using it does not receive a land-use change penalty comparable to U.S. corn ethanol, Cooper said.

"This makes no sense and it speaks to the need to fundamentally reform the way indirect land-use change is incorporated into clean fuels programs."

UCO IMPORT BOOM

A similar situation comes up with used cooking oil from China.

Meyer said UCO is scored as though the oil was not being used for anything else before it started getting imported to blend in renewable diesel fuel.

UCO is considered to be a waste so it has a very low carbon-intensity score. But Meyer said that UCO in China was being used in other ways -- feed or industrial use. When the volumes of UCO imports are hitting 1 million metric tons, that is forcing other UCO users to find different oils to backfill the demand.

"When you pull increasing amounts of UCO out of whatever it was being used for, something is going to have to backfill that UCO that's used. That's here, that's in China and that changes the dynamics of that scoring, Meyer said.

Meyer said there isn't a lot of data or surveys on the vegetable oil market to track the uses on UCO.

But the high volume of UCO imports also intersects with policy such as California's cap on soybean and canola oils for the LCFS that also pushes an even greater incentive to import more UCO.

EXPLAINING THE MODELS

Michael Wang, a distinguished fellow, senior scientist and the director of Argonne's Systems Assessment Center of the Energy Systems division, explained in an interview with DTN that the indirect land-use change penalty comes from the biofuel policy itself.

As the Renewable Fuels Standard and other policies send 30% of corn production to ethanol plants, then other countries increase their production to compensate for that change.

"Brazil's second corn is not the cause. The cause is our biofuel production," Wang said. "Second corn or first corn is the response to the cause … We know the second corn production has gone up significantly."

One reason Brazil's second corn crop has a zero carbon-intensity score because it reduces the impact of U.S. ethanol on indirect land use. That second corn crop "is not from new land but from existing soybean land," Wang said.

Wang added the issue isn't that one country's corn causes another country's corn.

"It's not this corn supply versus that corn supply, because the corn supply is the effect, not the cause."

Wang, who has been at Argonne labs for 30-plus years, also was a lead author on the Argonne study looking at the greenhouse gas emissions for the 40B tax credit. https://greet.anl.gov/…

Wang also explained there are two approaches to deal with land-use change emission. EPA, California, the Inflation Reduction Act programs and the international aviation group ICAO CORSIA all seek to quantify potential land-use changes in their models.

Meanwhile the European Union, Canada, Brazil and others use a "risk-based approach" to prevent land-use changes. That has led to the EU banning palm oil imports because of deforestation.

The EU's ban also drawn fire from countries such as Indonesia and Malaysia, which have filed complaints in the World Trade Organization for hurting farmers and discriminating against their products.

SEARCHING FOR PATHWAYS

DTN's Todd Neeley reported Friday on a study released by Growth Energy showing the potential for corn ethanol to become "near net-zero carbon" by 2035. The report looked at ways to reduce emissions and the costs involved. See, https://www.dtnpf.com/…

Todd also wrote about Cooper and RFA stressing the urgency that the IRS issue guidance for the 45Z Clean Fuels Production tax credit before the November election. The tax credit is supposed to begin Jan. 1, 2025, but the industry doesn't know the rules on how it will work.

See, https://www.dtnpf.com/…

RISK OF BEING RIGHT

While climate models may primarily be used to count potential emission scenarios, policies like the RFS, LCFS programs and SAF tax credits were not created to solely focus on reducing carbon emissions. There was a large economic opportunity declared when the Inflation Reduction Act passed two years ago.

But these policies will end up as ineffective and costly if, for example, the world's largest ethanol producer is forced to import ethanol, or if soybean and canola oil are replaced by imported more and more used cooking oil.

Along with that -- at a time when commodity prices are dropping -- there could be significant backlash from rural America if these low-carbon initiatives end up providing U.S. tax credits for imported agricultural products, instead of benefiting U.S. farmers, agriculture and the rural economy.

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

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