By Chris Clayton
Biofuel producers and farmers will essentially have the rest of 2024 as a "safe harbor" or "pilot project" to figure out how they will account for climate-smart practices on farms to garner longer-term tax credit for producing a low-carbon jet fuel.
The Biden administration on Tuesday released details spelling out how ethanol and biodiesel producers can qualify for the $1.25-per-gallon sustainable aviation fuel (SAF) 40B tax credit that will revolve around an updated energy life-cycle analysis, the Greenhouse Gases, Regulated Emissions and Energy use in Technologies (GREET) model.
John Podesta, a senior adviser on climate policy to the president, said providing incentives for airlines to develop aviation fuels was critical because jet fuel amounts to about 10% of all liquid fuels and accounts for about 2% of the country's greenhouse gas emissions. The updated GREET model plugs in new data and modeling for biofuel feedstocks, he said.
"We think of it as a 'must-decarbonize' sector," Podesta said. He added, "We've been laser-focused on getting this methodology right to post the SAF industry and spur innovation to create new economic opportunities for America's farmers."
Officials made a point that the guidance is just "laying a foundation" for a policy structure that will grow out the SAF industry over decades to come. Farmers who sell to biofuel producers will benefit if they are using farming practices that either reduce emissions or sequester carbon in the soil, said Agriculture Secretary Tom Vilsack.
"It sends a clear signal to the market and to American agriculture that they are going to be part of this exciting new future in 2025 and beyond that," Vilsack said of Tuesday's announcement.
EPA data shows there were only about 24.5 million gallons of SAF produced in 2023. The Biden administration is trying to jumpstart the first 3 billion gallons of SAF annually by 2030 and potentially 35 billion gallons of low-carbon jet fuel by 2050.
The 40B tax credit, created in the Inflation Reduction Act, requires greenhouse gas emissions for SAF products be at least 50% lower than petroleum-based jet fuels. The tax credit also offers an extra 1 cent per gallon for every percentage of emissions beyond that 50% reduction.
The 40B tax credit is retroactive for 2023 but only runs through the end of 2024. To stimulate some SAF production, Treasury is providing a "safe harbor" for biofuel plants that also works as a "pilot" project for USDA and the biofuels industry to see how they account for climate-smart practices on farms to qualify for the 40B tax credit.
While highlighting the incentives, officials cited the scale of sustainable jet fuel produced right now is limited. Just one facility in Georgia owned by Lanza Jet has been set up specifically to produce a low-carbon jet fuel, but Lanza Jet also is importing ethanol from Brazilian sugar cane to make it happen.
Tuesday's announcement largely sets up a separate Treasury Department guidance and GREET model update that will come to qualify aviation fuels for the 45Z Clean Fuels Production Tax Credit. That tax credit can reach up to $1.75 a gallon, starting Jan. 1, 2025, until the end of 2027. The 45Z tax credit is considered more valuable long-term for biofuel-to-jet fuel because right now so little aviation fuel is being produced to qualify for the 40B tax credit.
"The guidance provided by the Treasury Department is going to provide a clear pathway to how best to qualify for the 40B tax credits and it is also going to create a process to expand opportunities under 45Z," Vilsack said.
Yet, even before the Treasury Department came out with its details, biofuel experts were questioning why the 40B and 45Z would differ.
"Many people are questioning why the GREET model for the SAF blending credit should be any different than the model used for 45Z," Corey Lavinsky, a biofuels law expert for S&P Global, posted on social platform X. "There has (been) tremendous pressure to push out a modified GREET today. Perhaps it's best to pull back, take more heat for the delay & get things right."
SAFE HARBOR
The Treasury Department will provide a "safe harbor" for ethanol plants that can show producers delivering to that facility are using no-till farming practices, cover crops and "energy efficient fertilizer use" to grow their corn. The same will apply for biodiesel facilities that show their farmers are using no-till and cover crops for soybean production, USDA said.
Essentially, the guidance details will provide incentives to biofuel producers that want to get into the SAF market to identify farmers growing corn or soybeans using climate-smart practices, a USDA official said.
While describing this safe harbor, officials said it would apply to the Sustainable Aviation Fuel 40B tax credits. It's unclear if that safe harbor will carry over to the 45Z tax credits. Vilsack said the interagency working group that developed guidance SAF and updated the GREET model will continue to expand "bundles" or individual climate-smart practices that will qualify for the 45Z credits later on.
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