American Soybean Association (ASA) Chief Economist Scott Gerlt provided the following highlights:
The 40B credit is available for 2023 and 2024. The program offers up to $1.75 per gallon for sustainable aviation fuel (SAF) with a carbon intensity (CI) reduction of at least 50% compared to petroleum-based aviation fuel. The credit amount increases with greater greenhouse gas (GHG) reductions. For example, a 70% GHG reduction earns a $1.45 credit per gallon. Several methods determine CI, with the most favorable result applied to the credit calculation.
SAF producers can further reduce CI scores through renewable energy use and climate-smart agriculture (CSA) practices, like no-till farming and cover crops. However, the current credit for these practices is insufficient to incentivize widespread adoption.
On Jan. 1, 2025, the 40B and 40A credits will expire, and the 45Z program will begin, running through 2027. The new credit will be based on emissions rates, providing $1.75 minus $.035 per kg of CO2e per mm BTU for SAF with emissions below 50%. This shift may reduce incentives for agricultural feedstocks, favoring waste-based materials. The 45Z program also establishes a tax credit for biodiesel and renewable diesel, which will receive $1.00 minus $.02 per kg of CO2e per mm BTU, indexed to inflation. The GREET model will be used for CI scoring.
The potential 45Z credits for soy-based biofuels are lower than the current biomass-based diesel tax credit, with most renewable diesel receiving additional Low Carbon Fuel Standard credits in California. The 45Z program may further increase demand for waste-based feedstocks over agricultural ones.
Details of 45Z are still unfolding, and the program’s 2027 expiration adds uncertainty for farmers and biofuel producers. Expanding CSA practices could help balance credit discrepancies between agriculture and waste-based feedstocks. The 40B program is a transitional step, providing insight into the development of 45Z and its impact on biofuel production and feedstock use.
Of note: ASA anticipates the Treasury Department will publish a request for information in the coming weeks, which would allow stakeholders to provide formal feedback. While further guidance is yet to be released, ASA is urging Treasury to publish before the tax credit takes effect so farmers can make appropriate planting decisions.
