The Treasury Department finally released the guidance for the GREET model which covers eligibility requirements for the 40B tax credit for Sustainable Aviation Fuel under the Inflation Reduction Act.
It was a disappointment to many in the biofuels industry because it’s more stringent than they were hoping for.
Producers of Sustainable Aviation Fuel under the new 40B GREET model are eligible for a tax credit of $1.25 to $1.75 per gallon. To be eligible, refiners must demonstrate their fuel is 50% lower in emissions than petroleum jet fuel. For corn-based ethanol, that will require farmers bundle three climate smart ag practices.
Brian Jenning, CEO, American Coalition for Ethanol says, “This is an all or none approach meaning all three of these practices must be adopted on your corn acres on order to qualify. No-till, a cover crop, an enhanced efficiency fertilizer.”
Jennings says this is too restrictive especially as cover crops can’t be used in every geography. So, it won’t result in the volume of SAF the administration was planning for.
“We don’t have any information from USDA on their estimates for how many acres of corn production in the United States have all three of these practices being adopted. My guess is its very little.”
Soybean oil barely qualifies for the $1.25 40B tax credit. But SAF is eligible for an additional penny per gallon for each percentage point the reduction exceeds 50%, up to 50-cents. That can be achieved for soy based SAF by again overcoming hurdles.
Kurt Kovarik, vice president of federal affairs for Clean Fuels Alliance America, says, “In the case of soybeans that includes using some degree of cover crops as well as no-till practices which are all defined by USDA.”
Still, they believe the recognition of the GREET model is a victory for the future.
“Do we agree with all of the conclusions of the model, absolutely not but do we believe it was a step in the right direction 100%.”
The new model also recognizes Green House Gas reductions from carbon pipelines, renewable natural gas and renewable power in combination with CSA practices.
Jennings says, “Carbon capture and sequestration technology which a lot of ethanol producers are making investments in as we speak indeed is an approved technology under that model.”
The guidance specifically for the 40B tax credit for the rest of 2024 won’t help farmers according to The Farm CPA Paul Neiffer.
“The problem is based on their requirements inside the regulations that they issued maybe there’s 50,000 bushels of corn in the United States that could qualify for this. I think its worthless from a tax standpoint for the SAF producer it really has no value,” he says.
Senate Finance Committe Chair and Senator Chuck Grassley (R-Iowa) is pushing back on this model because he says bureaucrats should not tell farmers how to grow their corn and by limiting grain feedstocks the rule excludes farmers from this potential market in favor of big ag.
He blasted the administration, “First this formula is going to be easy to violate. Second without grain the formula there won’t be enough feedstock to make all the Sustainable Aviation Fuel that environmentalists are crying for. To put it bluntly this GREET model update is a stupid approach.”
However, with Treasury leaving pathways under the 45Z clean fuel production tax credit going into effect on Jan. 1, 2025 the biofuels industry is looking ahead.
Kovarik says, “Are there opportunities for improvement as we move down the road, and we implement some of the other tech neutral carbon intensity tax credits or producers tax credits absolutely.”
Jennings adds, “That 45Z is going to be more flexible the requirement that you have to bundle three climate smart agriculture practices on your corn acres to even qualify will not be part of the 45Z tax credit and so I do think we’ll have more opportunities and more flexibility for farmers and ethanol producers to benefit from that in the future.”
So, they’ll be working with the Treasury Department and USDA to seek greater flexibility in the future.
And Neiffer says the sooner the better, so farmers have time to plan.
“The bottom line is IRS and DOE in order for a farmer to know what they need to do for 45Z they need to get the guidance out now.”
