The U.S. Treasury and IRS issued updated guidance on the Sustainable Aviation Fuel (SAF) tax credit, aligning with the Inflation Reduction Act’s goal to boost SAF production by providing incentives based on lifecycle greenhouse gas (GHG) reductions. The initial guidance on the Biden Administration’s SAF subsidy program, which includes three climate-smart practices for corn-based ethanol to qualify; two qualifying practices for soy-based biodiesel and producers of SAF are eligible for a tax credit of $1.25 to $1.75 per gallon
The new guidance includes the release of the now called 40BSAF-GREET 2024 model, designed to calculate these GHG reductions more accurately, incorporating new data and methodologies including climate-smart agricultural practices for soybeans and corn as a feedstock for SAF. GREET stands for Greenhouse gases, Regulated Emissions, and Energy use in Technologies.
EPA’s new model is designed to address previously identified shortcomings in the R&D GREET model, particularly in how it calculated lifecycle greenhouse gas emissions. The lifecycle approach accounts for all emissions from the initial production stages through to the final use of the fuel.
Similarity to CORSIA Methodology
The Treasury Department notes that the methodology used by the new 40BSAF-GREET 2024 model is like that of the CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation) methodology. CORSIA also evaluates the full fuel lifecycle, which includes all stages from the production of feedstock to the end use of the finished fuel.
Both these methodologies aim to provide a comprehensive assessment of the environmental impact of aviation fuels, focusing on reducing greenhouse gas emissions throughout the entire lifecycle of the fuel. This is crucial for developing effective strategies and regulations for mitigating the aviation industry’s impact on climate change.
The SAF tax credit provides a base of $1.25 per gallon for SAF that achieves at least a 50% reduction in GHG emissions compared to traditional jet fuels, with additional incentives for greater reductions, capped at $1.75 per gallon. This move is aimed at fostering the use of domestically produced, lower-carbon fuels and enhancing the role of U.S. agriculture in sustainable fuel production.
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Significantly, a pilot program was introduced to credit SAF production using feedstocks grown under specific climate-smart agriculture (CSA) practices, like no-till farming and cover cropping. This pilot, part of the broader strategy to decarbonize aviation fuels, represents a shift towards recognizing and rewarding agricultural practices that contribute to carbon reduction. The release from Treasury on the credit noted that the CSA practices incorporated into the USDA CSA Pilot Program “are not a part of either the 40BSAF-GREET 2024 model or any CARB program including the LCFS program. Therefore, the Treasury Department and USDA have developed additional unrelated party certification requirements for the USDA CSA Pilot Program.”
Industry Reaction
Industry reactions have been largely positive, highlighting the progress towards integrating farming practices into carbon scoring for biofuels. However, some critiques focus on the need for less rigid frameworks to encourage broader adoption of innovative, carbon-reducing technologies and practices in agriculture and biofuel production. There is a desire for ongoing refinement of these models to ensure they are scientifically robust and economically beneficial, paving the way for significant reductions in GHG emissions from aviation fuels and strengthening the role of American agriculture in achieving these goals.
SAF production requirements:
- SAF producers seeking to use the CSA reduction for producing SAF from CSA crops must contract directly with farmers enrolled in the USDA CSA Pilot Program for either CSA corn or CSA soybeans.
CSA corn production practices:
- Farmers producing CSA corn for Alcohol to Jet (ATJ)-ethanol must implement three specific practices on the same acreage:
- No-till farming.
- Planting cover crops.
- Using enhanced efficiency nitrogen fertilizer.
CSA soybean production practices:
- For CSA soybeans, only two practices are required:
- No-till farming.
- Planting cover crops.
Added nitrogen is not required for soybean production.
USDA CSA pilot program and emissions reduction:
- In partnership with the USDA, the Treasury Department allows for a SAF synthetic blending component produced from CSA corn or soybeans to be eligible for an additional proxy reduction (CSA reduction) in emissions calculation, without needing a full lifecycle analysis.
Emissions reduction example:
- A synthetic blending component using CSA corn or soybeans is granted a safe harbor, with Treasury citing an example where CSA corn used in SAF production achieves a 53% emissions reduction.
Regulatory alignment and definitions:
- The definitions and practice requirements outlined by the Treasury in their notice align with USDA’s Natural Resources Conservation Service (NRCS) practice standards and enhancements, with specific details provided in the notice.
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CSA pilot program practices:
No-till farming defined:
- No-till involves limiting soil disturbance to manage the amount, orientation, and distribution of crop and plant residue on the soil surface year-round.
- Residue must not be burned and should be uniformly distributed over the entire field. Removal from the seeding or transplanting area is acceptable.
- In-row soil disturbance is permitted during strip tillage, planting, and when closing seed rows/furrows. Full-width soil disturbance is prohibited between crop cycles.
- The Soil Tillage Intensity Rating (STIR) for the crop interval must not exceed 20. Examples include a tandem disk (STIR 19.5) and a rotary stalk chopper (STIR 31.2).
Cover crop practices:
- Include grasses, legumes, and forbs for seasonal vegetative cover.
- Planting must adhere to local criteria regarding species, seedbed preparation, seeding rates, dates, depths, fertility, and methods.
- Cover crops should be compatible with other cropping system components and selected herbicides.
- Establishment can occur during the fallow season, or as companion or relay planting.
- Residue from cover crops cannot be burned, and crops must be terminated according to NRCS guidelines.
- If grazed or hayed, management must not compromise soil health or organic matter.
- Cover crops cannot be harvested for seed.
Enhanced Efficiency Nitrogen Fertilizer (EENF) practices for corn:
- EENF is used to improve nutrient use efficiency, reduce nutrient loss risk, and lower greenhouse gas emissions.
- Defined by AAPFCO as products that increase plant uptake and reduce nutrient losses compared to standard fertilizers.
- For corn, strategies include using nitrification inhibitors, urease inhibitors, or slow-release fertilizers for a minimum of 50% of nitrogen applications.
- This practice does not apply to soybeans as they do not require added nitrogen.
Upshot: These practices and definitions are integral to the USDA CSA Pilot Program and aim to enhance sustainability in crop production by minimizing environmental impact and improving resource efficiency.
Record Keeping Requirements for Farmers in the CSA Pilot Program
General records:
- Maintain records on the type and amount of feedstock produced.
- Document ownership or operational control of the enrolled land; if leased, the lessee must declare operational control.
- List all CSA practices implemented as per the guidelines.
- Sign a letter of intent to continue using no-till and cover crops on the same acreage, allowing periodic tillage only once every five or ten years.
- Declare that the produced feedstock using CSA practices is exclusively for SAF production and affirm no sale of GHG offset credits or associated GHG benefits.
- Provide all records to an unrelated third party for verification.
Crop-specific records:
- Document crop rotation and tillage practices for each crop before implementation and note any changes to ensure compliance with no-till practices.
- Record planting and harvesting dates for each crop, detailing the month and year.
- Document field operations and the timing of these operations.
- Record total planted and harvested acreage and yield for crops produced under the no-till system and sold as SAF feedstock.
- Keep records of seed purchases, seeding dates and rates, and field locations (using FSA maps or other reliable sources).
- Document the amount of SAF feedstock delivered to various points such as elevators, millers, refiners, or other delivery locations.
Cover crop and fertilizer management:
- Maintain similar records for cover crops as required for primary crops.
- Keep management records for the use of Enhanced Efficiency Nitrogen Fertilizer (EENF) strategies.
Bottom line: These record-keeping practices are crucial for ensuring accountability and verifying compliance with the sustainable practices stipulated by the CSA Pilot Program.
SAF producer requirements
Contractual obligations:
- Farmers must have a direct contract with the SAF producer.
Record keeping and compliance:
- SAF producers are responsible for collecting and maintaining all records from each supplying farmer. Note that the EENF portion is not relevant for soybean production.
- Maintain full supply chain traceability records as per requirements.
- If a grain elevator is used as an intermediary for storing feedstock, it must also maintain appropriate records linked to those bushels.
Intermediary entities:
- Any intermediary entity that takes physical possession of the feedstock, including the registered SAF producer, must comply with traceability requirements aligned with the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).
Documentation and forms:
- Forms for farmers to provide their supporting information for the CSA Pilot are included in the notice covering the process, ensuring transparency and adherence to guidelines.
Impacts and Implementation
CSA pilot program requirements and participation:
- All three CSA actions are required for corn, while only the first two (no-till and cover crops) are needed for soybeans.
- Soybeans might qualify more easily due to the commonality of no-till, but fewer farmers use both no-till and cover crops together.
Land eligibility and coverage:
- According to the Census of Agriculture, no-till is practiced on 105.2 million acres, but cover crops are much less common at 17.99 million acres.
- There are 382 million acres of cropland, with 301 million acres harvested, raising questions about the universe of land eligible for the CSA Pilot.
SAF production and consumption:
- SAF consumption has risen from 5 million gallons in 2021 to 24.5 million gallons in 2023.
- The limited number of SAF producers in the US could pose a challenge for meeting program goals.
Periodic tillage and soil health:
- Periodic tillage is crucial for some farmers using no-till to maintain soil health, requiring clarity on permissible tillage practices under the program.
Record-keeping requirements:
- Farmers must maintain detailed records and provide them to third parties for verification.
- Elevators used by SAF producers for storing CSA commodities also have specific record-keeping requirements.
Regulatory and financial considerations:
- New domestic plants using the ATJ pathway with ethanol as feedstock are expected, though details are sparse.
- Farmers selling CSA crops to SAF producers cannot earn GHG offset credits or sell associated GHG benefits, impacting participation in private carbon credit efforts.
Future developments and clarity:
- The Clean Fuel Production Credit (45Z) starting in 2025 will require further modeling, data assumptions, and verification.
- A new 45Z-GREET model will be developed to align with the 45Z tax credit, necessitating rapid development and expanded use of cover crops.
