Sustainable aviation fuels will qualify automatically for tax credits of up to $1.25 a gallon if they are derived from corn and soybeans grown under a specific set of carbon-reducing practices, said the Biden administration on Tuesday. Farm groups and biofuel producers grumbled at the restrictions — a fraction of U.S. biofuels would be eligible at present — and said they would seek better terms in the long-term regulations now under consideration.
The Treasury Department “guidance” documents apply to the 40B tax credits for sustainable aviation fuel (SAF) produced from 2022-24. They describe the criteria for the credits, offered for fuels that reduce greenhouse gas emissions by at least 50 percent compared to petroleum-based jet fuel, and updated the so-called GREET model that measures the reductions.
A new set of rules will be written for the 45Z tax credits, which become available in 2025, along with further refinements to the GREET model. The 40B guidelines may influence design of the 45Z credits, said one official.
“This is an important day,” said Agriculture Secretary Tom Vilsack. “This is the first time that we will see the recognition of the climate benefits of climate-smart agricultural practices.”
Jet fuel produced from corn ethanol will be eligible for the SAF tax credits if the corn came from a farm that used no-till, planted cover crops following harvest, and applied enhanced efficiency fertilizer. Similarly, fuel made from biodiesel would be eligible if growers used no-till and planted cover crops. Projects that produce biofuels as part of USDA’s climate-smart agriculture initiative also qualify.
Reduced tillage or no-till is widely used by farmers. But cover crops are planted on only 15 million acres, and enhanced efficiency fertilizer is applied on 70 million acres annually, said a USDA economist. By comparison, farmers planted 94.6 million acres of corn and 83.6 million acres of soybeans last year. About 35 percent of the corn crop is used in making ethanol. More than half of soybean oil, produced by crushing soybeans, goes to biofuels. A bushel of soybeans yields around 11 pounds of oil.
The American Soybean Association said the linkage of no-till and cover crops could be problematic in northern states with fickle weather and a narrow window in the fall to establish cover crops. Iowa Sen. Joni Ernst, a Republican, said the administration was “unfairly penalizing domestic producers for their farming practices,” although other routes exist to collect SAF credits.
“We look forward to working with USDA and other agencies across the administration to ensure 45Z is implemented in a way that truly swings the door wide open for farmers and ethanol producers to participate in the enormous decarbonization opportunity,” said the Renewable Fuels Association. The 40B guidelines recognize the impact of technology such as carbon capture utilization and storage. The RFA said the government would allow more flexibility on farming practices and incorporate additional low-carbon technology and practices.
“The aviation industry has long been labeled as, quote, hard to decarbonize,” said John Podesta, White House adviser on international climate policy. Commercial airlines consume 10 percent of U.S. transportation fuel and emit 2 to 3 percent of U.S. carbon emissions. “Sustainable aviation fuel, or SAF, is key to achieving net-zero aviation,” said Podesta.
Only a trickle of SAF is produced now. The administration has a goal of increasing SAF production to 3 billion gallons by 2030. Tax credits are expected to encourage production.
To read the Treasury Department guidance on SAF tax credits, click here.