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Groups urge ‘flexible’ tax credit on low-emission fuels

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Biofuel groups say they expect the USDA to seek guidance on how climate-smart farming should play into the clean fuel production tax credit in 2025.



GREENWIRE | Stung by criticism that a tax credit for sustainable aviation fuel snubbed farmers for 2024, the Biden administration may be looking to patch the relationship with a new clean energy tax credit that takes effect next year.

Biofuel industry representatives said they expect the Department of Agriculture in the coming weeks to formally ask for suggestions on how farmers could play a bigger role in the new clean fuel production credit, which will reward producers of transportation fuel that limits greenhouse gas impacts.

The USDA has signaled to industry groups that it will publish a “request for information” to quickly gather insights on matching farmland conservation with the coming tax credit’s climate goals, the organizations said.

A USDA spokesman, Allan Rodriguez, declined Monday to comment on the department’s plans. But Geoff Cooper, president and CEO of the Renewable Fuels Association, said he expects an accelerated timeline.

“They’ll turn it around quickly,” said Cooper, representing ethanol producers, adding that he’d expect a proposed rule from the administration by the end of July. The Treasury Department is in charge of implementing the tax credit but is consulting with the USDA on technical questions related to farming practices.

The USDA “received lots of feedback” about shortcomings in the administration’s guidance on the sustainable aviation fuel tax credit at the end of April, Cooper said, citing requirements that farms practice a combination of certain conservation measures.

Carbon reductions from biofuel are spelled out in a model from the Argonne National Laboratory called GREET, or Greenhouse Gases, Regulated Emissions and Energy Use in Transportation. While the model has been around for years, the administration is updating it for use with the tax credit.

Farming practices can account for as much as half of the carbon intensity of ethanol production, ranking second behind the fermentation process for corn at an ethanol plant, said Daniel Ryan, CEO of CIBO Technologies, a climate software company specializing in lowering agricultural emissions.

The $1.25-per-gallon SAF credit is in Section 40B of the Internal Revenue Code, and it increases incrementally for emissions reductions greater than 50 percent. That credit expires at the end of this year.

The clean fuel production tax credit coming next year is in Section 45Z of the code. That credit is up to $1.75 per gallon for aviation fuel and $1 per gallon for non-aviation fuel. Congress included both in the Inflation Reduction Act in 2023.

Agriculture Secretary Tom Vilsack has touted sustainable aviation fuel as a boon to the biofuel industry and to farmers for years to come. In the weeks ahead of the aviation fuel credit announcement, he said the USDA was working with the Treasury Department to explain which conservation practices help reduce emissions in measurable ways.

Both tax credits are meant to reward fuel producers whose product achieves substantial reductions in carbon emissions compared to petroleum. The SAF tax credit, which lasts only through this year, requires that fuel be produced from crops grown with a bundle of conservation practices — three for corn and two for soybeans, dictated in the Treasury Department’s guidance.

Together, the practices are supposed to help achieve at least a 50 percent reduction in emissions compared with traditional jet fuel. But many farmers can’t practically combine those practices, agriculture groups say, because they’re not appropriate on all land types or in all climates.

Farmers in the Upper Midwest, for instance, may have too short a growing season to plant cover crops that protect the ground when the cash crop isn’t there.

In addition, Cooper said, keeping track of which corn was grown where and with which conservation practices can be onerous, since harvests from many farms are shipped to and stored at ethanol plants.

Cooper’s organization, as well as the ethanol group Growth Energy and the biodiesel group Clean Fuels Alliance America, say the administration has told industry groups the clean fuels credit coming next year will be more flexible.

Details, though, remain to be seen. Cooper said the RFA hopes the next set of guidance accounts for the many conservation practices farmers use — not just cover crops or no- till farming or enhanced efficiency fertilizer — that are considered climate smart.

The RFA, along with the Clean Fuels America Alliance and other groups, wrote to Treasury Secretary Janet Yellen in May, urging quick guidance on the clean fuels tax credit. Cooper said the industry would like to see a final rule from the Treasury Department by the November elections.

Sen. Chuck Grassley (R-Iowa), the Senate’s longtime advocate for biofuels, told reporters last week that not many farmers could benefit from the sustainable aviation fuel credit and that officials should take a different approach on the forthcoming clean fuels credit.

“They better be more flexible if they want to meet their goals,” Grassley said.

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