Semi-Sweet on GREET Street: US decision on SAF tax credits is bold for residues; tepid for grains, oilseeds

In Washington, the U.S. Department of the Treasury and Internal Revenue Service released guidance on the Sustainable Aviation Fuel Credit established by the Inflation Reduction Act.

The Treasury Department’s guidance provides important clarity around eligibility for the SAF Credit. The credit incentivizes the production of SAF that achieves a lifecycle greenhouse gas emissions reduction of at least 50% as compared with petroleum-based jet fuel. Producers of SAF are eligible for a tax credit of $1.25 to $1.75 per gallon. SAF that achieves a GHG emissions reduction of 50% is eligible for the $1.25 credit per gallon amount, and SAF that achieves a GHG emissions reduction of more than 50% is eligible for an additional $0.01 per gallon for each percentage point the reduction exceeds 50%, up to $0.50 per gallon.

As part of the guidance, the agencies comprising the SAF Interagency Working Group jointly announced the 40B SAF-GREET 2024 model. This model provides another methodology for SAF producers to determine the lifecycle GHG emissions rates of their production for the purposes of the SAF Credit.

The modified version of GREET incorporates new data, including updated modeling of key feedstocks and processes used in aviation fuel and indirect emissions. The modified GREET model also integrates key greenhouse gas emission reduction strategies such as carbon capture and storage, renewable natural gas, and renewable electricity.

The Notice, on a pilot basis, incorporates a USDA pilot program to encourage the use of certain Climate Smart Agriculture practices for SAF feedstocks. Incorporating CSA practices into the production of SAF provides multiple benefits, including lower overall GHG emissions associated with SAF production and increased adoption of farming practices that are associated with other environmental benefits, such as improved water quality and soil health.  For corn ethanol-to-jet, the pilot provides a greenhouse gas reduction credit if a “bundle” of certain CSA practices (no-till, cover crop, and enhanced efficiency fertilizer) are used. It similarly would allow a greenhouse gas reduction credit for soybean-to-jet if the soybean feedstock is produced using a “bundle” of applicable CSA practices (no-till and cover crop). This is a pilot program specific to the 40B credit, which is in effect for 2023 and 2024. To credit CSA practices in the Clean Fuel Production Credit (45Z), which becomes available in 2025, the agencies will do further work on modeling, data, and assumptions, as well as verification. A new 45Z-GREET will be developed for use with the 45Z tax credit.

Reaction from industry and The Hill

Industry and farm sector reaction oscillated from weak-positive to sharp-negative.

Sen. Chuck Grassley (R-Iowa) said, “THere are two main issues with the Biden administration’s GREET Model decision: First, this new formula is going to be easy to violate. Second, without grain in the formula, there won’t be enough feedstock to make all the Sustainable Aviation Fuel environmentalists are crying for. To put it bluntly, this GREET Model update is a stupid approach. Widespread use of Sustainable Aviation Fuel will help fight global warming. But rejecting grain feedstocks will impede efforts to produce that fuel on a commercial scale.”

Michael McAdams, president of the Advanced Biofuels Association, said, “The Advanced Biofuels Association applauds the Treasury Department and IRS for their decision to offer increased modeling flexibility for measuring the carbon intensity of sustainable aviation fuel (SAF). This move will facilitate greater production of SAF and pave the way for its widespread adoption. We look forward to continued and unequivocal support from the federal government for sustainable, low-carbon aviation fuels. The Biden administration set the ambitious goal of supplying at least 3 billion gallons of SAF per year by 2030 and the aviation industry intends to reach net zero emissions by 2050. The flexible modeling approach provided in today’s 40B rule greatly increases the likelihood of meeting these targets.

“This guidance crosses an important threshold in carbon modeling,” said Growth Energy CEO Emily Skor. “It’s also the first time Treasury has used the Argonne National Laboratory’s GREET model in federal tax policy. These are promising big-picture developments and signal that agriculture is a key part of our nation’s climate strategy.  The new 40B GREET model is trending with scientific consensus when it comes to measuring indirect land use change (iLUC). Years’ worth of peer-reviewed research has shown that this number has been decreasing when it comes to bioethanol production. We hope future guidance for the 45Z tax incentive follows this trend and continues to reflect the falling iLUC values for American biofuels. Still, the administration’s restrictive all-or-nothing approach to recognizing the value of climate smart agriculture practices may ultimately limit innovation and make farmers, blenders, and producers less – not more – likely to invest in emissions-reducing technologies. America’s potential SAF producers and their farm partners need flexibility to find the path that works best for them, but these rigid guidelines will leave carbon reductions on the table.”

“Today’s guidance and modified GREET model help position ethanol-based SAF for takeoff,” said RFA CEO Geoff Cooper. “More work is needed to fully clear the runway and get this opportunity off the ground. We are encouraged that, for the first time ever, this carbon scoring framework will recognize and credit certain climate-smart agricultural practices. We’re also pleased to see the integration of other carbon reduction strategies—like renewable process energy and carbon capture and sequestration—into the model. However, RFA believes less prescription on ag practices, more flexibility, and additional low-carbon technologies and practices should be added to the modeling framework to better reflect the innovation occurring throughout the supply chain.” 

NOPA President and CEO Kailee Tkacz Buller said “Ee are concerned the requirement to implement climate-smart ag practices simultaneously will limit this opportunity, particularly in parts of the country where it may not be possible to plant a cover crop or the cost to implement new practices is too steep. We look forward to further reviewing today’s announcement and having a continued dialogue with the administration to better understand what this and other provisions, including indirect land use change impact, mean for the industry and how we can competitively and efficiently meet the needs of the SAF market.

“Clean Fuels and its members appreciate the significant work of USDA and other federal agencies to account for the role that U.S. farmers will play in decarbonizing the nation’s aviation fuel,” said Kurt Kovarik, Vice President of Federal Affairs for Clean Fuels Alliance America. “U.S. farmers and SAF producers will continue to work with the agencies to rapidly expand SAF production over the next few years. Biodiesel, renewable diesel, and SAF producers are already negotiating feedstock and fuel offtake contracts for 2025, so we look forward to working with Treasury and USDA to quickly turn attention to guidance for the Clean Fuel Production Credit that begins on January 1 next year.”

Josh Gackle, President of the American Soybean Association added, “For growers like me here in North Dakota, short growing seasons and unpredictable fall weather make the cover crop requirement alone next to impossible. Growers in the Northern Plains do so when possible. However, employing both no till and cover cropping is contrary to what Mother Nature will allow, no matter what the guidance specifies.

Administration reaction

Administration officials were, on the other hand, pleased and delighted. 

“President Biden’s Inflation Reduction Act is driving American innovation to create good-paying jobs and help the U.S. clear hurdles in our clean energy transition,” said U.S. Secretary of the Treasury Janet L. Yellen. “Incentives in the law are helping to scale production of low-carbon fuels and cut emissions from the aviation sector, one of the most difficult-to-transition sectors of our economy. Today’s guidance provides additional clarity and certainty to companies and producers.”

“Sustainable aviation fuel is a key part of the Biden-Harris Administration’s efforts to transition the American economy to a clean energy future and rebuild the middle class from the bottom up to the middle out in rural America,” said U.S. Secretary of Agriculture Tom Vilsack. “Today’s announcement is an important stepping stone as it acknowledges the important role farmers can play in lowering greenhouse gas emissions and begins to reward them through that contribution in the production of new fuels. This is a great beginning as we develop new markets for sustainable aviation fuel that use home grown agricultural crops produced using climate smart agricultural practices. USDA will continue to work with our federal agency partners to expand opportunities in the future for climate smart agriculture in producing sustainable aviation fuel.”

“The guidance released today reflects the latest data and science needed to help create new economic opportunities for America’s agricultural sector,” said U.S. Secretary of Energy Jennifer M. Granholm. “This interagency effort will help our climate goals take flight with cheaper, cleaner sustainable aviation fuel — ensuring America maintains an innovative edge on the global clean technology stage.”

“Innovation in the aviation sector has brought our country and our world together and now, it’s fueling the solution to meet our ambitious net-zero carbon emission goals,” said U.S. Secretary of Transportation Pete Buttigieg. “Today’s announcement will strengthen America’s position as a leader in the production of sustainable aviation fuels, help cut carbon emissions, and create a better future for all Americans.”

“The Inflation Reduction Act’s tax credit for sustainable aviation fuels is a critical tool for decarbonizing air travel,” said John Podesta, Senior Advisor to the President for International Climate Policy. “Today’s announcement of an updated GREET model and Treasury guidance is a big step forward for American farmers, for American innovation, for American jobs, and for America’s ability to cut carbon pollution from our transportation sector and protect our planet.”

The Bottom Line

Well, you can measure the width of the window to meet the SAF Grand Challenge in micrometers, now, possibly nanometers, possibly the width of a quantum tunnel. Nevertheless, it’s progress, and good news for fans of GREET to see it finally enshrined in US tax policy. Been a long journey for GREET. Good to see it grow from a concept to an internatinoal standard of great renown. Deservedly so.