The $1.75 trillion Build Back Better bill that congressional Democrats are struggling to get across the finish line offers new incentives to expand the production of biofuels while encouraging livestock operations to capture and sell biogas.
But the way the bill is currently written, government agencies would have to fill in some critical details if the measure becomes law. That's the case, for example, with some eligibility rules for a new “clean fuel” tax credit the legislation would create.
The biofuel and bioenergy provisions are important pieces of the bill’s climate components, which are aimed at helping decarbonize the energy and agriculture sectors.
Some details of the bill itself are still subject to change as lawmakers try to finalize a version that can pass both the House and Senate. But under a version of the legislation that the House released last week, the bill also would provide $960 million for biofuel infrastructure, such as storage tanks and blender pumps, and there is funding for climate-smart farming practices, such as cover crops, that could help biofuel producers claim a lower carbon footprint for their products.
The dairy industry and other livestock sectors would benefit from the bill’s incentives for capturing methane emissions from manure.
The bill would create a new investment tax credit for biogas, which is indirectly eligible for a tax incentive currently because of an existing credit for renewable electricity. The new tax credit could apply to biogas for additional uses beyond electricity, including compressed natural gas.
The bill includes more than $22 billion in new spending for farm bill conservation programs, and one of the priorities for the funding is to "capture or sequester greenhouse gas emissions."
Other provisions of the bill would extend the existing $1-a-gallon tax credit for biodiesel and renewable diesel through 2026 and create a separate but temporary tax credit for sustainable aviation fuel, or SAF, that would also expire at the end of 2026.
Starting in 2027, both credits would be replaced with the clean fuel production credit, which would vary according to the carbon intensity of the fuel.
The new credit is aimed at increasing biofuel usage in hard-to-electrify sectors such as trucking and aviation while also creating incentives to drive down the carbon intensity of the fuels, through production methods and feedstocks that result in fewer greenhouse gas emissions.
Conventional corn ethanol also could potentially qualify if the carbon dioxide the ethanol plants produce is captured and piped underground, as some facilities plan to do. The bill also expands the 45Q tax credit for carbon capture and sequestration to $85 a ton, up from the current limit of $50 a ton; ethanol plants could qualify for either the 45Q credit or clean fuel credit, but not both.
For biodiesel and renewable diesel, the clean fuel production credit would be less valuable than the existing $1-a-gallon credit, which is scheduled to expire at the end of 2022, said Kovarik.
The amount of the credit would depend on the type of feedstock that’s used. In 2027, the new credit would likely be worth 70 to 75 cents a gallon for biodiesel or renewable diesel made from used cooking oil, animal fats or the corn oil that is a byproduct of ethanol production. Fuel produced from soybean or canola oil would qualify for a credit of 40 to 50 cents a gallon, said Kovarik.
Soybean and canola oil are rated as having higher greenhouse gas emissions in part because of their indirect impact on land use.
The value of the clean fuel credit would be phased down proportionately over time as the carbon intensity benchmarks tighten.
The Treasury Department would be required to annually publish emissions rates for fuels that are produced using similar feedstocks. The emissions rates would be used to determine the value of the credit.
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It’s less clear what feedstocks would qualify for use in making sustainable aviation fuel. For both the temporary SAF credit and the clean fuel credit that takes effect in 2027, fuels would be graded on carbon intensity according to rules developed by the International Civil Aviation Organization, or similar methodology.
Most agricultural commodities could not qualify under the ICAO rules, experts say. The Department of Transportation could create an alternative methodology that is “consistent” with the ICAO model but “may nevertheless have very different outcomes,” said Nikita Pavlenko, a senior researcher for the International Council on Clean Transportation, an environmental group.
He noted that a separate SAF grant program that would be authorized for the Transportation Department also allows for use of a less stringent methodology than ICAO’s.
United Airlines CEO Scott Kirby said Tuesday the SAF tax credit was needed to help make the biofuel more affordable to carriers. He compared it to the federal tax incentives that the government has long provided to wind and solar energy.
“Those credits for wind and solar were some of the biggest paybacks of any government program ever, and the same thing can happen” with sustainable aviation fuel, he said on a Politico webinar.
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