Farmers who want to produce corn for production of sustainable aviation fuel will have to use no-till, cover crops, and energy-efficient fertilizer under guidance for a temporary new tax credit that the Treasury Department released Tuesday.
The rules will have minimal impact on production of the biofuel, since the Section 40B tax credit is only in effect through the end of the year, when a broader tax incentive, known as 45Z, will take effect.
Administration officials say the 40B requirements will lay the groundwork for the 45Z tax credit rules and should signal to SAF investors that agricultural feedstocks will be eligible for the incentive. Relatively little SAF is currently being made, but the airline industry has committed to using 3 billion gallons annually by 2030, or 10% of their projected fuel needs.
“The guidance provided by the Treasury Department is going to provide a clear pathway to how best to qualify for the 40B tax credits, and also to create a process to expand opportunities under 45Z,” Agriculture Secretary Tom Vilsack told reporters ahead of the release of the 41-page document.
“President Biden, I think, understood intuitively the important role that America agriculture and farmers would play in this new future when he predicted that in the next 20 years, farmers would be at the center of the supply chain to create this new fuel,” Vilsack said.
Under what is described in the guidance as a "USDA CSA Pilot Program" for corn and soybean feedstocks, soybeans produced with no tillage and cover crops "on the same acreage" also would be eligible for the tax credit, under the 40B guidance. CSA stands for climate-smart agriculture.
SAF producers will be required to have certification that climate-smart agriculture standards were followed for eligible corn and soybeans. The certifier will have to audit records from farmers and the crop’s supply chain. Farmers could be fined or get jail time for fraudulent certifications.
One of the few lawmakers with farming experience, Sen. Chuck Grassley, R-Iowa, told reporters Tuesday that restricting the tax credit to those climate-smart practices was impractical and would limit the amount of fuel that could be produced.
"Those restrictions are going to slow progress on the next generation of aviation fuel," he said.
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The administration also released updates to its GREET model for estimating the carbon intensity of biofuel feedstocks. The changes included an update to how the model accounts for indirect land use changes from biofuel crop production.
Both of the tax credits were created by the Inflation Reduction Act that Democrats pushed through Congress in 2022.
The 40B credit starts at $1.25 per gallon and can be worth as much as $1.75 per gallon, based on the carbon intensity of the fuel. The Treasury Department allows ethanol to qualify as a SAF feedstock, if the three climate-smart farming practices are used in production of the corn. The 45Z tax credit will be worth $1.75 a gallon for SAF.
Brian Jennings, CEO of the American Coalition for Ethanol, said in a statement that the 40B guidance provides “an important tailwind for corn ethanol produced with no-till, cover crops and enhanced efficiency fertilizers to qualify as a feedstock for SAF under 40B so long as all three of these climate-smart agriculture practices (CSA) are adopted.
"This marks the first time a regulatory body has formally acknowledged the role CSA practices play in reducing corn ethanol’s GHG emissions, in this case enabling some ethanol-to-jet to qualify for the 40B credit.”
Jennings described the indirect-land use score in the updated GREET model as "inflated."
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