For the past few decades in Washington, D.C., there has seemed to be a prevailing mindset that all biofuel is the same. Pay no mind to advancements in technology that have done things like reduce water and energy consumption in production and made bioethanol an even cleaner alternative to gasoline. Corn-starch bioethanol is corn-starch bioethanol.
But now, there seems to be some daylight. A recognition on Capitol Hill that bioethanol is not monolithic. It has and can continue to get better.
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One such signal designed to drive innovation and deliver value back to the American farmer is the section 45Z, Clean Fuel Production Credit, designed to incentivize the production of lower carbon intensity (CI) biofuels.
The Treasury Department, which is tasked with implementing this credit, is in the process of providing the rules necessary to utilize it. But, in late April, Treasury dropped a hint of what may become 45Z upon releasing guidance for the section 40B Sustainable Aviation Fuel (SAF) blender tax credit, one important piece in driving the bioeconomy forward.
In comments following the release of the 40B guidance, Growth Energy CEO Emily Skor said, “This guidance crosses an important threshold in carbon modeling, recognizing for the first time that farming techniques can reduce the carbon intensity of crops, and, by extension, biofuels. 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.”
As part of this guidance, Treasury utilized an updated version of the GREET model that can calculate the CI of SAF. In response to the update, Skor said, “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.”
The 40B guidance is not perfect, yet it is an important step to unleashing the potential of biofuel and American agriculture. But more needs to be done. For example, the recognition of Climate Smart Agriculture (CSA) practices, while important, is limited to three practices (no-till, cover crop, and enhanced efficiency fertilizer), which must be “bundled” together for the purposes of the credit. The bundling of CSA practices is a significantly limiting factor for farmers. Furthermore, no technologies to reduce the emissions from process heat generation were allowed under this model — a major misstep in the mission to reduce emissions.
With 40B expiring at the end of 2024, there is another opportunity on the horizon to expand recognized agriculture practices and production technology. Enter section 45Z, a producer’s credit, starting in 2025, that has both a SAF component as well as an on-road component.
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Notably, the primary statutory model for on-road is Argonne GREET, where 40B GREET was recognized as a secondary model for the purposes of SAF.
Skor continues, “The SAF market is just getting off the ground, and today’s guidelines are only the beginning of an important journey for the bioeconomy. As the administration builds on the 40B GREET model, its guidance for the 45Z tax credit must be less prescriptive and more expansive-fully embracing the totality of innovations that, by its own admission, can demonstrably reduce carbon intensity.”
Though imperfect, these are important developments. For almost two decades, outdated and overly-broad fuel definitions utilizing decades-old emissions data have treated all biofuels the same regardless of the adoption of recognized CI reduction practices. These credits recognize that biofuel and agriculture have a significant role to play in the bioeconomy by investing in agriculture, technology, and infrastructure that enhances American energy security, creates American jobs, and reduces emissions. The 40B guidance formally recognizes the ability of both improve CI.
Biofuel champions in Congress recognize the importance of getting 45Z done right. A bipartisan, bicameral letter led by Sen. Joni Ernst (R-IA), Sen. Tammy Duckworth (D-IL), Rep. Brad Finstad (R-MN), and Rep. Eric Sorenson (D-IL), amongst others, was recently sent to Treasury Secretary Janet Yellen. The letter calls on the Treasury to broaden the farming and production processes recognized in 45Z. It also calls for timely finalization of the guidance.
45Z can be transformative for bioethanol producers, agriculture, and rural communities if the guidance is done right. POET, its industry allies, and champions in Congress are working to ensure that 45Z’s implementation reaches its full potential.
