USDA Rule Should Boost SAF Potential

OMAHA (DTN) -- Less than a week after biofuel groups lamented the lack of details about the Clean Fuels Production (45Z) tax credit, USDA released an interim rule for climate-smart crops being used as biofuel feedstocks that should provide the biofuels industry more clarity on how to move forward.

The interim rule, titled "Technical Guidelines for Climate-Smart Agriculture Crops Used as Biofuel Feedstocks" -- or "CSA rule" -- outlines how practices that reduce greenhouse gas emissions or sequester carbon will score out on a county-by-county basis. Rather than requiring a bundling of practices, USDA noted that the interim rule allows for measuring the carbon benefits of individual practices such as no-till planting, cover crops and nitrogen inhibitors. The rule outlines procedures for quantifying and verifying a wider range of farm practices.

Agriculture Secretary Tom Vilsack, in what he said would be his final press call, explained the release of the rule, which will allow farmers who grow corn, soybeans and sorghum to calculate how different individual practices can lower their carbon-intensity score for crops when selling to biofuel plants.

Ideally, the Treasury Department and Department of Energy will take the technical work done by USDA and incorporate that data into the final work updating the Greenhouse gases, Regulated Emissions and Energy Use in Technologies (GREET) model. That makes it easier for biofuel facilities to qualify for the 45Z credit and produce Sustainable Aviation Fuel (SAF), Vilsack said.

"This rule could essentially be rolled into, or dropped into, whatever work they need to do to finalize 45Z," he said.

For producers, Vilsack said the interim rule "represents a significant marker" in the USDA roadmap for generating new incomes for farmers. The 45Z, for instance, provides up to $1 a gallon tax credit for clean fuels used on roads and $1.75 tax credit for fuels used in SAF production. To qualify, the fuels must have a 50% lower emissions score than petroleum-based fuels.

"If leveraged in clean transportation fuel programs, these standards may help producers earn a price premium for reduced carbon intensity," Vilsack said.

To make the technical guidelines work, USDA is releasing the beta version of a carbon intensity (CI) calculator that will be used for the rule. Using the calculator, Vilsack said farmers in McLean County, Illinois, growing corn with no-till planting, cover crops and nitrification inhibitors can reduce their carbon intensity by as much as 70%. A sorghum producer in Gray County, Kansas, using the same practices could reduce the carbon intensity by 90% per bushel, he said.

"Now, obviously, these are preliminary numbers," he said. "They'll need to be finalized after the peer review process, but I think they demonstrate the potential for significant emission reductions gained through climate-smart agriculture."

When Treasury released its guidance for 45Z last week, biofuel groups pointed out a lot of questions were still unanswered, especially about feedstocks. On Wednesday, those groups said the USDA rule will help spell out how climate-smart practices can be scored for the 45Z credit.

"Today's USDA guidelines finally create a much-needed structure for properly assessing, valuing, and integrating the carbon reduction benefits of certain farming practices into lifecycle analysis," said Geoff Cooper, president and CEO of the Renewable Fuels Association. "We thank USDA for developing this initial framework that could ultimately allow farmers to actively participate in carbon markets, bringing new revenue streams and unprecedented value creation to rural communities."

Emily Skor, CEO of Growth Energy, said, "This new CSA rule hits all the right notes and will help set American ethanol up to deliver a more affordable, low carbon, homegrown energy solution to American drivers. Today's announcement also sets the stage for new economic opportunities in rural America, as it means farmers could get credit for their work to grow more crops using fewer resources."

Monte Shaw, executive director of the Iowa Renewable Fuels Association, said the USDA rule is a major step forward in unlocking the potential to reduce carbon emissions from farms and thereby reduce the carbon intensity of biofuels.

"There are several improvements from the previous CSA program, including more practices and flexibility," Shaw said. "Just as importantly, a quick review of the new carbon calculator seems to show farmers would be given full credit for CSA practices instead of an artificially reduced number as in the previous iteration. Secretary Vilsack has once again pushed the envelope forward based on sound science and data. IRFA looks forward to digging into the proposal and providing feedback to help make it ever better."

Responding to a question from DTN, Vilsack said groups that were critical of the "skinny" 45Z guidance "jumped the gun with criticisms," and the interim rule will help provide more clarity going forward.

"It's unfortunate that folks in agriculture were so quick to be critical," he said. "A very clear message is that agriculture has a role to play."

While Treasury was late getting out its initial guidance, Vilsack said agricultural and biofuel groups "should have been patient" over the 45Z roll out.

"They should have understood that here in this administration, we do listen to farmers, and when they said to us, 'We would like to see more crops,' well, sorghum is now included," Vilsack said.

Farmers also wanted the ability to see the impacts of individual practices. That will now be available with the CI calculator. Farmers will be able to provide county-level CI scores for corn, soybeans and sorghum when they deliver to a biofuel facility.

"It creates a tremendous marketing opportunity for these producers," he said.

Still, it will be up to the incoming Trump administration to set the final rules for 45Z and how climate-smart practices are applied on farms. It will also be up to the Trump administration to set future standards for SAF production overall.

"Obviously, the next administration's got additional work to do, and the expectation, of course, would be that they will follow through on this," Vilsack said.

Vilsack said he had spoken to President-elect Donald Trump's Agriculture secretary nominee, Brooke Rollins, but said he and Rollins had agreed not to disclose the details of that call. Vilsack said he had not spoken to anyone from the Trump transition team about 45Z or any specific issues related to biofuels."

Given the science and data behind the work, Vilsack said he believes there is a "very compelling" case for farmers and biofuel producers "to be very effective advocates" with the incoming administration and Congress to highlight the income for farmers, the job creation in rural America and the ability of U.S. aviation to lead the way in lowering emissions in airlines.

"The benefits of all of that, I think, make the case strongly that any administration, Republican or Democrat, should be excited about completing this work as quickly as possible," he said.

Another reporter noted farmers are already making planting decisions for 2025, and it may already be too late for them to make changes to individual practices this year. Vilsack said SAF right now remains a small industry, with a great deal of growth expected in the coming years, so it's not a circumstance for farmers where if they don't apply practices now, they will lose out.

"This is an emerging industry that's going to create opportunities, not just in 2025, but for the next five, 10, 15, 20 years. So, what we're doing now is creating the platform and the framework."

The interim rule will be published in the Federal Register on Jan. 17 and will include a 60-day comment period.

Also see "Agriculture, Energy Groups Weigh Next Steps on 45Z Clean Fuels Production Tax Credit" here: https://www.dtnpf.com/….

And see "Biden Releases Interim Guidance For 45Z Tax Credit, Leaves Final Rules to Trump" here: https://www.dtnpf.com/….

Chris Clayton can be reached at Chris.Clayton@dtn.com

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