A lot of questions arose Friday at Commodity Classic after Agriculture Secretary Tom Vilsack announced the Biden administration had missed its deadline for issuing guidance on the tax credits for Sustainable Aviation Fuel.
The potential 30-billion-gallon aviation market for biofuel producers -- and lucrative tax credits that go with that market -- will likely depend heavily on demonstrating that farmers are using "climate-smart practices" for the corn, soybeans or other feedstocks going into making that aviation fuel.
Vilsack and EPA Administrator Michael Regan spoke at the Classic general session on Friday morning. Vilsack told the crowd the White House had delayed the results of an inter-agency task force looking into changes to the Argonne Greenhouse Gases, Regulated Emissions, and Energy Use in Technologies (GREET) model to allow for SAF tax. The GREET model adjustments are going to be key for driving feedstocks to use for SAF.
"We're going to take a couple more weeks to get the guidance right," Vilsack told the Commodity Classic crowd.
Vilsack indicated the interagency task force wasn't aware of the extent of "climate-smart practices" farmers use such as no-till farming, cover crops, energy efficiency or reduced rates of nitrogen application. Such factors, plugged into the GREET model, would demonstrate biofuels are more environmentally friendly than current aviation fuel.
The GREET modeling will eventually determine which SAF facilities qualify for the 45Z Clean Fuel Production Tax Credit, which runs through the end of 2027. SAF producers that qualify could receive up to $1.75 a gallon for the 45Z credit.
Vilsack made it clear that SAF credits will have some linkages to the "climate-smart" practices farmers are using such as no-till farming, cover crops, energy efficiency or reduced fertilizer usage. He pointed to the 205 practices USDA has designated as climate-smart under the Partnership for Climate-Smart Commodities, but it's going to take measuring and verification down the line to validate those practices.
"I don't know if everybody knows that there's a process of, instead of just applying a lot of fertilizer on a farm, you can apply precisely where a seed has been planted, saving a significant amount of fertilizer in the process."
At the same time, USDA is in the middle of its own $300 million process to measure, verify and report emission reductions or carbon-sequestration potential for roughly 200 different conservation practices. USDA launched that initiative last year and it was expected to take about five years to complete.
"And I've said all along that initiative is going to tell us what works and what doesn't work. So, there's still data being collected," Vilsack said.
The secretary told farmers at Classic he is confident 95% of SAF will come from feedstocks from U.S. agriculture. The modeling needs to factor in the best science, Vilsack said.
"We are measuring twice and cutting once," he said.
VILSACK POINTS TO FITS AND STARTS
In a press conference, Vilsack noted SAF is an industry in its infancy, and "the reality is that we're going to see sort of fits and starts" for tax credits involving 2023 and 2024. Still, the secretary noted there is only one commercial plant in operation producing 10 million gallons while the industry is trying to get to 3 billion gallons by 2030. Down the road, the SAF market could top 30 billion gallons annually.
"I think it's fair to say that there can be multiple ways that you can create a more sustainable aviation fuel," Vilsack said. "The data has to be collected and analyzed and it has to be put through a modeling process to give you that clear and concise understanding of what's in and what isn't; that may seem like -- from where you all stand -- a relatively simple thing to do ..."
Vilsack and biofuel supporters are intent on making the case that on-the-farm practices help lower the carbon footprint for aviation fuels rather than increase the lifecycle carbon emissions for those fuels.
WHAT WILL ON-FARM VERIFICATION LOOK LIKE?
A major question following Vilsack's announcement is just how much biofuel or SAF facilities will need to model or verify farming practices to qualify for the potentially lucrative tax credits.
"These are complex issues. The verification and monitoring piece of climate-smart ag is a hard thing to do and do right," said Geoff Cooper, president and CEO of the Renewable Fuels Association.
Cooper held a quick gathering on the Classic expo floor Friday with Vilsack and Regan, along with representatives from Growth Energy, Clean Fuels Alliance America, and Gevo, a company working to develop multiple SAF facilities.
"We're not wild about the delay," Cooper told reporters afterward. "We felt March 1 was sort of etched in stone as a deadline, but if it takes more time to get it right ... if we get it right the first time, that's going to be more important than getting it fast."
Yet, will on-farm verification of production practices end up as a spot-check verification or an overall aggregate assessment of the grain delivered to a plant? "Is it possible every load of corn has some kind of identity preservation to it?" Cooper speculated.
"We don't think that's the direction they're going. We think there are other systems that are more efficient and simpler that can be implemented and still provide that level of assurance and verification that the IRS is looking for," Cooper said.
Cooper said the IRS has been getting input from the biofuels industry on what is practical.
"They've been very open and transparent and willing to listen to our input and thoughts on how to do this right," Cooper said. "And again, it's just taken a little longer than we all hoped for."
If the IRS demands highly detailed identity preservation systems to track the feedstocks and farm practices, then it's going to take more time for biofuel plants to get those kinds of programs in place, Cooper said. A higher level, more aggregate approach to calculating on-farm practices will move things significantly quicker.
"That's going to be easier for folks to figure out and would require much less administrative burden," Cooper said.
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