At a time when corn and soybeans are desperately searching for new demand, sustainable aviation fuel (SAF) could be the ticket for commodities to cash in. New production outlook numbers show just how big that new demand could be, but policy - and what qualifies for the tax credits and what doesn’t - seems to be the biggest roadblock so far.
According to Reuters, production capacity of SAF in the United States could jump by 1400% in 2024. The U.S. Energy Information Administration (EIA) says that jump will happen if all the previously announced capacity additions come online.
The EIA also anticipates domestic production of biofuels to increase by about 50% in 2024, which they say will be led by rising SAF production.
The White House has made it clear that this administration wants to see more SAF. Reuters also reports the Biden administration aims to meet all of the U.S.'s aviation fuel demand with SAF by 2050 and to supply at least 3 billion gallons of SAF annually by 2030.
What Qualifies for SAF?
The demand potential is huge, however, the issue today is policy, and what qualifies for SAF and how carbon intensity scores (CIS) are calculated. Currently, sugarcane from Brazil can be imported into the U.S. for SAF, and it has a lower CIS than corn produced right here at home.
Farm groups are now urging for that to change, advocating for domestic feedstock in tax credits. Four farm groups in a letter (link) urged the Biden administration to ensure that lucrative tax credits of up to $1.25 a gallon are available only for low-carbon fuels made from U.S.-grown feedstocks. They also recommended broadening the list of climate-smart farming practices to produce lower-carbon “sustainable” crops.
• Request for 45Z tax credits: Four farm groups urged the Biden administration to limit lucrative tax credits (up to $1.25 per gallon) to low-carbon fuels made from U.S.-grown feedstocks.
• Broader climate-smart practices: The groups also called for an expanded list of climate-smart farming practices for producing lower-carbon “sustainable” crops.
• Signatories: The letter was signed by: American Farm Bureau Federation; National Farmers Union; National Corn Growers Association, American Soybean Association.
Program details:
• 45Z Tax credits: These tax credits will be available in 2025 for sustainable aviation fuel (SAF). The administration has yet to issue regulations for these credits.
• 40B tax credits: Current guidance for 40B tax credits (for SAF produced from 2022-24) only qualifies a fraction of U.S. biofuels, lacking a domestic feedstock requirement and being rigid in its farming practice stipulations.
Concerns and recommendations
• Domestic benefits: The farm groups emphasized that without clear domestic feedstock requirements, the policy’s benefits might be diverted from American farmers.
• Expanded compliance options: They criticized the 40B guidelines for being too strict and suggested additional compliance options for qualifying feedstocks.
Related developments
• Pilot project announcement: CF Industries and Poet announced a pilot project using low-carbon ammonia fertilizer to grow corn for ethanol production, potentially reducing ethanol’s carbon intensity by up to 10%. The project will start this fall and continue through the 2025 harvest.
