A Holistic Look at SAF & GREET Opportunity Factors
Bushels of Benefits Ahead for Farmers and Ethanol Producers
Key Legislative Takeaways: The Foundation for What Lies Ahead
Following more than 16 months of build-up and anticipation, the U.S. Treasury finally released guidance around the 40B Sustainable Aviation Fuel (SAF) tax credit (part of the Inflation Reduction Act of 2022).
Both agriculture and biofuels industries have been waiting to see what exactly unfolds around guidance parameters, eligibility, and applicability of both the tax credits and updated Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation (GREET) model (released simultaneously on April 30, 2024).
Release of the 40B tax credit
Ultimately, it will have a short lifespan with few beneficiaries. But it provides a potential glimpse for what to expect from the upcoming Clean Fuels Production tax credit (45Z) and highlights the areas to push for change
- Very little, if any, SAF will be made with corn-based ethanol in 2023 or 2024
40B tax credit is only for 2023 and 2024 and then SAF becomes part of the 45Z in 2025
Agriculture makes its carbon intensity debut
This is the first carbon model that recognizes farming practices in the carbon intensity (CI) scoring
GREET model utilization
This legislation marks the first that GREET was used in federal tax policy
- The 40B GREET model does not recognize all technology improvements many ethanol plants have made such as combined heat and power
Climate Smart Agriculture (CSA) practices
- Corn and soybeans are the only recognized feedstocks – sorghum is not currently recognized
- Wet mill producers are not recognized
- The 40B model applies an ‘all or nothing’ bundling approach, which means you have to apply all three identified practices for corn acres and only the first two for soybeans:
- No till – not all soil types are conducive to 100% ‘no till’
- Residue cannot be burned
- Cover crop
- Enhanced efficiency nitrogen fertilizer – not a widely used or available fertilizer option
*(USDA has over 200 CSA practices but the 40B regulations only included the three above)
- Production facilities are allowed to use mass balance tracking techniques for CSA crops – in other words, they can comingle grain rather than having to segregate the CSA grain from non-CSA grain
- Anticipate a USDA request of information on CSA practices and the bundling requirements
- Brazilian sugarcane ethanol probably will not qualify as a transportation fuel for the 45Z tax credit but could as a SAF feedstock for SAF under the 45Z tax credit
- Record keeping requirements and verifications/certifications required for the farmer and the SAF producer – these are not small or insufficient requirements
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Next Steps…
Pinion will be monitoring conversations for the remainder of the year surrounding the under-defined bundling concept practices, potential expansions of eligibility requirements, and the parameters around applicability and strategy expected to come from 45Z.
Reach out to a Pinion advisor with questions, and sign up to receive our newsletters to get the latest updates and thought leadership around tax and legislative impacts to your business.
Laura Sands
Lead Ag Advisor
Donna Funk
Lead Biofuels Advisor
As SAF is Launched, Obvious System Checks and Balances Still Needed
Pinion’s Donna Funk, CPA and lead biofuels advisor provides these key takeaways:
“I think this release was a good starting point to understand what the Clean Fuels Production tax credit (45Z) guidance might look like (expected to be released in late 2024 or early 2025).
Whereas the 40B credit is not going to be a widely utilized credit, it does provide a decent amount of insight into the structure of 45Z – which is anticipated to be utilized at a much higher level with greater accessibility to benefits for biofuel companies.”
Regarding the impact of this SAF release on the agriculture industry, more specifically the corn and soy feedstocks who stand to benefit, Funk says:
“We are expecting some complicated conversations ahead, but are hopeful that a healthy group of ag growers, as well as biofuels companies, will have opportunities to benefit.”
