Giving Lift To 45Z: Climate Smart Farming and the GREET Model

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July 19, 2024

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by Katie Schroeder (Ethanol Producer Magazine) ... The industry waited for not months, but years to get an answer to that question, finally receiving direction in the 40BSAF-GREET 2024 model, released at the end of April.

In an exclusive podcast interview with Ethanol Producer Magazine, Geoff Cooper, CEO of the Renewable Fuels Association, explained that the process of bringing the new model forward was a steep challenge punctuated by the fact that it is widely considered to be a starting point. Cooper and others say the 2024 version of GREET—used in calculating greenhouse gas (GHG) emissions for both hydroprocessed esters and fatty acids (HEFA) and alcohol-to-jet (ATJ) SAF pathways—is the first step in working out how to translate greenhouse gas reduction into the language of the tax code. The modified GREET will only apply to the existing 40B SAF blending credit, which expires at the end of 2024. It will be replaced with 45Z, also known as the Clean Fuels Production tax credit, in 2025, and ethanol’s top voices are working diligently to shape it into a useful mechanism for ATJ production growth.

The History of 40BSAF-GREET
As Ethanol Producer Magazine previously reported, the 40B tax credit is a biofuel production incentive created by the IRA, signed into law in August 2022. The 40B tax credit offers SAF producers $1.25 per gallon of fuel that has a 50% greenhouse gas (GHG) reduction compared to petroleum-based jet fuel. For SAF with a GHG reduction greater than 50%, the incentive increases—one cent for each percentage point—up to $1.75 per gallon. In the legislation, the International Civil Aviation Organization’s most current CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation) model “or similar methodology” were identified as acceptable ways to calculate the GHG of the SAF seeking to qualify for the program.

Early on, the ethanol industry championed the use of the Department of Energy-Argonne National Laboratory’s GREET (Greenhouse Gases, Regulated Emissions and Energy Use in Transportation) model, arguing that it should qualify as a “similar methodology.” They argued, effectively, that GREET offers a more accurate calculation of U.S. farming practices than CORSIA, which is governed by international consensus. “We and others pushed the administration, and specifically Treasury, to recognize the GREET model as that ‘other methodology,’” says Brian Jennings, CEO of the American Coalition for Ethanol. In mid-December, the Treasury department and the IRS released SAF tax credit guidance, stating that taxpayers would be able to use an updated iteration of the GREET model, made specifically for the 40B tax credit. Chris Bliley, senior vice president of regulatory affairs with Growth Energy, explains that the organization views “Argonne GREET”—the preceding version of the model—as the “gold standard” when it comes to GHG emissions analysis.

The new model and guidance were released on April 30, nearly two months after the self-imposed deadline of March 1. Industry representatives have applauded the inclusion of a variety of GHG reduction strategies including regenerative farming practices, renewable energy usage and carbon capture and sequestration. However, there are several GHG emissions reduction strategies not included in the model and others that are undervalued, explains Bliley.

Pros and Cons
Industry representatives point to encouraging elements included in 40BSAF-GREET, as well as some of the ways the model is lacking.

A lower induced land-use change number for ATJ SAF compared to the CORSIA model is one of the positive elements present in the model. 40BSAF-GREET assigns a nine-point induced land-use change penalty to SAF produced using corn ethanol, which is better than what ACE was expecting. “There’s not zero land-use change, but EPA and others have suggested that land-use change should be 20 or 30 points, so a nine-point induced land-use change penalty is reasonable and something we can certainly live with,” Jennings says. There was some worry that the indirect land-use change (ILUC) number would be unreasonably inflated out of concerns that farmers might start growing SAF feedstocks more aggressively with new market incentives in place.

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The ILUC number for corn ethanol-based SAF dropped from 14 grams per megajoule under 2023 Argonne GREET, an encouraging development, but not low enough, Cooper says. “Yes, that’s a step in the right direction, but we believe that the data—the evidence from the real world—[justifies] zero penalty or a very low number, low enough to be negligible,” he says.

The GHG benefit of carbon capture and sequestration (CCS) is defined within the new GREET model, too, giving ethanol producers the option to reduce emissions by 33 points by integrating it into their process. Many ethanol producers have been considering CCS as a strategy to meet the low GHG threshold, either as part of a CO2 pipeline project or onsite sequestration, Jenning explains. This 33-point valuation is what’s needed for many ethanol producers to reduce their emissions enough to reach the SAF market.

One of the most important breakthroughs within 40BSAF-GREET is the inclusion of climate-smart agriculture practices. “It opened the door for the very first time [to formally recognizing that] agriculture practices indeed have a meaningful impact on the carbon intensity of biofuels, so we were pleased with that,” Jennings says. ACE is helping lead the U.S. Department of Agriculture’s Regional Conservation Partnership Program, or RCPP, partnering with corn farmers and ethanol producers to demonstrate the impact that these farming practices can have.

“We don’t have any objections to the GREET model per se, we’ve always believed the GREET model is by far the superior method or approach to calculate lifecycle greenhouse gas emissions,” Jennings says. “The concerns we have with 40BSAF-GREET are not the GREET model itself, [but rather the] limitations or conditions [that have been] attached to [it] that have more to do with, frankly, politics than science.”

The carbon reduction impact assigned to climate smart agriculture practices within 40BSAF-GREET is one of the elements that Jennings believes must be decided by science alone.

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Cooper also emphasizes that it is a mistake for Treasury to take a “one-size-fits-all” strategy when calculating the benefits of climate-smart farming. He explains that the requirement to use the three different practices together also simply does not work in the northern regions of the Corn Belt, and the model should account for the unique climate conditions and geography found in different parts of the country.

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There are also several key GHG reduction strategies that are not included in 40BSAF-GREET, including combined-heat-and-power technology, energy sources such as hydroelectric power and biomass-to-power, sorghum as a feedstock for ethanol, as well as ethanol wet mills, explains Bliley.

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In April, EPM reported that agencies will do further work on modeling, data, assumptions and verification to credit climate-smart ag practices for 45Z; it’s also been stated that a new 45Z-GREET model will be developed for use with the 45Z tax credit.

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The producers in Jennings’ organization are eager to receive the details and rules that could determine whether the investments they have made, or plan to make, in efficiency-improving technologies will pay off in the context of access to 45Z tax credits.

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One of RFA’s priorities moving forward is making sure the auditing and verification process are implemented in a way that does not discourage investment, and instead ensures that the process is extensive enough to provide the “assurance” needed by the IRS and Treasury department, he explains.

45Z tax credits are currently slated to run from the beginning of 2025 to the end of 2027, these three years are a small window for qualifying GHG reduction technologies to be financed and rolled out, Bliley explains. READ MORE

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Excerpt from Office of Senator Joni Ernst: 45Z guidance must be published in a timely manner with the American producer at the forefront to effectively grow the renewable fuel industry.

WASHINGTON – U.S. Senator Joni Ernst (R-Iowa) led a bipartisan, bicameral group of 51 of her colleagues in urging the U.S. Department of the Treasury to issue timely guidance on the 45Z Clean Fuel Production Credit to give farmers, blenders, retailers, and fuel users certainty and the time needed to make additional clean fuel projects a reality.

The 45Z Clean Fuel Production Credit consolidates and replaces several fuel-related credits currently scheduled to expire at the end of the year. While 45Z was written to increase the domestic production of clean, homegrown biofuels, guidance is still needed from the Treasury on how farmers and renewable fuel producers can participate in this new market.

“The 45Z credit should be leveraged to provide a forward-looking, technology-neutral market signal to increase our country’s production capacity for low-carbon, domestic renewable fuels and for existing biofuel production to invest in decarbonization,” the lawmakers wrote. “Lack of regulatory certainty is already putting thriving businesses at risk as fuel producers are unable to make important business decisions regarding their fuel.”

“If properly implemented, this credit can fully mobilize the biofuel industry, growing our domestic manufacturing base, creating jobs, diversifying the U.S. energy portfolio, adding value to crops grown by American farmers, and offering consumers better, more affordable, and lower carbon options at the fuel pump and in the skies,” the lawmakers concluded.

The letter, which has bicameral and bipartisan support, requests that:

Safe harbor guidance for biofuel producers is published by Sept. 1, 2024, and 45Z rulemaking be completed by Nov. 1, 2024,
The 45Z credit is available only to domestic fuel producers and uses the science-based Greenhouse gases, Regulated Emissions and Energy use in Technologies (GREET) model without additional indirect effects or penalties,
Eligible on-farm practices are expanded while any bundling mandates are removed, and
A broader array of clean industrial technologies, feedstocks, and agricultural practices are eligible for the 45Z credit.

Read the full letter here, which was co-led by Senator Tammy Duckworth (D-Ill.), Senator John Thune (R-S.D.), Senator Amy Klobuchar (D-Minn.), Representative Brad Finstad (R-Minn.), Representative Eric Sorensen (D-Ill.), Representative Mariannette Miller-Meeks (R-Iowa), and Representative Nikki Budzinski (D-Ill.).

“While this production credit seeks to better position U.S. soybean farmers and homegrown biofuels as part of the nation’s clean energy vision, it is clear guidance must be established correctly to prioritize American biofuels and allow farmers to integrate technologies and climate-smart practices that are best suited for their unique operations,” said Brent Swart, farmer and Iowa Soybean Association President-Elect. “Farmers are eager to participate in growing the renewable fuels sector, and we look forward to working with federal leaders to ensure incentives are established with the American producer at the forefront.”

"Sustainable practices don’t just happen; they take time and resources to implement. That’s why I cannot emphasize enough that corn farmers need crucial timely guidance for 45Z incentives,” said Jolene Riessen, Iowa Corn Growers Association President. “We thank Senator Ernst for leading this conversation with the U.S. Department of the Treasury on the Section 45Z Clean Fuel Production Credit (CFPC). With her help, we can ensure that Iowa corn farmers can remain competitive and at the forefront of the renewable fuel industry.”

“Establishing final guidance on 45Z is crucial for renewable fuels production. It is especially urgent to implement safe harbor guidance to ensure transparency throughout the biodiesel supply chain as they transition from the current blenders tax credit to the new 45Z production tax credit,” said Monte Shaw, executive director of the Iowa Renewable Fuels Association.“Without safe harbor guidance, the country’s biodiesel production could very likely begin to shut down in the fourth quarter. IRFA members sincerely thank Sen. Ernst for leading this effort to expand opportunities for renewable fuels producers by pushing for timely implementation of the Clean Fuel Production Credit.”

“America’s biofuel producers and our farm partners stand ready to fast-track new investments in low-carbon fuels, but we need regulatory certainty to move forward,” said Growth Energy CEO Emily Skor. “We applaud Senator Ernst and all our rural champions in Congress for reminding the Treasury that swift implementation of 45Z based on the best available science is the key to unlocking exponential growth in rural America through the enhanced production of biofuels. We urge the administration to maximize the impact of the 45Z credit by signaling to the market that Treasury intends to follow Congress’ intent by recognizing and rewarding the full suite of carbon-smart practices happening at the plant and on the farm.”

“With the coming transition to a producer credit, clean fuels producers urgently need policy certainty,” said Kurt Kovarik, Vice President of Federal Affairs for Clean Fuels Alliance America. “Our member companies will face significant headwinds and business risk if this guidance is not published promptly. U.S. biodiesel and renewable diesel producers are already facing difficulties in negotiating feedstock and fuel offtake contracts for next year. We greatly appreciate Congress prompting Treasury to act quickly.”

Background:

Throughout her time in Congress, Ernst has been a strong advocate for homegrown, Iowa biofuels, including by calling on the White House to make E15 available year-round and country-wide, adhere to the GREET model to provide domestic producers with a seat at the table, amend its harmful decision to set the Renewable Volume Obligation (RVO) levels well below industry production capacity, and raise Renewable Fuel Standard (RFS) volumes for biomass-based diesel and advanced biofuels. READ MORE

Excerpt from Energy.AgWired.com: Former USDA Under Secretary and currently CEO of the National Association of State Departments of Agriculture Ted McKinney is optimistic about the future of sustainable aviation fuel as a market for U.S. biofuels, provided they have the opportunity under the upcoming 45Z tax credit.

“Our ethanol and our soy diesel and renewable diesel and all the folks that are doing some of these things know what the rules of the road are,” McKinney said, referring to efforts to cut carbon emissions. “I remain optimistic because the excitement of doing right by the environment and lifting up farmers and we’ve all heard Mr. Vilsack correctly say, my goodness, we’ve got to lift the smaller farmer up. That’s our future, at least part of it. So I remain hopeful that wisdom will prevail.”

But he admits that politics will likely play a role. “The oil and gas lobby is very alive, very well and very strong and everybody is getting in the ear of Secretary Yellen’s Treasury,” said McKinney.

One of the main messages McKinney had for attendees of Tech Hub LIVE in Des Moines this week was that he believes we can address climate change globally with climate smart agriculture and still increase productivity. “Production ag, including forestry, is actually a solution to climate change challenges,” said McKinney.

“I have been witness on our own farm and in my industry days to the advancement of innovation across the board,” he said during an interview after his address. “And based on what I have been hearing and then what I saw at this conference in the types of companies here and what they’re doing, it’s mind blowing. So I’m juiced because I see it has not stopped. In fact, I’d say innovation is accelerating.” READ MORE

Excerpt from Brownfield Ag News: An official with USDA says progress is being made in developing guidance for sustainable aviation fuel tax credits.

USDA undersecretary for farm production and conservation Robert Bonnie says there’s pressure to finalize the 45Z tax credit.

“We want to move as quickly as we can because we know farmers need certainty. There’s sort of three big issues, one is related to indirect land use and the GREET model (and) I think we’ve made a lot of progress there.”

He tells Brownfield another issue is traceability.

“How do we trace carbon intensity of commodities through the supply chain? USDA has come out with a request for information a few weeks ago to look at that issue and we expect to be moving with policy in the not-too-distant future again because we know the clock is ticking.”

And Bonnie says USDA wants more flexibility for crops and climate smart ag practices under 45Z.

“We’re working with our federal partners to see if we can get that done, and we’re optimistic.” READ MORE

Excerpt from Clean Air Task Force: CATF recommends the following:

• Given Congress’ concern that a diversion of palm fatty acid distillates would result in expanded global palm oil production, Treasury should ensure that its 45Z guidance does not indirectly drive demand for palm oil.

• If Treasury opts not to use CORSIA to estimate the lifecycle greenhouse gas emissions of sustainable aviation fuel (SAF), it must modify GREET for 45Z to ensure that GREET is both similar to CORSIA and fully accounts for indirect land use change in accordance with Clean Air Act section 211(o)(1)(H).

• To the extent Treasury incorporates climate smart agriculture practices into its implementation of section 45Z, these practices should be differentiated based on the measurability of their impact on the carbon intensity of fuels.

• Synthetic SAF will be essential to decarbonizing the aviation sector and should receive credits under 45Z.

• The lifecycle assessments of emissions associated with methane-derived feedstocks is complex, with great variability between sectors and even individual facilities, and Treasury should not include such feedstocks in the emissions rate table until it is fully confident in such assessments associated with a specific use of any particular feedstock, including emissions from the full value chain and indirect emissions.

• Treasury must not include negative emissions values in the published table of emissions rates.

• Treasury must allow stacking of section 45Z and other tax credits in certain situations. Section 45Z permits several situations where facilities along a transportation fuel value chain can claim both 45Z credits and either 45Q or 45V 5 credits. These situations arise when different facilities produce feedstocks versus fuels––along the value chain. READ MORE

Excerpt from E&E News Greenwire: The Department of Agriculture is scrambling in the closing months of the Biden administration to prove that ethanol can be good for the climate.

Agriculture Secretary Tom Vilsack noted the tight timeline in an address Thursday to the American Coalition for Ethanol, telling biofuel supporters USDA wants biofuels to play a key role in a clean energy tax credit due to take effect next year.

“We understand very well the significance and the importance of the next several months in this process,” Vilsack told the group gathered in Omaha, Nebraska. READ MORE

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