Inflation Reduction Act Charts a New Course for US Biofuels Industry

September 08, 2022

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by Corey Lavinsky (S&P Global) ... Though ethanol is mentioned only thrice in the lengthy law, ethanol producers will benefit from its carbon capture, utilization and storage provisions, clean fuel production credits, and incentives for ethanol-based sustainable aviation fuel. In addition, cellulosic ethanol manufacturers celebrated the revival of a previously-expired $1.01/gal second generation biofuels credit.

Many US ethanol producers plan to use carbon capture technologies to reduce the life cycle carbon intensity of their fuel. Lowering a fuel's CI score increases its value, particularly in low-carbon markets such as California and Oregon.

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The new law extends and expands the tax credit for CCUS, commonly known as the 45Q tax credit, for projects that begin construction between 2023 and 2032. 45Q tax credits are based on the volume of qualified carbon oxides captured and sequestered.

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Two lesser-known biofuels credits that expired at the end of 2021 were revived retroactively: the alternative fuel mixture credit and the 2G biofuels credit.

The alternative fuel mixture credit is a 50 cents/gal tax credit that rewards the use of fuels such as propane and compressed natural gas in a motor vehicle, motorboat or aircraft. The law removed liquified hydrogen as an alternative fuel as it is now covered by other provisions.

The 2G biofuels credit provides up to $1.01/gal for the production of 2G biofuels. Qualified feedstock includes any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis as well as any cultivated algae, cyanobacteria or lemna. These credits were also extended to the end of 2024.

IRA benefits also extend to biodiesel, renewable diesel and SAF

The on-again, off-again $1/gal federal biomass-based diesel blending credit was set to expire on Dec. 31, but was extended to Dec. 31, 2024. The credit mostly applies to blending biodiesel and renewable diesel, but SAF is eligible for the credit as well.

The new law gives SAF a more valuable credit than biodiesel and renewable diesel starting in 2023.

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The life cycle GHG emissions reduction percentage shall be defined in accordance with CORSIA or "any similar methodology" which satisfies the criteria of the Clean Air Act. The SAF needs to be dispensed in the US to qualify.

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However, the law's restrictive definition of SAF specifically excludes fuel co-processed with a feedstock which is not biomass from receiving the blending credit. Further, the SAF cannot be derived from palm fatty acid distillates or petroleum.

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US refiners jump on the renewable fuel bandwagon

Blending credits will be replaced by a clean fuel production credit in 2025. Ethanol, biodiesel, renewable diesel and SAF will all be eligible for the credit.

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The government is required to publish a table annually with the emissions rate for different types of transportation fuels. READ MORE

Inflation Reduction Act's expanded biofuel incentives raise concerns about fraud (CNBC)

Inflation Reduction Act Is Both Good And Bad News For U.S Biofuels (OilPrice.com)

A Big Lift for Carbon Capture (Ethanol Producer Magazine)

Excerpt from CNBC: The Renewable Fuel Standard, passed with broad bipartisan support in 2005, uses a system of incentives to raise the percentage of biofuels like ethanol in the nation’s fuel supply. One study by the Biotechnology Innovation Organization credited the program with reducing U.S. dependence on foreign oil by nearly 2 billion barrels in its first 10 years.

The new law keeps the system in place for now, extends some credits that were set to expire and adds new benefits for things like ethanol-based aviation fuel. It does not, however, include any new provisions to prevent fraud, which one industry compliance expert said could be a problem.

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The Environmental Protection Agency, which regulates the program, says its enforcement division has brought 16 renewable fuel fraud cases in just the last 10 years, levying civil fines as high as $27 million. Many more cases have been referred to the Justice Department for criminal prosecution.

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The EPA says it has continued to beef up its enforcement as it learns more about implementing the program — and as incentives expand under the Inflation Reduction Act.

“EPA intends to continue to regularly update its compliance and oversight regulations to help prevent RFS fraud,” said spokesman Tim Carroll in a statement emailed to “American Greed.”

The EPA’s criminal investigation division tracks the program, analyzing suspicious patterns and matching credits with actual fuel produced.

And Carroll said the agency has begun working more closely with the IRS, like it did on the case in Utah.

“That relationship allows the IRS to use EPA reporting data to identify potential fraudulent activity,” Carroll said.

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But at the same time, the expansion of the incentive programs is encouraging bigger companies to get involved, he ( Peter Whitfield, a partner at law firm Sidley Austin) said. That could help reduce fraud, since the big players have less of a reason to cheat, and more resources to devote to compliance.

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“You see more refining companies investing in the technology. You’re probably going to see airline companies investing in the technology,” he said. “You’re less likely to see fraud when some of the bigger companies and sophisticated companies are in the program.” READ MORE

Tags

Legislation-Federal climate legislation Regulations-Federal ethanol/bioethanol carbon capture and storage (CCS) carbon capture and utilization (CCU) carbon/CO2 sequestration 45Q Carbon Oxide Sequestration Tax Credit aviation fuel (SAF) tax credit Aviation Fuel/Sustainable Aviation Fuel (SAF) Jetfuel (Sustainable Aviation Fuel (SAF)) Carbon Intensity (CI)/Carbon Footprint markets/sales market forces Cellulosic ethanol cellulosic biofuel Cellulosic Tax Credit life cycle analysis (LCA) California Oregon tax credits Alternative Fuels Credit Alternative Fuels Tax Credit (AFTC) Propane/Biopropane/Renewable Propane Compressed Natural Gas (CNG/R-CNG/bioCNG) Lignocellulosic Biofuel hemicellulosic sugars hemicellulose algae cyanobacteria (blue-green algae) lemna biodiesel Renewable Diesel/Green Diesel/HVO/Paraffinic Diesel Blenders Credit 45Z Clean Fuel Production Tax Credit Hydrogen/Renewable Hydrogen

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