Same Company, Different Elevators: Where Does USDA’s Mass Balance Begin and End for Regenerative Agriculture?

by Danielle Anderson & Kari Buttenhoff (Christianson/Biodiesel Magazine) As the USDA’s regenerative agricultural feedstock framework moves toward implementation under the 45Z clean fuel production credit, attention is growing towards reallocating reduced-carbon intensity (CI) feedstock between separately located, but commonly owned elevators.

While this approach may make sense on a corporate ledger, it runs into a fundamental question of mass balance. Can the reduced-CI attribute move where the physical grain does not?

Our conclusion at Christianson is no. USDA’s definition of mass balance, its alignment with ISO 22095:2020, our discussions with USDA staff and final rule authors, and USDA’s August 18 webinar all support the same conclusion: mass balance follows the physical flow of the feedstock.

That distinction is important as renewable fuel producers, elevators and other supply-chain entities prepare for implementation of the USDA framework and its anticipated incorporation into the 45ZCF-GREET model.

USDA established a mass-balance system for tracking reduced-CI material as it moves through the supply chain. The final rule requires applicable first points of aggregation and intermediary entities (i.e., elevators, traders, and processors) to account for incoming and outgoing reduced-CI crops so that the quantities balance over defined periods.

Consider an entity with two grain storage facilities. A farmer produces qualifying reduced-CI corn and delivers it to Location A. Location B is closer to a renewable fuel producer, but the grain at Location B is conventional.

Because both facilities are owned by the same entity, some companies may want to argue the two locations should be treated as one inventory pool and allow 10,000 bushels of reduced-CI corn received at Location A, to be sold from Location B with no physical movement of the grain.

While this approach may be considered appropriate in some circumstances, ISO 22095-2 leaves the location-specific detail up to the system that is applying its chain of custody protocol, the USDA. Under the USDA final rule, the entity mass balancing without physical movement of grain is not a permissible mass-balance approach.

The definition in the USDA final rule for a mass balance system requires that “…materials or products with specified characteristics are mixed with materials or products without some or all of these characteristics…”. Therefore, the reduced-CI grain must physically move and be mixed with conventional grain in order to mass balance at any given entity in the supply chain. Common ownership alone does not allow an entity to transfer the reduced-CI attribute from one physical location to another without also moving physical product.

Another heavily referenced area in this discussion is in the Applicability section of the regulation, which notes, “Reduced-CI crops and conventional crops can be physically mixed,” which implies that they are not required to be physically mixed.

Christianson agrees with this statement, however it applies to the program as a whole, not specifically to a mass balance system. Traders who purchase grain, but do not take physical possession of the grain, are still an entity in the supply chain and subject to audit.

These traders will not implement a mass balance system, because they never take physical possession of the grain and mix it with conventional grain or other reduced-CI grain. Any entity in the supply chain that does not mix physical products together is required to pass through the feedstock certificates from its supplier to its customer.

The final rule provides the regulatory foundation, but Christianson’s conclusion has not been based on the text of the rule alone.

As the industry has worked through the final requirements, we have discussed this issue directly with USDA staff and members of the team involved in developing and authoring the final rule.

Those conversations have helped clarify how USDA views the relationship between mass balance, physical material and multiple facilities operated by the same entity.

USDA also addressed the issue during its August 18 webinar on the final Regenerative Agriculture Feedstocks for Biofuel Production rule.

The question of multiple storage locations and mass balance came up during the webinar’s Q&A, including both the webinar chat and the formal presentation.

USDA’s responses reinforced the same concept: the mass-balance system follows the physical flow of the feedstock. USDA also reiterated multiple times throughout the webinar that mass balancing requires “physical mixing” in the supply chain.

For Christianson, the combination of the final rule, the ISO 22095 framework referenced by USDA, our discussions with USDA staff and final rule authors, and USDA’s public webinar provides a consistent picture of how this provision should be applied.

A reduced-CI attribute cannot simply be moved from one location to another because both facilities belong to the same company. The physical movement or physical mixing of the feedstock is the factor that allows the entity to mass balance. READ MORE