Little to no ethanol qualifies for U.S. jet fuel credits

By Leah Douglas and Jarrett Renshaw

(Reuters) – Little to no ethanol will qualify for U.S. sustainable aviation fuel (SAF) subsidies under a new pilot program by President Joe Biden’s administration, which has tightened climate requirements at the last minute, according to a Reuters overview of government data and people known to the case.

The issue could hurt the biofuel industry, which SAF sees as ethanol’s best opportunity for growth since electric cars entered the market as a gasoline additive. It could also hinder Biden’s goal of producing 30 billion gallons of SAF by 2030. He once promised that 95% of SAF – a biofuel that can be made from oil, waste or grains – would come from farmers.

Details about how little ethanol qualifies for the subsidies under the pilot program, and how the requirements were increased at the last hour, have not previously been reported.

At issue is a $1.25/gallon production tax credit, embedded in the 2022 Inflation Reduction Act, reserved for SAF, which demonstrates a 50% reduction in life cycle greenhouse gas emissions compared to regular jet fuel.

Under the pilot program, which concluded April 30, ethanol producers are seeking to claim credit to verify that their corn comes from farms that use three climate-friendly agricultural practices: no tilling the soil, planting cover crops and using more efficient fertilizers.

U.S. Secretary of Agriculture Tom Vilsack praised the program as “a great start as we develop new markets for sustainable jet fuel that uses home-grown agricultural crops.”

But a Reuters survey of U.S. Department of Agriculture (USDA) data shows that almost no U.S. corn farmer uses all three practices at the same time. Officials from five agricultural and biofuel trade groups told Reuters that few if any ethanol producers will be able to meet the standard.

“I haven’t had a single member of the ethanol producer contact me and say, we’re going to meet the climate-smart agriculture requirements,” said Brian Jennings, CEO of the lobbying group American Coalition for Ethanol.

A USDA spokesperson said the rule remains a milestone because it recognizes farmers’ potential to combat climate change and would encourage the adoption of climate-smart agricultural practices. The agency did not provide an estimate of how much ethanol would qualify.

The pilot program covers ethanol produced in 2023 and 2024, and will be replaced in 2025 by a new program that biofuel groups hope will be less restrictive.

“I see this (pilot) as a marker, a signal and think it was a good first step,” said Patrick Gruber, CEO of biofuel producer Gevo.

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LAST MINUTE CHANGE

The White House had planned to drop a requirement that all three farming practices be used simultaneously, but changed course after Treasury officials said bundling the practices would boost compliance and increase environmental benefits would increase, according to two sources familiar with the discussions.

Bundling the practices also helped balance rural and agricultural interests with environmental concerns, the sources said.

Environmental groups have long worried that biofuels could cause climate and environmental damage if more land is cleared to produce them.

The USDA does not collect data on how many farmers use all three required climate-friendly practices together, but data suggests the overlap is small.

According to a 2022 USDA report, approximately 33% of cropland nationwide has continuous no-till application, approximately 26% efficient fertilization, and approximately 6% cover crops.

There is no breakdown by crop or by corn intended for ethanol production.

“It’s a very small number of businesses that qualify,” said Matt Ziegler, policy director at the National Corn Growers Association.

The climate-friendly requirements also pose hurdles for farmers growing soybeans, another potential SAF feedstock.

Josh Gackle, a North Dakota farmer and head of the U.S. Soybean Association, said the need for cover crops is especially problematic in his region, where long winters and short growing seasons make it harder for him to grow off-season crops than his colleagues in the region. Iowa or Nebraska.

“We just want to make sure the rules are correct in the growing regions so that all places can participate,” Gackle said.

(Reporting by Leah Douglas and Jarrett Renshaw; Editing by Richard Valdmanis and David Gregorio)