The U.S. government is set to unveil a climate model for clean fuel tax credits by next week, which is expected to significantly limit ethanol producers’ access to subsidies for the production of sustainable aviation fuel (SAF). This information comes from three sources familiar with the matter, as reported by Reuters.
Key Highlights:
Changes in Credit Access:
The new climate model will exclude climate-smart agricultural practices that the biofuel industry hoped to leverage for credit access. This marks a notable reversal from previous updates to the climate model.
The U.S. Treasury is anticipated to issue a notice for proposed rulemaking regarding the broader program, known as 45Z, later today, with further decisions being left to the incoming administration of President-elect Donald Trump.
Impacts on Used Cooking Oil Credits:
The updated model will also restrict credit pathways for used cooking oil imports, which, along with ethanol, can be utilized in SAF production. SAF is derived from non-petroleum feedstocks and is recognized for its lower carbon footprint compared to traditional jet fuel.
Biden Administration’s Goals:
President Joe Biden aims to produce 3 billion gallons of sustainable SAF by 2030. Air travel is responsible for about 2.5% of global greenhouse gas emissions, making it a significant focus in efforts to combat climate change.
Reactions from Ethanol Producers:
The updated model is likely to frustrate ethanol producers who are seeking access to these credits. Producing SAF can be financially advantageous for companies with subsidy access, but costly without it.
Practices such as reduced tillage, cover cropping, and the use of efficient fertilizers are examples of climate-friendly farming that were previously considered for credit eligibility.
Market Reactions:
Following the news, CBOT soyoil futures surged by more than 6% on Friday, reflecting market adjustments to the anticipated changes in tax credit guidance and climate modeling. Jack Scoville, vice president at the Price Futures Group, commented, “Whatever he (Biden) has in mind, I think we are factoring it in today.”