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- DTN Headline News
Ag Seeks SAF Feedstock Mandate on 45Z
By Todd Neeley
Thursday, July 18, 2024 4:54PM CDT

LINCOLN, Neb. (DTN) -- Four national agriculture interest groups sent a letter to U.S. Treasury Secretary Janet Yellen on Wednesday asking the Biden administration to reconsider guidance on sustainable aviation fuel tax credits and to include a domestic-feedstock requirement in upcoming guidance on the 45Z Clean Fuel Production tax credit.

The IRS continues to work on tax guidance for 45Z Clean Fuels, which is considered to be perhaps the most important incentive for the future development of an SAF industry.

In the letter to Yellen, the American Farm Bureau Federation, National Corn Growers Association, National Farmers Union and the American Soybean Association said SAF tax guidance is important to farmers and others in rural America.

The current guidance for the 40B credit, they said, "poses significant challenges" for farmers and is "unworkable" in its current form. It is believed future guidance on 45Z will be similar to 40B in that it will require certain climate-smart farm practices to qualify. The 40B credit expires at the end of 2024.

"We have significant concerns about the bundling of climate-smart agriculture practices within the SAF guidance and the cumbersome reporting requirements," the groups said about 40B.

"The current requirements are onerous and unworkable for many farmers. According to available Natural Resources Conservation Service data, the guidelines for climate-smart practices are complex and only feasible in select geographies, excluding a large portion of farmers from participating."

The groups said they want to see the IRS include a mandate to use domestic feedstocks such as corn and soybeans to produce sustainable aviation fuel, to qualify for the 45Z credit.

They said that without "clear domestic feedstock requirements," the benefits of this policy are "at risk of being diverted" from American farmers.

"This not only undermines the economic stability of American farmers but also contradicts the broader goal of supporting U.S. agriculture and rural communities," the groups said in the letter.

"The absence of domestic feedstock requirements can lead to increased reliance on imports, benefiting foreign countries, thereby reducing the demand for homegrown agricultural products and threatening the livelihood of American farmers."

The ag groups said that without "clear and transparent" understanding of the verification of imported waste feedstocks from point of origin to point of import, there is "no way to fully calculate their true carbon footprint."

CLIMATE-SMART PRACTICES

The 40B tax credit, created in the Inflation Reduction Act, requires greenhouse gas emissions for SAF products be at least 50% lower than petroleum-based jet fuels. The tax credit also offers an extra 1 cent per gallon for every percentage of emissions beyond that 50% reduction.

The 45Z tax credit can reach up to $1.75 a gallon, starting Jan. 1, 2025, until the end of 2027. The 45Z tax credit is considered more valuable long-term for biofuel-to-jet fuel because right now, so little aviation fuel is being produced to qualify for the 40B tax credit.

The 45Z credit is likely to see similar climate-smart practice bundling requirements as well.

"The bundling of these climate-smart practices adds layers of complexity and costs that many farmers simply cannot bear and will not pursue if not paid a premium," the ag groups said in the letter.

"The implementation of no-till farming, cover cropping and enhanced-efficiency fertilizers requires significant upfront investments in both time and resources. Without a greater incentive many farmers may simply be unable to implement these bundled practices based on economic limitations alone."

ADDITIONAL OPTIONS

The groups asked Yellen to consider additional options for 45Z compliance to "give farmers the ability to comply with CSA requirements without running afoul" of the IRS.

"If this flexibility is not granted, the CSA requirements will become barriers rather than enablers of sustainable farming," the letter said.

The ag groups want to see the IRS provide more tailored and "accessible" guidelines for "varying capabilities" and conditions of farmers across the country.

"The U.S. Department of Agriculture has identified a myriad of CSA practices that farmers are already employing, based on need, soil type, farm size and more," the letter said.

Read more on DTN:

"SAF Tax Credit Rules for Biofuels," https://www.dtnpf.com/…

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on social platform X @DTNeeley


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