USDA is making it easier for growers to qualify for a new biofuel tax credit by increasing the number of eligible crops and climate-smart farming practices and dropping a bundling requirement.
USDA released its interim rule Wednesday on guidelines for climate-smart agriculture crops intended as biofuel feedstocks for the 45Z credit that took effect Jan. 1.
The interim rule makes notable changes to the guidelines issued in 2024 for the previous 40B credit for sustainable aviation fuel. Those guidelines included the requirement that farmers implement a bundle of practices to be eligible for the incentive. For example, corn ethanol qualified for the 40B credit only if the grain was grown with no-till, cover crops and energy-efficient fertilizer.
Sorghum was added as an eligible crop under the 45Z guidelines.
USDA also published a calculator model intended to allow farmers to directly estimate their carbon intensity scores for their specific practices, crops and location.
Many agriculture and biofuel groups have been pushing USDA to remove the bundling requirement included in 40B since the agency released a request for information on this interim rule over the summer.
Agriculture Secretary Tom Vilsack told reporters Wednesday the interim rule for 45Z “puts farmers in the driver's seat." If leveraged in clean fuel programs, the standards may also help farmers earn a price premium for reduced carbon-intensity biofuel feedstocks, which opens up market opportunities and creates climate benefits.
The interim rule is the critical piece biofuel and agriculture industry stakeholders were hoping to see last week when the Treasury Department published its proposed guidance on 45Z. That credit consolidates expired credits for biodiesel, renewable diesel, alternative fuels and sustainable aviation fuel. The 45Z credit expires at the end of 2027.
The value of the credit per gallon varies based on the carbon intensity of the fuel. Guidance from the Treasury Department is required to set rules for measuring the carbon intensity.
Vilsack said the interim rule demonstrates significant progress from the 40B credit. He cited the inclusion of sorghum as an additional feedstock option, and the fact the rule removes bundling requirements.
Additionally, the rule allows for reduced tillage and fertilizer application timing practices. The practices can also be used individually or in combination.
Vilsack said that 40B credit was a “foot in the door,” and the interim rule “opens the door wide open.” He said there is still potential for growth, and more climate-smart practices could be integrated later.
“We can continue to build and improve this interim final rule to create meaningful markets for climate-smart feedstocks that will improve both the greenhouse gas emissions of liquid transportation fuels and the rural economy,” Vilsack said.
To accompany the rule, USDA published a beta version of the feedstock carbon intensity calculator (USDA FD-CIC). It’s designed to make farm-scale carbon intensity calculation more simple for farmers. USDA will complete a peer-review process to finalize the methodology on the calculator and will accept public feedback before establishing a final version.
Vilsack said the calculator allows users to see preliminary CI values given the specific crops, practices and counties. The USDA rule and calculator will still need to be adopted by other entities like the Treasury Department. However, Vilsack said there could be substantial economic benefits for farmers, including up to $1 or more per bushel.
Data used for the calculator came from information the agency has gathered over years, by surveying farmers and more, Vilsack said. This should give stakeholders confidence that there is sound science and data behind the initiative.
The calculator was designed to be incorporated with the 45Z GREET model, which the Department of Energy also released Wednesday. Vilsack said USDA has worked collaboratively with other agencies throughout this process to ensure the calculator does fit in with that model.
By dropping the bundling requirement and publishing this calculator, Vilsack said farmers will be able to determine the best decisions for their individual operations.
“Farmers will find this easy to use and they will find it very helpful in helping them make decisions about how to best position their farm … for that matter individual fields within the farm, for utilization for biofuel feedstocks or SAF,” Vilsack said.
The Renewable Fuels Association applauded USDA's work on the interim rule, and said the guidelines begin to open the door to new opportunities for farmers.
“Today’s USDA guidelines finally create a much-needed structure for properly assessing, valuing, and integrating the carbon reduction benefits of certain farming practices into lifecycle analysis," said Geoff Cooper, president and CEO of RFA. "We thank USDA for developing this initial framework that could ultimately allow farmers to actively participate in carbon markets, bringing new revenue streams and unprecedented value creation to rural communities.”
Despite calls from various biofuel and agriculture groups, the interim final rule does not allow for feedstock producers to utilize a book-and-claim accounting system. Vilsack said USDA recognizes the merits of that system, but said the infrastructure system needed does not exist at scale yet.
He continued that mass-balance systems are already in use for tracking commodity crops and associated environmental attributes through the supply chain. USDA will still be taking comments but at this time Vilsack said the agency is not confident book-and-claim could be incorporated.
RFA said it will provide comments on potential improvements, including the need for a decoupled, book-and-claim approach.
The interim rule is open for a 60-day public comment period.
This leaves the final rulemaking to the Trump administration. President-elect Donald Trump has been critical of the Inflation Reduction Act, the law that established 45Z.
It’s unclear exactly what approach Trump or Brooke Rollins, his nominee to lead USDA, will take on biofuels and 45Z. Vilsack said he has not spoken directly with the Trump transition team about 45Z or biofuels but is confident the incoming administration will see the strength and opportunities of the rule.
Vilsack said biofuels and specifically this rule is an income opportunity or farmers, a job-creating opportunity for rural America and a way for the airline industry to lead competition internationally.
“The benefits of all of that, I think, make the case strongly any administration, Republican or Democrat should be excited about completing this work as quickly as possible,” Vilsack said.
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