Dive Brief:
- Sustainable aviation fuel made from corn and soybeans will be able to qualify for renewable energy tax credits, but only if farms use cover crops and other climate-smart growing practices, the Biden administration said last week.
- Corn growers must use no-till, cover crops and enhanced efficiency nitrogen fertilizer for their crops to be eligible for subsidies, according to a pilot model released by the U.S. Department of Treasury. Soybean growers will be required to use no-till and cover crops.
- The so-called 40B tax credits were established as part of the Inflation Reduction Act to accelerate demand for alternative fuels. Farm groups said the requirements are expensive, not feasible for every grower and will limit access to the SAF market.
Dive Insight:
Industry groups have eyed the growing market for sustainable aviation fuels as a lucrative opportunity for corn and soybean farmers, who are receiving lower returns on their commodities amid a grain oversupply. However, meeting the requirements for SAF tax credits may cost more than it's worth.
While cover crops and other sustainable practices promise powerful environmental benefits, the reality of implementing these techniques can be complicated. A Stanford study of the U.S. Corn Belt found yields declined by as much as 5.5% for corn and 3.5% for soybeans on fields that used cover crops for at least three years. Those production declines equate to a loss of about $40 per acre for corn and $20 per acre for soybeans, making "long-term adoption of the practice challenging," researchers said.
It can also be very difficult to transition to completely no-till, which often takes years and "is a completely different system of farming," according to Neil Sass, a Natural Resources Conservation Service soil scientist. Transition hurdles have caused many farmers to simply give up — a little more than half of the 293 counties in Illinois, Iowa and Indiana experienced disadoption of no-till practices in 2022, a report Iowa State University found.
Farm groups say they need more assistance and flexibility in the transition to climate-smart practices, including more freedom to decide which conservation practices make the most sense for their land.
“As corn growers, we already understand the environmental practices that work best for our growing conditions and climate, so it is not necessary for the government to dictate specifically how we reach an emissions reduction goal,” Harold Wolle, president of the National Corn Growers Association, said in a statement. “Farmers are going to have different methods depending on a variety of factors, including where their farms are located.”
Farm groups are now awaiting guidance on the IRA's 45Z tax credit for passenger vehicles, which will also replace several biofuels-related credits scheduled to expire at the end of the year. The Treasury Department is expected to release the model for the 45Z credits in the weeks to come.
“We view today’s 40B announcement as the starting point — not the ending point — for additional modeling improvements, further integration of individual climate-smart agriculture practices, and emerging biorefinery technologies,” Renewable Fuels Association President and CEO Geoff Cooper said in a statement. “45Z is where the rubber really meets the road."
