Updated GREET model to be used for SAF credits

Biden administration adopts ethanol-backed SAF tax credit method, plans March update. The Biden administration announced on Friday that it will adopt a methodology favored by the ethanol industry for claiming tax credits on sustainable aviation fuel (SAF), marking a significant victory for the U.S. corn lobby. However, the administration also plans to update this methodology by March 1, which has raised some uncertainty for corn-based ethanol producers, as it may lead to stricter requirements for SAF feedstocks. The law allocates tax credits for biofuels that can demonstrate that they cut greenhouse gas emissions by 50% or more. Link to Treasury release. 

     Details: The SAF credit currently incentivizes the production of SAF that achieves a lifecycle GHG emissions reduction of at least 50% compared with petroleum-based jet fuel. Producers of SAF are eligible for a tax credit of $1.25 per gallon to $1.75 per gallon. Under the rules, SAF that decreases GHG emissions by 50% is eligible for the $1.25 credit, and SAF that decreases GHG emissions by more than 50% is eligible for an additional $0.01 per gallon for each percentage point the reduction exceeds 50%, up to $0.50 per gallon.

     Treasury said that the guidance issued today (Dec. 15) means that “numerous fuels will qualify for the credit, including valid biomass-based diesel, advanced biofuels, cellulosic biofuel, or cellulosic diesel that have been approved by EPA under the Renewable Fuel Standard (RFS).

     Of note: Fuels that have a 50% or greater GHG emissions reduction via the most recent Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) standard will continue to qualify.

      Reaction:

·      “While there are important carbon modeling details that still need to be worked out, we are optimistic that today’s guidance will open the door to an enormous opportunity for America’s farmers, ethanol producers, and airlines,” Renewable Fuels Association (RFA) President Goeff Cooper said.

·      Michael McAdams, President of the Advanced Biofuels Association (ABFA), stated: “Recognizing that a one-size-fits-all approach is impractical, the Biden Administration's acknowledgment of this reality is crucial for achieving significant carbon reductions in air travel… The ABFA has continuously fought to extend SAF tax credits and to increase the Renewable Fuel Standard. As the name suggests, SAF is the most viable sustainable aviation fuel option to reach our shared goal of net zero emissions by 2050 and demonstrates why we need an all-of-the-above climate strategy. Our member companies have already made great investments and advancements in SAF production, and we hope that today’s announcement signals further government support for the technology.”

·      The National Corn Growers Association (NCGA) said it is pleased that Treasury is embracing the model. “Given that GREET was created by the U.S. government and is widely respected for its ability to measure reductions in greenhouse gas emissions from the farm to the plane, we are encouraged that Treasury will adopt some version of this model,” said Minnesota farmer and NCGA President Harold Wolle. “At the end of the day, we are eager to help the aviation sector lower its carbon footprint, and we look forward to working with the involved agencies over the coming months to ensure the final model helps us achieve that goal.”

·      The American Carbon Alliance (ACA) released the following statement from CEO Tom Buis: "Ethanol is the largest sustainable low-carbon fuel that yields advantages beyond conventional energy uses. GREET is the most realistic model in measuring the carbon intensity of biofuels. The American-made GREET model will allow ethanol to serve as the primary feedstock for Sustainable Aviation Fuel, and help the U.S. to become energy independent in the very near future. This change is the ride decision and benefits American aviation, boosts energy security, and enhances our path to independence from foreign oil suppliers."

     The aviation industry, responsible for about 2% of global energy-related carbon dioxide emissions, faces challenges in decarbonization due to the difficulty of electrifying its equipment. Airlines argue that incentives are necessary to promote SAF, which can significantly reduce greenhouse gas emissions compared to petroleum fuel but is typically more expensive.

     The Biden administration had been divided over whether to recognize the Department of Energy's Greenhouse Gases, Regulated Emissions, and Energy Use in Technologies (GREET) model, which allows ethanol-based SAF to qualify for tax credits under the Inflation Reduction Act. Ethanol producers and corn farmers have been eagerly awaiting this decision, as SAF represents a potential avenue for increasing ethanol demand.

     The guidance aims to narrow the price gap between SAF and traditional jet fuel, although the administration could not provide specific data on the extent of the price reduction.

     Ethanol industry groups have been advocating for the GREET model, while environmentalists prefer standards that prioritize feedstocks like used cooking oil and animal fat. USDA Secretary Tom Vilsack emphasized the capacity of farmers and producers to supply feedstocks for a potentially sizable market. Vilsack has said his agency is contributing to updating the GREET model and said the move by the Treasury Department reflects the agency “recognizing and appreciating the importance of the GREET platform.”

     The GREET model will be updated to incorporate new emissions data and modeling related to factors such as land use changes, livestock activity, and emissions reduction strategies like carbon capture and renewable natural gas. Fuel produced in 2023 that meets these updated standards will be eligible for tax credits. Various government agencies, including the Environmental Protection Agency, Departments of Agriculture, Energy, and Transportation, are collaborating on the scientific updates to the methodology.

Bottom line: The forthcoming update to the GREET model will play a pivotal role in determining the eligibility of fuels for SAF credits. It is anticipated that corn-based ethanol and other renewable fuels will qualify for the credits in relation to SAF produced and used in calendar years 2023 and 2024. Following the GREET model update, focus will shift toward the Clean Fuels Credit, scheduled to take effect Jan. 1, 2025, replacing the SAF and other credits. The structure of this credit will have significant implications for the future growth of the biofuels industry, encompassing a wide range of feedstocks.