The Biggest Biofuels Policy Deal Since 2007

The IRA’s biofuels and agriculture provisions will create long-term investment certainty and stimulate remarkable technology innovation. Ultimately, the legislation will help U.S. ethanol producers achieve net zero carbon emissions by 2050.
By Geoff Cooper | September 15, 2022

It’s been a long time since Congress passed legislation focused on stimulating significant growth and investment in low-carbon renewable fuels like ethanol. How long? Well, to be exact, it’s been 15 years.

In December 2007, Congress passed, and former President George W. Bush signed into law, the Energy Independence and Security Act, which extended and greatly expanded the Renewable Fuel Standard. EISA’s passage was a remarkable achievement for the ethanol industry, and the U.S. biofuels sector would go on to roughly triple in size within in the years following enactment of the legislation. But when it comes to federal biofuels policy, we’ve had a long dry spell ever since 2007.

That all changed on August 16, when President Joe Biden signed the Inflation Reduction Act into law. In fact, I believe the IRA marks the most significant federal commitment to low-carbon biofuels since the RFS was expanded a decade and a half ago. Through a comprehensive suite of tax credits and grant programs, the new legislation establishes a clear path forward for innovation, investment and growth in the renewable fuels sector. We were thrilled to see many of RFA’s top legislative priorities included in this package.

For starters, the IRA appropriates $500 million to USDA to provide competitive grants for infrastructure improvements for blending, storing, supplying, or distributing higher biofuel blends like E15 and E85. This provision will offer crucial financial assistance to retailers and marketers who wish to sell lower-cost, lower-carbon fuel blends to their customers.

The bill also extends existing tax credits for cellulosic biofuels, biodiesel and renewable diesel through 2024, then transforms those credits into a single Clean Fuel Production Credit. The CFPC is a technology-neutral tax incentive for the domestic production of clean fuels, including ethanol, which reduces carbon emissions by at least 50% compared to gasoline. The level of the incentive depends on the lifecycle carbon emissions of the fuel, topping out at $1 per gallon for fuels with a net-zero carbon emissions footprint.

In addition, the IRA creates the first-ever tax credit for sustainable aviation fuels (SAF). Ethanol-to-jet fuel and other SAFs that achieve a 50% GHG reduction compared to petroleum jet fuel are eligible for a $1.25-per-gallon tax credit, which expands to $1.75-per-gallon for SAFs that have net-zero carbon emissions.

The legislation also extends and modifies the tax credit for carbon dioxide sequestration, popularly referred to as 45Q or the CCUS credit. In addition to extending the deadline for eligibility to 2032, the bill lowers the minimum carbon capture amount required for eligibility and increases the credit value for geological sequestration to $85 per metric ton.

We were also pleased by the inclusion of more than $20 billion for agricultural conservation investments and technical assistance. These investments are intended to improve soil carbon, reduce nitrogen losses, and decrease or sequester farm-level greenhouse gas emissions—all of which would have a beneficial impact on the carbon footprint of corn ethanol.

Finally, we believe it is notable that the bill’s electric vehicle incentives includes important energy security safeguards. Specifically, the bill incorporates made-in-America measures to ensure that growth in EVs doesn’t lead to an unhealthy dependence on foreign minerals and offshore manufacturing.

When taken together, the IRA’s biofuels and agriculture provisions will create long-term investment certainty and stimulate remarkable technology innovation. Ultimately, it is our belief that these measures will help RFA’s member companies achieve their goal of producing ethanol with net zero carbon emissions well before midcentury. This is a big deal … the biggest since 2007!

Author: Geoff Cooper
President and CEO
Renewable Fuels Association
202-289-3835
[email protected]