ACE to IRS: Consider climate smart ag under clean fuel tax credit

By American Coalition for Ethanol | December 05, 2022

The American Coalition for Ethanol submitted feedback Dec. 2 to the Internal Revenue Service request for comment on implementation of the new clean fuel tax credit (§45Z) contained in the Inflation Reduction Act.  ACE CEO Brian Jennings’ comments to the IRS highlight ACE’s steadfast involvement in how the U.S. ethanol industry and farmers can further contribute to greenhouse gas (GHG) reduction goals through policy development and real-world validation of lifecycle GHG benefits of agriculture practices at scale.

“Proper implementation of the new §45Z tax credit will incentivize U.S. ethanol companies and farmers to invest in production processes and practices to reach these net-zero carbon intensity goals in a meaningful timeframe to address the current climate challenges,” the comments read.

The §45Z tax credit is focused on the lifecycle GHG emissions of a clean fuel compared to petroleum and more specifically the credit is performance-based. ACE’s feedback discusses how the idea of individual emission rates under the IRA is not new to the U.S. ethanol industry due to ethanol companies’ participation in the California Low Carbon Fuel Standard, which requires unique carbon intensity (CI) scores for various production pathways. “When individual emission rates are determined by Treasury and IRS for implementation of §45Z, many producers will have CI scores that reduce GHGs compared to gasoline by as much as 70 percent.”

ACE supports the use of the GREET model to make determinations about §45Z emission rates as directed in the IRA, but Jennings notes that certain emissions factors related to feedstock production (i.e., corn farming for corn-based ethanol) are not yet fully incorporated in the model and should be considered.

Jennings inserts scientific evidence in the comments that underscore why “climate smart” agricultural practices, such as tillage methods to boost soil organic carbon sequestration and nutrient management of nitrogen fertilizer, need to be considered by Treasury and IRS when implementing the new clean fuel production tax credit, including recent studies by the Intergovernmental Panel on Climate Change and Lawrence Livermore National Laboratory.

Further, data collected from ACE’s South Dakota-based project with the USDA aims at increasing the confidence in current models used to quantify soil carbon sequestration and nitrous oxide emissions, and the impacts of crop yield, tillage intensity, and nutrient management on biofuel GHG emissions. “We are confident our project and this data could help ethanol facilities obtain a more valuable tax credit under §45Z as well,” Jennings writes.

“Demonstrating scientific rigor of GHG benefits related to climate-smart farming practices at relevant landscape scale is critical to increase confidence levels in existing models and enable farmers and ethanol producers to monetize the farm-level GHG reductions in regulated low carbon or clean fuel markets and through the new §45Z tax credit.”

ACE’s full comments can be accessed here.