Terry Wanzek sells corn to Dakota Spirit AgEnergy down the road from his farm near Jamestown in eastern North Dakota. And, since his farm is located near Interstate 94, his corn often heads to one of the western North Dakota ethanol producers, serving as a backhaul for truckers hauling sunflowers or beans to eastern buyers.&nbsp;Wanzek also serves in the state legislature. So, when approached by the state’s ethanol association to sponsor legislation, he needed little convincing. “We grow a lot of corn and you can draw lines from our corn to the ethanol to the market that all comes back to us who raised the corn,” he says.&nbsp;He was in the state senate over two decades ago when the state redirected its 1980s-era fuel tax credit that incentivized blending into a counter-cyclical program to aid the state’s producers during challenging market conditions with payments based on market costs of corn versus market value of ethanol.&nbsp;“Back then, it did a couple things,” says Jeff Zueger, CEO of Harvestone Low Carbon Partners, owners of Dakota Spirit AgEnergy and Blue Flint Ethanol in western North Dakota. “It incentivized plants to get built in North Dakota, and made sure that, should you build a plant, there was a support mechanism around the commodity components.”&nbsp;Though much smaller when compared to neighboring South Dakota and Iowa, North Dakota’s 550 million-gallon annual production still lands it in the top 10 ethanol producing states. Zueger points out that the North Dakota ethanol industry contributes nearly $1.7 billion annually to the state’s economy. While two of the original ethanol plants built in the 1980s closed (one in Grafton and one in Walhalla), six plants opened between 2007 and 2020. Five of them are operating today, and each has maxed out the counter-cyclical program’s caps of 10 years or $10 million per facility.The North Dakota legislature is poised to redirect the continuing appropriation passed in 2003 to another program unique to North Dakota. “It’s about meeting the next phase for our industry,” Zueger says. “Commodity prices are relevant to our business, but sustainability relies on differentiating yourself and lowering the carbon intensity and energy inputs into your process so you can offer the product the market is asking for. The markets are asking for lower-carbon feedstock for SAF and lower-carbon products for the transportation industry.” &nbsp;The legislation redirects the continuing appropriation consisting of 40% of the sums collected from farm vehicle registrations to a new low-carbon fuels fund. Eligible capital projects would include carbon capture and sequestration, energy efficiency upgrades and ethanol yield improvements. The low-carbon fuel incentives would be limited to 50% of the cost of a single project, with no more than $3 million per facility every biennium, capped at $10 million and 10 years for any one facility.&nbsp;“This provides an additional support mechanism to cover some of the uncertainty in making these investments,” Zueger says. “Rulemaking in the regulatory front presents risk and the low-carbon fuel markets move around as well, so we’re making investments on two fronts with associated risks.”&nbsp;The legislation has passed the state Senate and House, but was not yet signed by the governor at press time. Support was primarily positive, though Wanzek says some legislators want to get into discussions around climate change or the legitimacy of green initiatives. “I’m looking at it totally differently, from the business perspective. If there’s an opportunity to meet our customers’ needs, it could open up a whole lot more markets for ethanol and ultimately for corn farmers. We’re trying to assist the ethanol industry in North Dakota to address those market forces and help them position themselves to apply for those markets.”&nbsp;North Dakota’s approach to positioning its ethanol production for future markets is unique in that it is directed at helping its producers bring lower carbon intensity (CI) products to emerging markets. Most states are adapting the 1980s-era tax credit approach aimed at lowering the cost of using the new, higher-priced sustainable aviation fuel (SAF) to support in-state production and infrastructure.States Targeting SAF&nbsp; Illinois’ SAF incentive was first implemented in 2023. Washington State, Minnesota and Nebraska have also implemented SAF programs. New York and Michigan are currently considering measures. Chris Bliley, vice president of regulatory affairs for Growth Energy, also lists Arkansas, Hawaii and Alaska among states considering legislation. He expects other states with large aviation sectors, or those that have been on the cutting edge of carbon programs, to join the movement.&nbsp;States vary in how they structure the incentive and their approaches to feedstocks.&nbsp;Illinois’ $1.50-per-gallon tax credit started July 1, 2023, and covers SAF sold or used by an airline carrier in the state. To be eligible, SAF must achieve a 50% CI reduction when compared to petroleum-based jet fuel. Credits are not applicable to SAF from palm oil or soy-based SAF once air carriers have collectively purchased SAF made from 10 MMgy soybean oil feedstock. The credit can be claimed for fuel derived from biomass resources, waste streams, renewable energy sources or gaseous carbon oxides. Beginning June 1, 2028, feedstocks must be domestic biomass only.&nbsp;Nebraska has a 75-cent-per-gallon income tax credit for SAF sold and used in the state, beginning Jan. 1, 2027. The credit applies to SAF reducing CI by at least 50%, with a supplementary credit of 1 cent for each percentage point better than 50%, capped at 50 cents. It excludes SAF derived from coprocessing and palm derivatives. This year, the legislature is considering removing a $500,000 annual limit. &nbsp; &nbsp;Beginning July 1, 2024, Minnesota began offering a $1.50 tax credit for each gallon of SAF meeting a 50% CI reduction threshold, produced or blended in Minnesota, and used in aircraft departing from a Minnesota airport. The legislation excludes palm fatty acid distillates. Minnesota also offers a tax exemption for materials and supplies used in the construction or retrofitting of facilities located in the state to produce or blend SAF between June 2027 and July 2034.&nbsp;The 2025 Minnesota legislature is considering increasing the incentive by 2 cents per gallon for each 1% CI reduction beyond 50%, capped at 50 cents per gallon (a max of $2). The credit would also be expanded to include liquid fuel derived from gaseous carbon oxides, increase the credit limits and allow unused credits to remain available for allocation through 2035. &nbsp;Washington’s $1-per-gallon tax credit on SAF goes into effect once one or more facilities are operating with a production capacity of at least 20 MMgy, and expires nine years later. The credit applies to SAF achieving a 50% CI reduction compared to conventional jet, and increases by 2 cents for each additional 1% CI reduction, to a maximum of $2 per gallon. The credit applies to SAF produced or blended within the state of Washington for flights departing the state. Washington accepts SAF that has been coprocessed. &nbsp;New York is considering one proposal for a $1.25-per-gallon producer tax credit that would increase to $1.50 per gallon for SAF made with domestically produced corn or soybeans. &nbsp;A second proposal under consideration by the legislature would peg the incentive at $1 per gallon, increasing by 2 cents for every 1% reduction below the 50% threshold, not to exceed $2 per gallon.&nbsp;Michigan also has legislation to offer a $1-per-gallon tax credit for SAF that reduces life cycle emissions by at least 50% and is purchased in the state for departing flights. An additional 2-cent credit would be granted for each percent reduction greater than 50%, not to exceed $2.Hawaii’s 2025 legislative session has two bills before it. One would mandate at least 10% SAF in intrastate airline flights by any commercial airline beginning in 2030 and increasing each year to 100% SAF in 2045. The bill calls for the state department of transportation to collaborate with other agencies and stakeholders to support the development of in-state SAF production, develop compliance procedures and incentives to promote SAF fuels, with an annual appropriation of $5 million. A second bill in Hawaii would establish a SAF credit on income taxes amounting to $1 per gallon sold for distribution in the state that meets a 50% reduction threshold in greenhouse gas emissions compared to fossil fuel.Arkansas legislators are considering an end user income tax credit equal to $1.09 per gallon of 100,000 gallons of SAF purchased, limited to 50% of the taxpayer’s income tax liability. For SAF producers, the bill offers an income tax credit equal to 30% of the cost of SAF production equipment up to $10 million for an investment over $2 billion and creating at least 75 new full-time permanent jobs. The bill also provides a sales-and-use tax exemption on utilities used in SAF production. The bill defines SAF as jet fuel derived from wood biomass.In early April, Wisconsin lawmakers announced they were seeking co-sponsors for proposed legislation that would create a $1.50-per-gallon production tax credit for sustainable aviation fuel. To qualify for the credit, the SAF would need to be produced in Wisconsin and meet certain other conditions. This includes a requirement that at least 90% of the fuel be derived from synthetic, renewable and nonpetroleum sources, such as energy crops. In addition, the legislation requires eligible SAF feedstock to be produced in the U.S. If signed into law, the credit would take effect in 2028.Support for New Fuel&nbsp; The Biden administration’s SAF goals and the passage of SAF credits in the 2021 Inflation Reduction Act precipitated the state-level incentives, which mirror the 50% CI reduction threshold set in the IRA. Those incentives add to the SAF pathways already approved to generate renewable identification number (RIN) credits under the Renewable Fuel Standard.“Because SAF is so new, it’s going to take a great deal of policy support,” Bliley says. “It’s important how all of these federal and state incentives stack up to help get a new fuel off the ground.” &nbsp;Asked whether the change in administrations will diminish SAF interest, Bliley responds: “These are important conversations happening not only here in the U.S., but there’s growing international appetite for SAF in places like Europe and Japan and other places. I think this continues. And I know a number of airlines continue to be heavily engaged, especially with the implementation of [the tax credits in the IRA under] 45Z.” &nbsp;Details of the 45Z regulations and, indeed, the fate of the entire program itself, are in the hands of the Trump administration. The name itself is in flux, with the administration declaring the term “sustainable” will be replaced with the word “synthetic,” even though the fuels industry historically used the term for fuels made from coal or natural gas rather than petroleum.&nbsp;“We don’t see a real change,” Bliley says. “It doesn’t change the way we view the market or the potential for ethanol for our producers.”&nbsp;The potential for ethanol to contribute to carbon reduction is significant, Bliley says, citing the study, “A Strategic Roadmap for Decarbonizing the U.S. Ethanol Industry.” Released in September, the study was conducted by the Energy Futures Initiative Foundation, led by former DOE Secretary Ernest Moniz, lending credibility to the findings, Bliley says. “It emphasizes what we know already—ethanol’s ability to decarbonize. Just yield improvement can decarbonize ethanol by 6%, but we have the ability to drop carbon intensity by as much as 160%.” Author: Susanne Retka Schill&nbsp; writer@bbiinternational.com&nbsp;

2025-05-01 - States Support Low-Carbon Futures (Ethanol Producer Magazine)

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North Dakota takes unique approach as other states target sustainable aviation fuel tax incentives.

States Support Low-Carbon Futures

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