It marks a pivotal win for the powerful U.S. corn lobby.
However, the administration will also update the methodology by March 1, which leaves some uncertainty for corn-based ethanol producers, as it could ultimately tighten requirements around SAF feedstocks.
Airlines argue incentives are needed to boost the market for SAF, which can generate 50 percent less greenhouse gas emissions over its lifecycle than petroleum fuel, but is typically two to three times more expensive than fossil-fuel-based jet fuel.
For months, the Biden administration has been divided over whether to recognize the Department of Energy’s Greenhouse Gases, Regulated Emissions and Energy Use in Technologies (GREET) model. That model enables ethanol-based SAF to qualify for tax credits under the Inflation Reduction Act, Biden’s signature climate law.
Ethanol producers and corn farmers in rural states such as Iowa and Illinois have been awaiting updates because the industry sees SAF as one of the only routes to grow ethanol demand amid rising sales of electric vehicles.
Biden, a Democrat, is seeking re-election and will depend on votes from closely contested midwestern states that are the heaviest corn producers.
While the guidance aims to reduce the price gap between SAF and traditional jet fuel, administration officials could not provide data to show the extent that the incentives would reduce price discrepancies between the fuels.
Ethanol groups have lobbied the Biden administration fiercely to recognize the GREET model for IRA credits, battling environmentalists who want standards that elevate feedstocks like used cooking oil and animal fat instead.
Farmers, ranchers and producers have the capacity to provide feedstocks to help airlines and the transportation industry meet a potentially 36-billion-gallon market, said U.S. Agriculture Secretary Tom Vilsack on a call with reporters.
“Key to this was the Treasury recognizing and appreciating the importance of the GREET platform for providing a pathway for corn-based ethanol and (other) bio-based fuels to qualify for significant tax credits that were included in the IRA,” Vilsack said.
Still, the GREET model now will be updated to incorporate new data and modelling on emissions sources like land use change and livestock activity, as well as strategies producers can use to lower emissions like carbon capture and storage, renewable natural gas and climate-friendly farming practices, the Internal Revenue Service said.
Under the recent changes, fuel produced in 2023 that meets the new GREET standards will be eligible for the credit, administration said on background during a call with reporters.
The Environmental Protection Agency and the Departments of Agriculture, Energy and Transportation are working together on the scientific updates, an administration official told reporters on a press call.