New US budget bill a boon for corn, soy, in road and aviation biofuels

29 Jul 2022 | John McGarrity

Democrats in the US Senate have agreed to back the Inflation Reduction Act, which contains several major provisions to support crop-based biofuels - reliant mainly on soyoil and corn - that have been retained from a previous climate package blocked in the upper house since 2021. 

The bill includes a new dedicated tax credit for sustainable aviation fuel (SAF) and an extension of the existing credit for road-based biodiesels through 2024, but then transitions to a 'Clean Fuel Production Credit' for the years 2025-2027, with the new credit applying to domestic production credit only, unlike the current BTC.

The package of measures in a repurposed climate-focused bill  – which took many in Washington by surprise – were drawn up by senior Democrats in consultation with Joe Manchin, the West Virginia senator who had effectively blocked President Biden’s ‘Build Back Better’ bill since the middle of last year.

The package, which accounts for around $370 billion in direct spending but could almost double that in potential benefits to the US economy, according to the White House, is much smaller in scope than the stalled 'Build Back Better' package of climate measures and other policies aimed at promoting cleaner growth in the US and making greener technologies more affordable.

“With this legislation, we’re facing up to some of our biggest problems and we’re taking a giant step forward as a nation … This bill is far from perfect, it’s a compromise, but that’s often how progress is made: by compromises,” President Joe Biden said in a statement on the bill, which has been named with a nod to surging inflation in the US that has been largely driven by higher oil prices.    

US Secretary for Agriculture Tom Vilsack said in a statement that the bill would benefit farmers.

“Agriculture has long been at the forefront of our fight against climate change. From climate-smart agriculture, to supporting healthy forests and conservation, to tax credits, to biofuels, infrastructure and beyond, this agreement provides USDA with significant additional resources to continue to lead the charge," he said. 

Although the bill was mainly energy focussed, it provides around $20 billion to farms to sequester more carbon through soil tilling techniques and biogas capture.

The revised package of measures was broadly welcomed by the biofuels sector but also prompted some disquiet because fiscal incentives will taper off later in the decade, particularly for biodiesels, which in the US use large volumes of corn oil and soyoil. 

"The transition [to CFPCs] is much sooner than previously negotiated by Congress – the Build Back Better Act would have extended credits through 2026 and then transitioned to the CFPC for 2027-2031, with credit values for on-road fuels significantly lowered after that," pointed out one US biofuels industry source.

A SAF tax credit of $1.25 per gallon, which could rise to $1.75 per gallon depending on greenhouse gas reduction level of the fuel, is also included in the bill and would also be effective through 2024, but from 2025 biojet will also revert to the CFPC payments. 

Expiry date

"We are very pleased that the bill recognizes that SAF requires an additional incentive to attempt to level the playing field with ground transport fuels and their many policy supports.  However, we are disappointed that the SAF credits are limited to five years, expiring in 2027 along with other fuels. This new industry needs a longer-term incentive to deploy at scale," one US SAF producer - potentially a large customer of corn-based ethanol as feedstock - said in response to the bill. 

US producers of biojet have said for years that tax credits are essential for many projects to attract necessary financing.

Language in the bill specifically calls for the use of biomass in generating renewable fuels and prohibits the use of palm derivatives, but would mean first-generation feedstocks such as soyoil, cornoil and corn-based ethanol will be eligible for biojet - unlike in Europe, which has proposed to exclude food crops in its evolving SAF mandate.

Lobbies respond

Biofuels groups such as the Advanced Biofuels Association and Growth Energy said that the extension of existing tax credits for road biofuels and the introduction of new ones for aviation would protect existing jobs and help create additional employment in the sector.

They added they will lobby strongly for the bill to pass through the House of Representatives, in which Biden's party has a majority but includes some left-wing Democrats that may take the view that the Inflation Reduction Act is far too insufficient to combat climate change.