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SAF and What It Means for The U.S. Farmer

By Devin Lashley Risk Management Intern

The Biden administrations and the U.S. Energy Department's (DOE) guidelines for sustainable aviation fuel (SAF) outlined subsidies for ethanol aviation fuel, has sparked curiosity among ag businesses and farmers about its potential benefits. To encourage investors to build SAF production facilities, the U.S. federal government is offering tax incentives with a long list of complicated rules attached. However, as it stands now the current structure may not offer much assistance.

Producers of SAF can qualify for a tax credit ranging from $1.25 to $1.75 per gallon based on their greenhouse gas (GHG) emissions reduction. Corn farmers in the CSA Pilot Program must adopt specific practices like no-till farming, cover cropping, and the use of enhanced efficiency nitrogen fertilizers. Soybean farmers, exempt from using EENF due to natural nitrogen production, still need to implement no-till and cover crops.

However, the guidance lacks clarity on whether these practices apply to entire fields or entire farm operations. Third-party verification is mandatory, demanding meticulous record-keeping from farmers who are already extremely busy to begin with. Furthermore, farmers must directly sell their crops to SAF producers or ensure tracked delivery to maintain eligibility. Should the farmer in the process deliver their product to a 3rd party grain elevator or storage system, that elevator must then track the product and verify it’s been sent to the SAF plant.

Critics like Josh Gackle, president of the American Soybean Association, argue that the requirement for cover crops poses challenges, especially in regions with short growing seasons like North Dakota. Agriculture in general is not a one size fits all approach, and requirements like no till farming, and cover crops simply just do not work for every farmer in every region of the U.S. something the U.S. government should have accounted for.

Additionally, plants producing SAF still have the option of importing sugar ethanol from Brazil, which offers a higher emissions reduction rate of about 61%. This high emission reduction also provides a better carbon credit, the problem with this is in an industry with such tight margins it's likely that producers will just choose Brazilian ethanol over less attractive and more expensive American corn and soybean ethanol. For the SAF mandate to positively affect American farmers whatsoever to begin with, the ethanol needs to be produced with American produce. This method probably appears more attractive to begin with to SAF producers than navigating the complexities of the CSA Pilot Program.

In its current state, it’s likely the current SAF guidance will not provide significant benefits to farmers, before it becomes a benefit to the American Farmer it needs to have some holes plugged, make it more clear, make it more accessible, make it more inclusive to all farmers, and make it so that it only benefits American farmers and producers instead of allowing cheaper foreign exports to control the market. Only then will it be something that the American farmer can take advantage of, until then it unfortunately it will not be doing much.

Mark Brownstein, Senior Vice President of Energy Transition at the Environmental Defense Fund, emphasizing that achieving aviation decarbonization requires a volume of alternative fuels beyond what sustainable biomass alone can provide. In fact, there is not enough available feedstocks in the world to meet the long-term requirements of 3 billion gallons of SAF by 2030 vs. the current estimate at 24.8 million gallons but we have plenty of U.S. corn and soybean bushels.

It's going to be very difficult for corn and soybean producers to benefit from the new SAF market anytime soon, even if they're willing to comply with the government's required farm practices A modified Greet model for 45Z in January of 2025 need to offer farmers a premium for all of their record keeping like $0.50 cents to a $1.00/bushel. A bushel of corn makes about 2.8 gallons of ethanol. The SAF tax credit is up to $1.75 per gallon of SAF. 2.8 times 1.75 is $4.90. 10 cents/bu will not cut it! Will the government place a burden on using foreign sugarcane ethanol to make SAF as high as the hurdles for corn ethanol? Will EPA approve a pathway for corn ethanol based SAF to generate RINs? Fow now there are more questions than answers.

For daily information and updates on agriculture commodity marketing and price risk management for North American farmers, producers, and agribusiness visit the Risk Management Website to subscribe to the program.

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