Inflation Reduction Act To Pave A New Path for US Biofuels Industry

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On Aug. 16, US President Joe Biden signed the Inflation Reduction Act of 2022 into law, providing incentives to various sectors, including the biofuels industry, reports Platts.

Inflation Reduction Act

The Act does not replace the existing Renewable Fuel Standard, so the EPA will continue setting volumetric blending mandates each year.

Though ethanol is mentioned only thrice in the lengthy law, ethanol producers will benefit from its carbon capture, utilization and storage provisions, clean fuel production credits, and incentives for ethanol-based sustainable aviation fuel. In addition, cellulosic ethanol manufacturers celebrated the revival of a previously-expired $1.01/gal second generation biofuels credit.

Many US ethanol producers plan to use carbon capture technologies to reduce the life cycle carbon intensity of their fuel. Lowering a fuel’s CI score increases its value, particularly in low-carbon markets such as California and Oregon.

Summit Carbon Solutions, Navigator CO2 and Wolf Carbon Solutions are among the companies planning pipelines to transport CO2 captured from ethanol plants and store it underground. As of August, Summit and Navigator each had 32 facilities signed up for their networks. Summit announced that Iowa landowners have signed more than 1,200 voluntary easements for its pipeline.

The new law extends and expands the tax credit for CCUS, commonly known as the 45Q tax credit, for projects that begin construction between 2023 and 2032. 45Q tax credits are based on the volume of qualified carbon oxides captured and sequestered.

The alternative fuel mixture credit and the 2G biofuels credit

Last renewed in 2018, the new law bumps up the value of the credit to $85/mt for sequestration and $60/mt if the carbon oxide is utilized, presuming that the facility complies with prevailing wage and apprenticeship requirements. The credits are 80% lower if the requirements are not met.

The minimum volume thresholds needed for facilities to qualify for the credit have also changed. Prior to the law, an ethanol plant needed to emit more than 100,000 mt/year of carbon oxide to qualify. Now it is only 12,500 mt/year. The new provisions apply to facilities and equipment placed in service after Dec. 31.

Two lesser-known biofuels credits that expired at the end of 2021 were revived retroactively: the alternative fuel mixture credit and the 2G biofuels credit.

The alternative fuel mixture credit is a 50 cents/gal tax credit that rewards the use of fuels such as propane and compressed natural gas in a motor vehicle, motorboat or aircraft. The law removed liquified hydrogen as an alternative fuel as it is now covered by other provisions.

The 2G biofuels credit provides up to $1.01/gal for the production of 2G biofuels. Qualified feedstock includes any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis as well as any cultivated algae, cyanobacteria or lemna. These credits were also extended to the end of 2024.

Read more here.

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Source: Platts

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