Biden team sets out path for ethanol aviation fuel subsidies

(Reuters) -President Joe Biden's administration on Tuesday released guidance on its sustainable aviation fuel (SAF) subsidy program that allows corn-based ethanol to qualify for the program if it is sourced from farms using climate-friendly growing techniques.

The plan is likely to be bittersweet for the politically powerful U.S. ethanol industry, which is eager to secure the subsidies but had hoped for a lower hurdle.

Air travel so far accounts for about 2% of U.S. carbon pollution and is one of the fastest growing sources.

Biden hopes creating a subsidized market for lower-emissions SAF can counter that threat, while giving a boost to farm country, an important constituency in November’s presidential election.

“Sustainable aviation fuel is a key part of the Biden-Harris administration's efforts to transition the American economy to a clean energy future and rebuild the middle class from the bottom up to the middle out in rural America,” said Secretary of Agriculture Tom Vilsack.

SAF can be made from corn, soy or other agricultural products. But to access the SAF subsidies that make it economically viable to produce, refiners must demonstrate their fuel is at least 50% lower in emissions than petroleum jet fuel.

Ethanol-based SAF can meet that threshold, according to the guidance, only if corn farmers use a bundle of agriculture practices that include no-till, cover cropping and efficient fertilizer application that hold carbon in the soil.

Soy-based biodiesel will also qualify if the soy farms use a combination of no-till and cover cropping, according to the announcement.

Recognition of so-called climate-smart agriculture practices in the subsidy program will be effective for fuels made in 2023 and 2024, after which it could be adjusted or expanded, officials said.

The SAF subsidies amount to $1.25 per gallon for fuels that hit the 50% emissions reduction threshold, and up to $1.75 per gallon for those that exceed it.

The plan was based on an update to the GREET climate model that covers lifecycle emissions of ethanol and other biofuels under a variety of circumstances and includes the climate impact of related land use changes.

The Renewable Fuels Association industry group said it was encouraged by the announcement.

"However, RFA believes less prescription on ag practices, more flexibility, and additional low-carbon technologies and practices should be added to the modeling framework to better reflect the innovation occurring throughout the supply chain,” said the group's president and CEO, Geoff Cooper.

Some environmental groups and researchers are concerned the SAF strategy will not deliver the promised climate gains, in part because of scientific uncertainty about the benefits of no-till or cover crop farm techniques and the sheer volumes of fuel that will be required.

"The bottom line is that to decarbonize aviation, U.S. airlines need a volume of alternative fuels that sustainable biomass alone cannot meet," said Mark Brownstein, senior vice president, energy transition, at the Environmental Defense Fund.

Bill Hohenstein, director of USDA's Office of Energy and Environmental Policy, said the administration is confident in the plan. “We do have robust data, analysis, information and modeling that all supports the conclusions that these practices do have greenhouse gas benefits," he said.

(Reporting by Richard Valdmanis; editing by Barbara Lewis, David Gregorio and Leslie Adler)