Navigating Uncertainties: Ethanol’s Resilience Strengthening Resolve

By: Mark Heckman, EcoEngineers, Strategic Development Director U.S. Biofuels

2023 has certainly proven to be a roller coaster of optimism, challenges and the need for adaptability for the ethanol industry. In a welcome turn of events, the U.S. Treasury and Internal Revenue Service (IRS) brought a much-needed dose of clarity to the industry by releasing guidance on the implementation of the Inflation Reduction Act’s (IRA) sustainable aviation fuel (SAF) tax credit.

The guidance clarified that an updated version of the Argonne National Laboratory’s Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation (GREET) model will be among the methodologies used to determine eligibility for the tax credit.

The SAF guidance is a step in the right direction that gives the ethanol industry hope that it will be able to participate in the opportunity to decarbonize the aviation sector. The guidance requires U.S. Environmental Protection Agency (USEPA) approval of ethanol to SAF fuel pathways under 40 CFR Part 80 Subpart M, the Renewable Fuel Standard (RFS), and Q-Renewable Identification Number (Q-RIN) generation before they can be eligible for federal tax credits. Fortunately, the USEPA has indicated that it will review pathway applications for facilities that produce SAF from ethanol, and we hope this will embolden ethanol plants to submit pathway applications for this exciting new opportunity.

Therefore, I encourage us to look at the glass as half-full and use this time to prepare a strategy.

While the IRA/SAF credit is welcome news, there are still hurdles to face in the ethanol industry. The corn kernel fiber (CKF) guidance released by the USEPA in August 2022 has seen pathway applications stalled, and carbon dioxide (CO₂) pipeline projects are being delayed or stopped.

However, adversity often sparks innovation, and our industry is no stranger to rising to the occasion. Instead of relying solely on government programs, ethanol producers can explore alternative strategies that grant them more control over their destiny.

Below are a few opportunities that I believe should be included in an ethanol plant’s 2024 strategy:

• On-Site Sequestration or Utilization: If ethanol producers have favorable geology next to their facility, injecting and permanently storing CO₂ is a huge opportunity. If the available geology is not viable, then exploring CO₂ utilization should be considered. Many established markets such as chemicals, specialty fuels, and animal feed are seeking biogenic CO₂ to support their own ESG goals.
• Ethanol-to-Jet: As mentioned above, the guidance from the U.S. Treasury around the SAF tax credit opens the door for ethanol-to-jet. The base tax credit appears to be available for any RFS-registered pathway that can generate a Q-RIN with “extra credit” calculated in the to-be-released GREET model. If economics can work without the extra credit, ethanol plants should be identifying project opportunities and submitting pathway applications to the USEPA now.
• Voluntary Carbon Markets (VCMs): One significant shift in strategy is the participation in VCMs by ethanol producers. VCMs are alternative markets that allow carbon emitters to offset their emissions by purchasing carbon credits. As ethanol plants continue to find creative ways to lower the CI of ethanol, these CI scores are being offered to VCMs when compliance pathways are not lucrative or take too long to get the required regulatory approval. For example, an ethanol producer sequestering CO₂ can monetize carbon sequestration in VCMs when regulatory pathways are not available or attractive. Finally, there is a large pool of carbon credits from climate-smart practices on corn fields and cooperatives supplying ethanol plants with feedstock. This sets the stage for an ethanol plant to adopt large-scale sustainable farming practices and bundle those credits for VCM buyers or to lower their CI as they supply feedstock for SAF production.

Adaptation Through Innovation

The question arises: "How Might We?" (HMW) — a phrase that encapsulates the spirit of innovation in these challenging but exciting times. Approaching the challenges as opportunities and driving forward has been the industry’s approach in the past. Industry veteran Ray Defenbaugh taught me that “grit” and optimism to take action is what started this industry and what keeps it thriving.

As we lean into 2024, I’m reminded that the ethanol industry is no stranger to facing and overcoming obstacles and we will surely face more ahead. Each detour opens new opportunities for the industry to innovate and discover new avenues for monetizing carbon reduction. It's a testament to this industry’s resilience and unwavering commitment to a sustainable future. The ethanol industry is not merely weathering the storm; it's using the turbulence to redefine its course and explore uncharted territories.