From ContinuumAG May 8th, 2024 - FYI

Hey everyone,

The long-awaited 40B rules and GREET update have finally arrived. Originally planned for release on March 1st, they finally made the updates on April 30th. Despite the delay, there is still plenty to unpack and learn from in these recent rulings. 

I’ve compiled seven main takeaways that I’m eager to share with you all today. But I also want to hear from you. If you have any additional insights or major takeaways, please contact me at [email protected].

There is some good, some bad, and some unknowns within the update, so let’s dive into it:

1. Indirect Land Use Change (ILUC): There was a huge unexpected positive outcome regarding ILUC in the IRS Rules.  I was anticipating that the ILUC factor (historically 7.4CI points US corn based ethanol) would go up by 5 points or worse.  Luckily, this was not the case and corn based ethanol shows a lot of promise in the future of sustainable fuels.   

2. Feedstock Calculator: Unfortunately, we haven’t seen an update to the GREET feedstock calculator. This absence raises concerns, especially considering its significance in quantifying the carbon intensity score of various feedstocks. While it’s disappointing, it highlights the urgency of advocating for its release before the implementation of 45Z. Our industry relies heavily on accurate data and tools, and the absence of an updated calculator presents a significant challenge that we must address collectively.  “In lieu” of using the GREET feedstock calculator, the 40B rules used a “punt” approach and are allocating a simple 10 CI point reduction for farms using cover crop, no-till, and enhanced efficiency fertilizer. They grant a 5 CI point reduction for soybean producers using cover crops and no-till. Hopefully 45Z will use the real CI reduction rather than this oversimplified approach. 

3. Definitions of Climate-Smart Ag Practices: On a positive note, we’ve received clear definitions of climate-smart ag practices. While this doesn’t compensate for the lack of a feedstock calculator update, it provides valuable guidance for farmers. Cover crop, no-till, and enhanced efficiency fertilizers are highlighted as key practices to be deemed climate smart. 

• Cover Crop: The base rules go with flexibility toward cover crop species and planting/termination timing, as long as the farmer adheres to NRCS guidelines. Options for interseeding, companion cropping, haying and grazing exist, but harvesting covers for seed is restricted.
• No-Till: Per these new rules, no-till doesn’t necessarily mean no tillage.  Per the guidance, no-till now includes leaving residue evenly distributed over soil surfaces, with exceptions for the planting furrow (aka strip-till is fine). Burning residue is prohibited.
• Enhanced Efficiency Fertilizer: This practice requires the use of stabilizers on at least 50% of nitrogen content, with a written plan for NPK management. Approved stabilizers have to be used and we are researching these university derived lists now.

4. Mass Balancing for Traceability: The unexpected emphasis on traceability by the IRS caught many by surprise. However, the guidelines laid out provide a solid framework for ensuring the accountability of climate-smart grains in sustainable aviation fuel production. By tracking the movement of loads and maintaining detailed documentation, the traceability of climate-smart grains throughout the supply chain is ensured. Additionally, the requirement for each entity storing grain to conduct its own mass balance equation ensures transparency and accountability at every stage of the process. I need to learn a lot more in this arena, but the rules appear promising.

5. Restrictions on Stacking Carbon Outcome Programs: Another unexpected development was the IRS’s stance on stacking carbon intensity programs with other carbon credit programs. While this may come as a disappointment to some, it clarifies the boundaries between different types of carbon initiatives. The IRS laid out a “farmer attestation” document (we anticipated needing one of these and have been working on it for months) but the farmer must also attest that they are not in any other carbon programs. Although it would have been nice to stack, I wasn’t confident the IRS would allow for it, now we have clarity. 

6. Other CI-Reducing Pathways: The 40B GREET model introduces various pathways for reducing carbon intensity beyond purchasing low-carbon feedstock. From carbon capture and storage (CCS) to utilizing renewable energy systems, there are numerous avenues available for reducing carbon intensity scores. While the impact of on-farm practices may not be as significant in this version of the GREET model, it highlights the importance of exploring diverse strategies to achieve carbon intensity reductions.  This is the first time that the IRS is using the GREET model for tax credit purposes and the first time that the government is directly rewarding the noted soil health practices as part of their climate goals.

7. Preparation for 45Z: As we navigate through the intricacies of the 40B rules and GREET updates, it’s important to keep our sights set on the implementation of 45Z. With its rollout coming soon, we must take proactive measures by knowing your CI Score and organizing/verifying your data to make sure the opportunity is maximized. 

Looking Forward:

These recent updates offer insights into the evolving landscape of carbon intensity regulations and initiatives. While we didn’t receive definitive rules for 45Z, the 40B rules provide a glimpse into what’s to come. As we move forward, it’s crucial to prioritize the documentation of farm practices and seek verification through TopSoil.ag. At Continuum Ag, we’re committed to supporting farmers in navigating these changes and capitalizing on emerging opportunities in the biofuel space or beyond.

Stay informed by registering for our CI Chit Chats and accessing resources available on our website. If you have any questions or need further assistance, don’t hesitate to reach out.

Thank you!
Mitchell Hora