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Biofuels Benefit from Inflation Reduction Act

Law includes nearly $38 billion funding for agricultural conservation, credit, renewable energy and forestry

Engin Akyurt | PEXELS
Engin Akyurt | PEXELS

President Biden signed the Inflation Reduction Act of 2022 (H.R. 5376) into law on August 16.

Provisions specific to agriculture include nearly $38 billion for spending on programs and initiatives ranging from farm bill working lands conservation and technical assistance to renewable energy and biofuels. There are also funds provided for rural development and drought mitigation.

While the previous Build Back Better legislation proposed an extension of the biodiesel and renewable diesel blenders tax credit through 2031, IRA extends biodiesel, alternative fuel and second-generation biofuel tax credits only through the end of 2024.

The current tax credit is a $1/gallon biodiesel tax credit for producers or blenders of pure biodiesel and a $1/gallon renewable diesel tax credit for producers or blenders of biomass-based diesel or diesel/renewable diesel blends.

Biofuel provisions in the Inflation Reduction Act

Brooke S. Appleton, the National Corn Growers Association (NCGA) vice president of public policy, said through this legislation, Congress and the administration recognize voluntary climate-smart agricultural practices are an important part of addressing climate change.

“We are also particularly pleased to see Congress and the administration acknowledge that low-carbon biofuels like ethanol are needed to help decarbonize transportation and improve energy security," said Appleton.

The American Soybean Association (ASA) has also supported several provisions, such as biofuels investments, that were included and earlier voiced opposition to specific proposals, including changes to stepped up basis and other farm tax provisions that were not included in the final proposal signed into law.

The package’s biofuel provisions include a path forward for the biodiesel tax credit and funding for specific conservation programs.

  • The bill invests an additional $500 million to improve the Higher Blends Infrastructure Incentive Program at USDA through 2031
  • Two-year extension of the biodiesel tax credit through 2024 before it converts to a clean energy technology-neutral credit for the following 3 years
    • Previous reconciliation proposals included a 5-year biodiesel tax credit followed by a 5-year clean energy credit — this bill moves from the previously negotiated 10-year model to a 5-year credit, which is standard across all energy credits in the bill
    • Clean energy credits are domestic production credits, not blenders credits like the biodiesel tax credit
  • The sustainable aviation fuel (SAF) credit spans from $1.25 - $1.75 per gallon and is capped at $1.75 while prior versions were at $2.00
    • Modeling language on SAF stayed the same as the negotiated language in previous reconciliation bills — SAF credits will be based on ICAO or similar modeling methodology set forth by the Secretary of Commerce in consultation with USDA
  • The package includes $19.5 billion for agricultural conservation. It adds over $18 billion in additional funding for existing farm bill conservation programs, including the Environmental Quality Incentives Program ($8.45 billion), Regional Conservation Partnership Program ($4.95 billion), Conservation Stewardship Program ($3.25 billion), and Agricultural Conservation Easement Program ($1.40 billion).
  • Funding for farm bill energy and rural development programs
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