By Jarrett Renshaw and Stephanie Kelly
NEW YORK (Reuters) -The U.S. is expected to release by next week a climate model for clean fuel tax credits that will sharply reduce the ability of ethanol producers to access subsidies for production of sustainable aviation fuel, three sources familiar with the matter told Reuters.
The exclusion of climate-smart agricultural practices, which the biofuel industry were hoping to rely on, represents a reversal from the last update of the climate model. U.S. Treasury is expected to issue a notice for proposed rulemaking on the broader program, known as 45Z, later on Friday, leaving further decisions on the plan to President-elect Donald Trump's administration.
The updated climate model would also limit the pathways for credits for used cooking oil imports, two of the sources said. Both used cooking oil and ethanol can be used in production of SAF, which is made from non-petroleum feedstocks and has a smaller carbon footprint than traditional jet fuel.
President Joe Biden has planned to generate 3 billion gallons in production of sustainable SAF by 2030. Air travel contributes around 2.5% of global greenhouse gas emissions, making it a big target in the fight against climate change.
The Biden administration previously updated the climate model, called the GREET model, last year for a stopgap tax credit under the clean fuel program that expired on Jan 1.
The new update will likely anger ethanol producers who want access to the credits, as SAF production can be lucrative for companies that have access to subsidies but is expensive to make without credits.
Climate-friendly farming practices include not tilling the soil, planting cover crops and using higher-efficiency fertilizers.
As the Biden administration is leaving further decisions to Trump's administration, industry investment plans will likely be delayed as well.
CBOT soyoil futures traded up more than 6% on Friday after Reuters reported on the recent developments around the short-term tax credit guidance and climate model. "Whatever he (Biden) has in mind, I think we are factoring it in today," said Jack Scoville, vice president at the Price Futures Group.