U.S. Climate Model to Limit Ethanol Producers' Access to Clean Fuel Tax Credits

The U.S. is expected to release a climate model for clean fuel tax credits that will significantly reduce the ability of ethanol producers to access subsidies for sustainable aviation fuel (SAF) production. This exclusion of climate-smart agricultural practices, which the biofuel industry had hoped to rely on, represents a reversal from the previous climate model update.

The updated model would also limit the pathways for credits for used cooking oil imports, which can be used in SAF production alongside ethanol. This news is likely to anger ethanol producers, as SAF production can be lucrative for companies with access to subsidies but expensive to make without them.

The Biden administration has previously updated the climate model, called the GREET model, for a stopgap tax credit under the clean fuel program that expired on January 1st. The new update will likely delay industry investment plans, as the Biden administration is leaving further decisions to the Trump administration.

The news of the updated climate model has already had an impact on the market, with CBOT soyoil futures trading up more than 6% on Friday. This suggests that the market is already factoring in the potential impact of the new model on the biofuel industry.