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Biden administration's (U.S.) initial SAF subsidy model to raise climate hurdle for ethanol

(Reuters) - The Biden administration will release a preliminary climate model for its SAF subsidy program in the coming weeks that is more restrictive than what the corn-based ethanol industry had expected, two sources familiar with the matter told Reuters.

Under the preliminary model, which could be released by May 15, ethanol is not expected to automatically qualify as a feedstock in the SAF subsidy program unless the corn involved is sourced from farmers using one of just three sustainable agriculture techniques, the sources said.

Those techniques include efficient tilling, use of cover crops and efficient fertilizer application, the sources said. White House officials, the final arbiter of the model, had considered forcing producers to use all three techniques in a none-or-all approach, but have backed off that plan, the sources said.

The ethanol industry had expected a broader range of agriculture techniques to be included in the model to help the fuel qualify.

The sources said the model could be expanded to include a broader range of options when the administration considers a rule establishing the Clean Fuel Production Credit, or 45Z, later this year.

The White House had been reluctant to immediately expand the options amid intense debate over how to verify that farms are actually doing the practices and whether they deliver the carbon reduction as promised.

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The issue has thrust the White House into the complicated politics of ethanol and biofuels in an election year. Subsidies for such products are hugely popular in some Midwestern swing states, but converting farmland to help generate fuel, not food, angers environmentalists.

The White House declined to comment.

To access SAF subsidies, producers must demonstrate their feedstock is 50% lower in emissions than jet fuel. Ethanol is expected to miss the 50% threshold after environmental penalties for converting land for fuel, something that would force the industry to rely on smart agriculture practices to get back above the credit threshold.

Environmentalists are skeptical of the carbon reduction benefits of the smart agriculture practices and have been pushing the White House to limit their value in the model.

The Biden administration wants SAF to play a key role in decarbonizing the transportation sector and included a $1.25 per gallon tax credit for its production in the 2022 Inflation Reduction Act. The administration hopes the tax credit will generate 3 billion gallons of production of sustainable aviation fuels by 2030.

Ethanol producers see the nascent SAF industry and its subsidies as the corn-based fuel's top chance for market growth, amid stagnant demand for gasoline.

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