How Much Can Farmers Earn From SAF

USDA announced a $400,000 effort to allow Ethanol to qualify for the new SAF tax credit. Will this result in extra payments by the Ethanol plant to the farmer.

There has been a battle between environmentalists, USDA and others on whether ethanol should qualify for the new Substantiable Aviation Fuel (SAF) credit under Section 45Z of the Tax Code.

There is a current $1 per gallon regular ethanol credit and a $1.25 per gallon SAF credit that will expire at the end of 2024.

The new Section 45Z credit is in place for 2025-2027 (unless extended). This bumps the SAF credit to $1.75 per gallon (indexed to inflation). A bushel of corn produces almost 3 gallons of ethanol. If SAF has the same ratio, then the credit per bushel will be about $5 per bushel.

In order for the ethanol plant to receive the full credit, they must reduce their “Carbon Intensity” (CI) score to zero. Most ethanol plants have a current score of about 55 and they get no credit until their score drops to 50. For each point that drops below 50, they will receive 3.5 cents per gallon or about 10 cents per bushel.

Approximately 40% of the carbon value of ethanol is the corn. If a farmer can prove to the ethanol plant that their CI score can help the plant receive more SAF credit, then perhaps the ethanol plant will pay a premium for low CI corn. If corn is 40% of the CI score, then perhaps up to $2 per bushel of the maximum credit that an ethanol plant can earn is due directly to the farmer’s low CI score.

USDA has allocated up to $400,000 to help ethanol qualify for the new SAF credit. The goal is to make sure that it will qualify. Regulations on this credit will likely be out in December.

Even though the larger SAF credit does not start until 2025, farmers should obtain their current CI score since one major way to reduce the score is to plant cover crops which need to be planted this fall for corn to be harvested next fall and sold in 2025 to the ethanol plant.

We will keep you posted. We did a Top Producer Podcast on this subject earlier this year with Mitchell Hora that can give you more details.