USDA Issues Interim Guidance for Biofuel Feedstocks Grown with Climate Smart Agriculture Practices
On January 15, 2025, USDA issued long-awaited technical guidance to allow farmers to quantify the greenhouse gas emissions associated with corn, soybeans, and sorghum grown using climate smart agriculture (CSA) practices. The interim rule also provides a framework for reporting and tracking the information throughout the supply chain. The USDA states that this rule was provided to quantify, verify, and report the GHG reduction benefits resulting from implementing CSA practices in the production of commodities that are used as biofuel feedstocks. It is not, however, the final word for the clean fuel production credit under IRC 45Z. Treasury must issue more guidance integrating CSA practices into the calculation of the credit. USDA also clarified that this guidance does not apply to carbon credit or offset programs. Those programs will require “a different set of standards.”
Status
This is an interim rule for which comments are sought by March 18, 2025. The rule is, however, effective January 17, 2025. In conjunction with the interim rule, the USDA released a corresponding USDA Feedstock Carbon Intensity Calculator (USDA FD-CIC) for peer-review, beta testing, and public feedback. The Calculator is a macro-enabled Excel spreadsheet that allows a farmer to plug in their data and receive a carbon intensity score.
Background
The USDA explains in the preamble to the rule that feedstock emissions account for more than 50 percent of the direct emissions from producing corn ethanol and soybean biodiesel. These emissions result, for example, from soil carbon released during tillage. Although the adoption of certain conservation practices such as no-till, cover crops, and nutrient management result in emissions benefits, the USDA states that no comprehensive standards for CSA practice adoption, quantification, verification, and reporting exist.
The USDA says that its carbon intensity Calculator was developed through work with academic institutions and experts. Net emissions from the production of biofuel feedstock crops using one or more CSA practices are expressed as a “carbon intensity,” (CI) which is a measure of the total carbon dioxide equivalent emissions per bushel of crop produced. The Calculator quantifies the CI for three biofuel feedstocks: corn, soybeans, and sorghum. The Calculator reflects the fact that the effectiveness of CSA practices in reducing the CI of feedstocks varies by region. The Calculator contains CI estimates for each CSA practice and combination of practices for each county. USDA cautions that the Calculator is not in final form and users should not rely on the data generated.
CSA Practices and Crops
The guidance seeks to quantify the GHG reduction benefits of six CSA practices or combination of practices implemented in the production of field corn, soybeans, and sorghum:
- No-Till
- Reduced Till
- Cover Crops
- Nitrification Inhibitors
- Split in-Season Nitrogen Application
- No Fall Nitrogen Application
The rule applies only to on-field practices. It does not apply to practices on field edges or farm borders.
Application of the Rule
Because commingling of crops is standard, the rule applies a weighted average approach to calculate the CI for CSA crops and conventional crops produced on the same farm and then commingled. The rule applies along the supply chain to those storing and processing the feedstocks, extending up to the point of the biofuel refiner. The rule does not cover the production and carbon intensity of biofuels made with reduced CI crops.
Calculator
When finalized, the Calculator will allow a farm producer to input field-level management information, which includes farm location (county and state), crop type produced, total field or management unit acres, and the use of CSA practices. The output will include a field-level CI for the crop produced using the specified practices at the farm location. The step would be repeated for all fields within a farm on which the crop is grown. The tool can also calculate a weighted farm-level average across fields growing the same crop. To obtain correct results, the farmer must also input information for fields growing crops without CSA practices. These fields would be assigned the USDA’s “default national average” CI.
Record-Keeping
The rule requires every entity in the supply chain to have a system for maintaining records. These groups must be audited annually by an accredited third-party verifier to ensure the veracity of the estimated reductions benefits. The USDA suggests that this verification may allow farm producers, elevators, storage facilities, and biorefineries to receive a premium price for selling a product with an “environmental attribute” such as “reduced emissions.”
The rule also specifies recordkeeping standards applicable to all entities along the supply chain. These records must be maintained for five years, and they enable third-party verifiers to ensure all standards are followed. Agricultural producers are required to keep records demonstrating the following:
- Implementation of CSA practices in accordance with the standards of the rule
- Evidence of sale of reduced CI-feedstocks AND
- Documentation of CI calculations completed using the Calculator, once finalized
Farm producers are required to prepare a Biofuel Feedstock Report for each crop sold as a reduced-CI crop. The report includes a farmer attestation and documentation showing the quantification of the farm-level, crop-specific CI. The farmer must provide a copy of the report to the purchaser of the crop, which the rule calls the “first point of aggregation.”
The rule specifies that the first points of aggregation, along with all intermediary entities must also maintain records demonstrating the quantity of reduced-CI crops and reduced-CI processed products and associated CI crops moving in and out of the entity. The records must use the “mass balance” method of accounting to track the weight or volume of products moving through the entity without product segregation. Third party verifiers will audit the entities’ records and accounts.
Biofuel refiners are the last group in the supply chain covered by the rule. The refiners must establish a system to track the incoming quantity of reduced-CI crops or processed products. If a refiner buys the feedstocks directly from the farmer, it must follow the procedures required by those at the first point of aggregation.
Verification
The rule establishes a verification program under which all entities from the first point of aggregation to the refiner must hire a third-party to conduct an annual audit. All entities along the supply chain must provide proof of the verification to all subsequent entities.
Farms are audited as suppliers of the first point of aggregation, and a sample of farms supplying reduced CI-crops to each first-point of aggregation entity must be audited by a third-party verifier each year. Farm producers must also provide the first point of aggregation with a copy of their Biofuel Feedstock Report as described above. When conducting sample farm audits, the verifiers will check to ensure that the CSA practices have been conducted and that the weighted average calculation was correct. Farm producers cannot be audited more than once a year. They are also allowed to elect to proactively retain a third-party verifier accredited to ISO 14065 to complete their audit. This would allow the farmer to complete the yearly audit on their timetable instead of waiting for a random appointment.
Implementation Standards
The rule also establishes the implementation standards for the six CSA practices listed above. The practices are NRCS-approved CSA mitigation activities and represent only a sub-set of NRCS-approved conservation practices. In addition to specifying the implementation standards for the practices, such as cover crops, the rule establishes the recordkeeping standards required for each practice. These records too must be retained for five years. The method of recordkeeping is flexible, but the records must be sufficient to allow third-party verifiers to ensure compliance with the relevant practice standard.
What’s Ahead?
This rule paves the way for farmers growing CSA crops to perhaps down the road receive a premium price for selling them for biofuel production. Before this can happen, however, Treasury must issue additional guidance to integrate the CI data into the calculation of the clean fuel production credit. On January 10, 2025, the Treasury issued guidance on the 45Z credit, authorizing a new GREET model for determining the amount of lifecycle greenhouse gas emissions for purposes of the 45Z credit. On January 15, 2025, the Department of Energy published the new GREET model, 45ZCF-GREET. Treasury stated in its notice that it intends to propose rules at a future data allowing fuel producers to access additional reductions by using CSA feedstocks. "These additional reductions would be available to taxpayers once the Treasury Department and the IRS propose regulations, including rules for CSA, for the § 45Z credit, and an accounting of one or more CSA practices is developed for the lifecycle greenhouse gas emissions rates of CSA crops calculated under the 45ZCF-GREET model."
In the wake of these developments, a new administration will take over the work next week. It remains to be seen how this change of the guard will impact the final rules. Farmers interested in CSA practices should review the interim rule and test out the Calculator. We will keep you posted as further developments unfold.