Last Wednesday the USDA took a huge step forward in fuels policy by releasing draft guidance for incorporating ag feedstock CI scoring into biofuels in the 45Z program. Indigo commends the USDA for the simplicity, efficiency, and innovativeness of the system they have proposed. It was much better than what has been previously disclosed in the 40B SAF credit, taking into account feedback from industry and solving for both quality and practicality. While it’s essentially just the first step, we believe it creates a strong foundation for the agricultural industry participating in clean fuel programs.
After reviewing all the regulations, documentation, and models, we’ve outlined our top 10 takeaways from the guidance.
Top 10 Takeaways from the USDA Technical Guidelines for Climate Smart Agriculture for Biofuel Feedstocks in 45Z:
- “CSA Crops” and “Reduced CI Crops”: get used to these two terms. CSA (climate smart ag) crops are crops grown on fields using climate smart practices and scored using the feedstock CI calculator. These CSA crops roll up into “reduced CI crops”, which are essentially the total scored grain from a farmer that is sold into a downstream point of aggregation. Note this is not the total score of a farm, but rather the score for all grain sold into an individual buyer who is participating. Reduced Ci crops may include CSA crops and non CSA crops (which receive a default score).
- New Crops and New Practices: With the addition of sorghum, there are now three crops eligible for CSA (with corn and soybeans). Meanwhile the number of practices has also expanded. Six practices: cover crops, no till, reduced till, nitrogen inhibitor , fertilizer timing, and yield are now all available to be used to reduce CI scores of CSA crops. Also of note, the bundle is gone, farmers can pick and choose the best CSA practices for their operation.
- “Biofuel Feedstock Report”: all the documentation for “reduced ci crop” from a farmer is contained in the Biofuel Feedstock Report. This includes information like documentation of practices, model runs, farmer attestation, and other supporting data. Systems like Indigo’s can manage the efficient collection, completion, and reporting of this data.
- “First Point of Aggregation”: If you take away one thing, it should be this: the farm-facing program is run at the first point of aggregation (ie the entity that purchases grain from the farmer). This could be a co-op, a biofuel plant, a crush facility, etc, it doesn’t matter, these programs can be managed by any buyer, putting any of them into the driver's seat. The verification of farm practices happens at this level and then the “reduced CI crop” is traded downstream. This means that non-biofuel buyers (e.g. elevators) can now start their own programs to generate inventory of reduced CI crops to be traded to biofuel plants (or other intermediaries) in the future.
- “Mass Balance” Recording Keeping: This is how “reduced CI crops” will trade through the system, so it’s worth remembering. Each entity buying and/or selling “reduced Ci crops” for 45Z must implement this system of CI accounting as part of ensuring chain of custody requirements are met. The system provides guidance for ensuring prior reduced ci crop balance + purchases of new reduced ci crops = sales of low ci crops + ending balance of reduced CI crops (think credits and debits accounting). The accounting must be balanced out at least every three months. Also as a reminder, there is no requirement to segregate physical grain.
- Five Year Document Retention: This was everywhere in the guidance. Documentation needs to be retained for five years at all points in the system: the farmer, elevators, crush facilities, biofuel plants, etc. If you’re involved in a 45Z program, make sure to retain everything for five years. Indigo’s farmer friendly platform for reporting and information storage supports all documentation, providing a complete solution for the required audits.
- Farm Data Flexibility and Efficiency: this was a big improvement from 40B SAF credit. The guidance simplified much of the farmer documentation required and significantly increased the options farmers can choose from for documentation. Options like farm management systems, precision ag data files, and remote sensing data are all now eligible.
- Deference to the Verifier: The guidance gives the third-party verifier discretion as to how to conduct farmer audits and if documentation is sufficient to serve as evidence. While my prior takeaway noted a wide range of options, it’s important to realize that documentation is only sufficient if a verifier is comfortable with it. Note that only a sample of farmers are audited in a program (at least the square root of the total number participating, similar to ISCC).
- Field Level Scoring: CSA Crops are scored at a field (or management zone) level. This means each field may have a different score based on its individual practices and yield. This will also allow farmers to begin to experiment with implementing a growing list of CSA practices on their fields to begin to participate in this market without having to convert their full operation. Reminder that all of a farmers participating fields are aggregated into the “reduced Ci crop” score.
- Meaningful Impact to CI Scores: Most importantly, the system allows for significant improvements to the CI scores of corn, soybeans, and sorghum (and downstream biofuels), especially for farmers using multiple regenerative practices. Meaningful improvements mean that CSA can have a meaningful CI impact on the fuel produced downstream. We all know that agriculture has the potential to greatly improve the CI of biofuels, so it’s good to a see a system where this is finally being recognized.
Reach out to our team today to learn more about our solutions that can support your biofuel goals.