Inflation Reduction Act Invests in the Bioeconomy
August 16, 2022 | Carolyn Berninger and Mariem Zaghdoudi | Policy
On Tuesday, August 16, President Biden signed the Inflation Reduction Act of 2022 into law. The act provides almost $370 billion in federal funding for climate and energy investments, including in biofuels and other clean fuels. These investments will lead to reduced transportation costs for households and avoided greenhouse gas emissions, as well as significant economic growth and job creation, particularly in the Midwest.
Minnesota’s strong agricultural economy makes the state a leader in developing biobased products, including biofuels like ethanol and biodiesel. Thus, the biobased industrial products industry is a significant force for economic growth and job creation in the state. In 2019, the industry generated over $610 million of economic activity through its operations, including $127 million in labor income.
The Inflation Reduction Act will increase economic benefits to Minnesota’s biobased industries by incentivizing the deployment of clean fuels through tax credits, grants, and investments. The act makes various tax credits available to biofuel producers, as highlighted below:
- Section 13202: Aviation Fuel Tax Credit, which allocates $1.25 per gallon of fuel, plus an additional $0.01 per gallon for each percentage point by which the lifecycle greenhouse gas emission reduction below that of conventional jet fuel exceeds 50 percent.
- Section 13704: Clean Fuel Production Tax Credit, which is applicable to transportation fuels that have emission rates below 50 kilograms of carbon dioxide per million British Thermal Unit (mmBTU), including sustainable aviation fuels.
- Section 13201: Extended incentives for biodiesel, renewable diesel, and alternative fuel production, which provide between $0.50 and $1 per gallon.
- Section 13202: Extended second-generation biofuel incentives, which provide up to $1.01 per gallon for biofuels produced from cellulosic feedstocks.
- Section 13501: Clean Manufacturing Investment Tax Credit, which allocates $6.255 billion for advanced energy projects, including manufacturing facilities re-designed to refine or blend renewable fuels.
Additionally, the act appropriates funds to be distributed in the form of grants to low-emission aviation technology projects and biofuel production projects.
- Section 40007: Provides $297 million to an alternative fuel and low-emission aviation technology program for projects that produce, transport, blend, or store sustainable aviation fuel produced in the United States or develop, demonstrate, or apply low-emission aviation technologies.
- Section 60108: Provides $10 million for new grants to support investments in advanced biofuels.
- Section 22003: Provides $500 million in grants to increase the sale and use of agricultural commodity-based fuels through infrastructure improvements for blending, storing, supplying, or distributing biofuels.
Finally, the act provides funding for efforts to reduce greenhouse gas emissions on farms and enhance carbon removal in forests through the following provisions:
- Section 23001: Provides $1.8 billion for hazardous fuels reduction projects on National Forest System land within the wildland-urban interface and $200 million for vegetation management projects on National Forest System land, as well as additional funding for forest conservation.
- Section 21001: Funding for agricultural conservation practices that improve soil organic carbon, reduce nitrogen losses, or reduce, capture, avoid, or sequester carbon dioxide, methane, or nitrous oxide emissions on farms.
- Section 21002: Provides $300 million for a program to quantify, monitor, and track carbon sequestration and greenhouse gas emissions reductions at the field level.
Investments such as those made in the Inflation Reduction Act are crucial to the commercial deployment of low-carbon fuels and to growing the bioeconomy across the entire supply chain. These environmental and economic investments will make decarbonization an attainable goal while creating well-paying jobs for American workers.