With harvest in the books for most, if not all, sorghum farmers, attention this time of year turns to the future. With the Renewable Fuel Standard (RFS) recently undergoing a soft sunset and electric vehicles (EVs) becoming more commonplace, some thoughts about the future might involve wondering about the relevance of ethanol — the foundation of domestic demand for sorghum. While the U.S. transportation landscape is undeniably evolving, the prospects for ethanol are as bright as ever.
Consider the shift toward low-carbon fuels, about which I write frequently. Unlike carbon-emission credit trading frameworks which center on credits for carbon stored underground, low-carbon fuel standards consider the whole product cycle, from planting the seed to producing blended, tank-ready fuel. The goal here is straightforward: Reduce the entire environmental footprint associated with producing a fuel. This method for tracking carbon emissions is a significant advantage for farmers, who have a lot more to offer than just the carbon they’re storing underground.
Tax incentive program
With a coming tax incentive program for low-carbon fuels birthed by the Inflation Reduction Act (IRA), there will be an incentive program of 2 cents per gallon per point for low-carbon fuels with environmental footprints of at least 50 percentage points below average. In other words, for a fuel with an environmental footprint of 47% of the norm, there will be a 6-cent-per-gallon incentive. This translates to more than 17 cents per bushel. If emissions associated with farming (e.g., how much diesel is used, how much nitrogen is applied, etc.) are fully incorporated into the calculation, the financial opportunity will be massive.
Globally, there’s a crescendo of voices emphasizing sustainability, with numerous countries setting ambitious targets for cleaner fuels. While not all such programs will be as rigorous as the one created by the IRA or the one found in California, 66 countries worldwide have made commitments to lower footprints of fuel. Such ambitious targets are not achievable without low-carbon liquid transportation fuels. Fortunately, as the demand in these areas grows, the economic incentives associated with sorghum-based fuels will grow as well.
But the story doesn’t end on the ground. Rather, it takes to the skies. The aviation world is buzzing with the promise of sustainable aviation fuel (SAF). Think of it as jet fuel’s green cousin. And with projections indicating enough demand to make every gallon of U.S. ethanol disappear with only a small market share by 2050, ethanol is poised to be a crucial contributor. What’s more, while road vehicles steadily embrace electricity, airplanes need liquid fuel and always will. SAF stands out as a sustainable answer that also keeps our ethanol plants — and by extension, our sorghum farms — productive.
If low carbon and SAF opportunities weren’t enough, in reflecting upon the unexpected challenges the world faced during the COVID-19 pandemic, it’s worth noting the adaptability of the ethanol industry in the face of macro factors. Remember the sudden demand for hand sanitizers? Ethanol producers swiftly pivoted to address this need. Though such opportunities might represent a smaller slice of the market compared to fuels, this story underscores the ethanol industry’s nimbleness and the endless possibilities for sorghum delivered to ethanol plants — EVs or no EVs.
For every sorghum farmer looking forward to tending fields in 2024, the horizon holds promise. Whether it’s laying down the foundations for cleaner transportation fuels, powering aircraft with SAF or branching out into diverse markets, the importance and demand for ethanol remains. Sorghum farmers should rest assured in the knowledge that this market’s importance is not waning, but expanding, in directions we’ve only just begun to explore.