Treasury, IRS provide SAF credit guidance

WASHINGTON — The U.S. Department of Treasury and Internal Revenue Service released guidance on the Sustainable Aviation Fuel tax credit.

The guidance clarifies that a soon-to-be-updated version of the Department of Energy’s GREET — Argonne National Laboratory’s Greenhouse Gases, Regulation Emissions and Energy Use in Transportation — model will be among the methodologies used to determine eligibility for the tax credit.

The Environmental Protection Agency, Department of Transportation, Department of Agriculture and Department of Energy announced their commitment to release an updated version of DOE’s GREET model by March 1.

The Treasury Department’s guidance provides clarity around eligibility for the SAF credit. The credit incentivizes the production of SAF that achieves a lifecycle greenhouse gas emissions reduction of at least 50% as compared with petroleum-based jet fuel.

Producers of SAF are eligible for a tax credit of $1.25 to $1.75 per gallon. SAF that decreases GHG emissions by 50% is eligible for the $1.25 credit per gallon amount, and SAF that decreases GHG emissions by more than 50% is eligible for an additional cent per gallon for each percentage point the reduction exceeds 50%, up to $0.50 per gallon.

Under the guidance, numerous fuels will qualify for the credit, including valid biomass-based diesel, advanced biofuels, cellulosic biofuel, or cellulosic diesel that have been approved by EPA under the Renewable Fuel Standard.

Fuels that achieve a 50% or greater reduction in lifecycle greenhouse gas emissions under the most recent Carbon Offsetting and Reduction Scheme for International Aviation standard will continue to qualify under this guidance.

Updated Model

Pending further guidance from the Treasury Department, the updated GREET model will provide another methodology for SAF producers to determine the life-cycle greenhouse gas emissions rates of their production for the purposes of qualifying for the SAF Credit for SAF sold or used during calendar years 2023 and 2024.

The updated model will incorporate new data and science, including new modeling of key feedstocks and processes used in aviation fuel.

The updated model will also integrate other categories of indirect emissions like crop production and livestock activity, in addition to best available science and modeling of indirect land use change emissions.

In addition, the updated model will integrate key greenhouse gas emission reduction strategies such as carbon capture and storage, renewable natural gas, renewable electricity and climate-smart agriculture practices.

GREET can calculate total energy consumption — nonrenewable and renewable — emissions of air pollutants, emissions of greenhouse gases and water consumption.

“Incentives in the Inflation Reduction Act are helping to scale production of low-carbon fuels and cut emissions from the aviation sector, one of the most difficult-to-transition sectors of our economy,” Treasury Secretary Janet Yellen said in a statement.

Yellen also pledged the credits will create jobs in the aviation fuel industry to “help the U.S. clear hurdles in our clean energy transition.”

“Sustainable aviation fuel will provide low-carbon fuel made here in America to help decarbonize the hardest-to-reach areas in the transportation sector, and DOE is committed to supporting this effort which will lead to cleaner skies for all,” Secretary of Energy Jennifer Granholm said.

“This announcement is the next step in making this 36-billion-gallon industry all the more possible,” Agriculture Secretary Tom Vilsack said in a statement.

“By powering aviation through low-carbon fuels, farmers can earn extra income, tap into value-added, climate-smart agriculture markets and meet the demand for an aviation industry that seeks to accelerate sustainable production.”

What Is SAF?

SAF is a biofuel used to power aircraft that has similar properties to conventional jet fuel, but with a smaller carbon footprint.

Depending on the feedstock and technologies used to produce it, SAF can reduce life-cycle greenhouse gas emissions dramatically compared to conventional jet fuel.

Some emerging SAF pathways even have a net-negative greenhouse gas footprint, according to the U.S. Department of Energy’s Bioenergy Technologies Office.

An estimated 1 billion dry tons of biomass can be collected sustainably each year in the United States, enough to produce 50 billion to 60 billion gallons of low-carbon biofuels.

BTO states that these resources include corn grain, oil seeds, algae, agricultural residues, forestry residues, wood mill waste, municipal solid waste streams, wet wastes — manures and wastewater treatment sludge — dedicated energy crops, and other fats, oils and greases.

Current Use

In 2023, SAF volumes reached over 600 million liters, double the 300 million liters produced in 2022. SAF accounted for 3% of all renewable fuels produced, with 97% of renewable fuel production going to other sectors, according to the International Air Transport Association.

SAF production is expected to triple to 1.875 billion liters in 2024, accounting for 0.53% of aviation’s fuel need, and 6% of renewable fuel capacity.

The small percentage of SAF output as a proportion of overall renewable fuel is primarily due to the new capacity coming online in 2023 being allocated to other renewable fuels.

Meeting Demand

The Third Conference on Aviation Alternative Fuels, CAAF/3, hosted by the International Civil Aviation Organization agreed a global framework to promote SAF production in all geographies for fuels used in international aviation to be 5% less carbon intensive by 2030. To reach this level, about 17.5 billion liters of SAF need to be produced.

“Governments want aviation to be net zero by 2050. Having set an interim target in the CAAF process they now need to deliver policy measures that can achieve the needed exponential increase in SAF production,” said Willie Walsh, IATA’s director general.

Demand is not the issue. Every drop of SAF produced has been bought and used. In fact, SAF added $756 million to a record high fuel bill in 2023.

At least 43 airlines have already committed to use some 16.25 billion liters of SAF in 2030, with more agreements being announced regularly.

Unlocking supply to meet demand is the challenge that needs to be solved. Projections are for over 78 billion liters of renewable fuels to be produced in 2029.

Governments must set a policy framework that incentivizes renewable fuel producers to allocate 25% to 30% of their output to SAF to meet the CAAF/3 ambition, existing regional and national policies, as well as airline commitments, according to IATA.