The Treasury Department has recently finalized guidance that will allow ethanol-based sustainable aviation fuel (SAF) to qualify for a federal tax credit program. This program, which is part of the Biden administration’s 2022 Inflation Reduction Act, aims to incentivize SAF production by providing tax credits ranging from $1.25 to $1.75 per gallon to fuel producers and air carriers for SAF sales and usage. In order to be eligible for the minimum credit, SAF must demonstrate a lifecycle emissions reduction of at least 50% compared to traditional jet fuel. Producers with emissions reductions exceeding 50% will receive additional credits.
The guidance issued by the Treasury Department has introduced a revised methodology for evaluating lifecycle emission benefits. This new approach rewards corn- and soy-based ethanol producers for implementing farming and refining practices that reduce emissions and sequester carbon. Specifically, producers engaged in Climate Smart Agriculture techniques, such as no-till farming, cover crop planting, and energy-efficient fertilizer use, will benefit from the updated methodology. According to Geoff Cooper, president of the Renewable Fuels Association, farmers must utilize all three approaches to qualify for the lifecycle emissions reduction bonus outlined in the revised guidance.
Environmental groups have expressed concerns about the methodology used to determine emissions reductions for the SAF tax credit program. While the Treasury Department updated the GREET system, developed by the Department of Energy, environmental advocates had preferred a methodology developed by the United Nations’ International Civil Aviation Organization. The ICAO system places more emphasis on indirect land-use changes, such as the conversion of food production to ethanol feedstock, which environmental groups believe should be treated more strictly in determining eligibility for emissions reduction credits.
Despite some concerns raised by environmental groups, the new guidance developed by the Treasury Department aims to create economic opportunities for America’s agricultural sector. Energy Department secretary Jennifer Granholm emphasized the importance of using the latest data and science to drive SAF production based on inputs that have fewer indirect consequences. These inputs include forestry residue, garbage, used cooking oil, and waste fat, which could help further reduce carbon intensity in aviation fuel production.
The SAF tax credit program, which began at the start of last year and runs until December 31, provides an initial framework for incentivizing sustainable aviation fuel production. However, starting in 2025, a new tax credit program involving SAF and other transport fuels will be implemented until 2027. The Treasury Department plans to conduct additional modeling work to refine the GREET criteria for this upcoming program. The Biden administration has set an ambitious goal of producing 3 billion gallons of SAF annually by 2030, representing 10% of aviation fuel consumption in the U.S.
The future of ethanol-based sustainable aviation fuel is promising, with the potential to revolutionize the aviation industry and reduce its environmental impact. While there are challenges and criticisms to address, the various stakeholders involved are working towards a more sustainable and efficient aviation fuel supply chain.
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