Federal agencies appear to be divided over which carbon intensity model should be used for an Inflation Reduction Act tax credit meant to grow the fledgling sustainable aviation fuel industry, according to biofuel policy experts.
It’s unclear which of two models for measuring carbon intensity may be used to implement the SAF portion of the Clean Fuel Production tax credit, which is set to take effect in 2025.
Officials in the Department of Transportation and the State Department are leaning toward the International Civil Aviation Organization (ICAO) model, while those in the Treasury Department, the Department of Energy, the Agriculture Department and the Environmental Protection Agency are leaning toward the Argonne National Laboratory’s Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation (GREET) model, said Russ Sullivan, a former Senate Finance Committee staff director and current tax attorney.
“My assessment is that you have different parts of the administration advocating for different models,” Sullivan said at the Clean Fuels conference in Tampa last week.
The tax credits, which use what has been dubbed “the Wyden approach,” are tied together with greenhouse gas emission reduction percentages. The idea has been championed by Sen. Ron Wyden, D-Ore.
“It is designed to … match the amount of the tax credit with the amount of carbon reduction that you achieve through the process compared to standard ways that the fuels are produced today,” Sullivan said.
The Transportation and State departments are leaning toward the ICAO model because that's the model currently used throughout the airline industry, Sullivan said. The Federal Aviation Administration, part of the Transportation Department, also prefers it, he said.
Sen. Chuck Grassley, R-Iowa, has also called on the Treasury Department to use the GREET model, which he says would allow growers of corn and soybeans used for SAF to qualify for tax credits. Farmers would be excluded under the ICAO model, he said.
“If I was involved in writing the bill, I would have made sure that the Treasury Department could not outsource these important modeling decisions to international organizations,” Grassley said in a release.
Some 62 aviation industry stakeholders — including passenger and cargo carriers, clean fuel producers, aircraft manufacturers, labor unions, airports and think tanks — also sent a letter to the Treasury Department in December requesting that GREET be used as the model. They said that GREET is already required for other transportation fuels and is used for other programs, like the Environmental Protection Agency’s Renewable Fuel Standard.
The Inflation Reduction Act includes extensions through 2024 of the current $1 per gallon income and excise tax credits for biodiesel and the 10 cent per gallon small agri-biodiesel blenders tax credit and the small agri-biodiesel producer tax credit for alternative fuel. It also created a new sustainable aviation fuel tax credit of between $1.25 and $1.75 per gallon for 2023 and 2024.
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The program will then transition to a technology-neutral production tax credit in 2025, offering a $1 per gallon credit for nonaviation fuels and a $1.75 per gallon tax credit for sustainable aviation fuel. Less carbon-intensive fuels will get more credit value.
U.S. airlines have set an ambitious target of making 3 billion gallons of sustainable aviation fuel available to aircraft operators in 2030, a goal that President Biden also included in his aviation climate action plan.
The tax credit for sustainable aviation fuel, however, has drawn criticism from the National Association of Truck Stop Operators, which believes it could tighten competition for feedstocks within the biofuel industry.
Carbon intensity for other renewable fuels under the clean fuel production credit, including biodiesel and renewable diesel, will be measured using the GREET model, Sullivan says. The model is continually updated by Argonne National Lab researchers with calculations of life-cycle energy and emissions relating to transportation.
A slew of renewable diesel production facilities are set to come online in the next couple of years, driving up demand for soy and vegetable feedstocks. These feedstocks are not only important to the renewable diesel industry, but are also required by biodiesel, SAF and parts of the food sector. Clean Fuels Alliance CEO Donnell Rehagen said he’s “not concerned” about future feedstock availability for all three fuel types, though he said there will likely be “moments of tightness.”
“The next two or three years will be the period of time of the most significant growth, so we need those feedstocks to continue to grow,” he said.
Kurt Kovarik, vice president of federal affairs for Clean Fuels Alliance America, said he is more concerned about attempts to alter the GREET model than he is about potential repeal of the credits.
“By far, in my mind, the largest statistical threat to the effectiveness of the IRA provisions isn’t a hostile Republican attack,” Kovarik said. “It would be a potentially unfortunate piece of guidance that might be driven by academics or the environmental community that somehow neuters one or more of these credits by playing with the GREET standard or having some sort of anti-taxpayer mechanism.”
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