The Treasury Department on Friday released long-awaited guidance on a new tax credit for sustainable aviation fuel that will allow agricultural commodities to qualify as SAF feedstocks under an updated version of the Energy Department’s relatively ag-friendly model for calculating the carbon intensity of biofuels, administration officials say.
The tax credit, which took effect this year and runs through 2024, starts at $1.25 per gallon and can be worth as much as $1.75 per gallon, based on the carbon intensity of the fuel, what it's made from and how it's processed.
The tax break was included in the Inflation Reduction Act to serve as a bridge to a broader clean fuels production credit that takes effect in 2025 under the law.
The updates to DOE’s GREET model for assessing the greenhouse gas emissions of biofuels will include the latest information on farming practices and will be completed by March 1, said Agriculture Secretary Tom Vilsack.
“This is a big, big deal for American agriculture and for farming,” Vilsack told reporters.
The guidance was a victory for USDA and Vilsack, who had sparred with the State Department and other departments and agencies over the tax credit rules.
Vilsack didn’t detail the feedstocks that would be eligible for the tax credit, known as 40B for the section of the IRA that authorized it, but he said the GREET model updates would account for the impact of climate-smart farming practices, and carbon capture and sequestration.
Fuel that was produced in 2023 but meets the standards of the updated GREET model will be eligible for the credit retroactively.
A wide range of crops can be used directly for making SAF, including soybean and canola oil, and corn ethanol can be converted into the fuel as well. Animal fats and waste grease also have been used for SAF, but supplies are relatively limited.
The IRA, enacted in 2022, left it up to Treasury to make the final decision on the standard that would be used to measure the climate impact of SAF feedstocks. Under the law, the Treasury could use an existing international standard, known by the acronym CORSIA or a “similar methodology.”
Because of the way it measures the indirect land use effects of growing crops such as corn and soybeans, a CORSIA standard would be difficult for many ag feedstocks to meet. The airlines joined biofuel producers and oil industry in lobbying Treasury to allow use of DOE’s GREET model.
Biofuel groups welcomed the release of the tax credit guidance.
“We appreciate President Biden recognizing that American farmers and clean fuel producers will be providing essentially all of the sustainable aviation fuel available over the next 20 years” to meet the administration’s SAF goals, said Kurt Kovarik, vice president of federal affairs of Clean Fuels Alliance America.
“Enabling U.S. taxpayers to access a lifecycle model developed by U.S. national labs is clearly the best way to provide assurance to fuel producers and meet the demand for low-carbon fuels from airlines and passengers.”
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Emily Skor, CEO of Growth Energy, an ethanol industry group, called the guidance "an important first step."
"America’s biofuel producers and their farm partners continue to innovate with myriad technologies that are reducing the carbon intensity of bioethanol, and we are ready to lead the aviation sector into a lower-carbon future. This guidance signals our potential ability to participate in the market," she said.
Brian Jennings, CEO of the American Coalition for Ethanol, said, “Today’s decision helps clear the runway for ethanol-to-jet. Treasury made the right call to enable the use of GREET to determine the carbon intensity of SAF because it is the global gold standard for calculating GHGs from transportation fuels and GREET is the most up-to-date, accurate model reflecting the best-available science, including farm practices.”
Airlines have pledged to use 3 billion gallons of SAF by 2030, 10% of their projected fuel consumption, and are counting on tax credits to offset much of the premium they have to pay for the biofuel.
According to a Rabobank analysis issued this summer, U.S. SAF production capacity is expected to total 750 million gallons in 2024 and reach 2.2 billion gallons by 2026.
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