Treasury sets SAF tax credit guidelines

WASHINGTON — The Department of Treasury released guidance on its sustainable aviation fuel credit program that allows corn and soybeans to qualify as feedstocks for SAF with stipulations.

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.

New guidance and a rulemaking process will occur for SAF tax credits effective Jan. 1, 2025.

The move included updating the Department of Energy’s Argonne Greenhouse Gases, Regulated Emissions, and Energy Use in Technologies, or GREET, model that provided guidance on how feedstocks could qualify for SAF under the 40B tax credit of the Inflation Reduction Act.

The modified GREET model integrates key GHG emission reduction strategies such as carbon capture and storage, renewable natural gas and renewable electricity.

As part of the new guidance, the agencies comprising the SAF Interagency Working Group jointly announced the 40B SAF-GREET 2024 model. This model provides another methodology for SAF producers to determine the lifecycle GHG emissions rates of their production for the purposes of the SAF credit.

The IWG is comprised of the U.S. Department of Agriculture, DOE, Environmental Protection Agency, Department of Transportation and Federal Aviation Administration.

The notice also, on a pilot basis, incorporates a USDA pilot program to encourage the use of certain Climate Smart Agriculture practices for SAF feedstocks.

Incorporating CSA practices into the production of SAF provides multiple benefits, including lower overall GHG emissions associated with SAF production and increased adoption of farming practices that are associated with other environmental benefits, such as improved water quality and soil health.

‘Bundle’ Caveats

For corn ethanol-to-jet, the pilot provides a greenhouse gas reduction credit if a “bundle” of certain CSA practices — no-till, cover crop and enhanced efficiency fertilizer — are used.

It similarly would allow a greenhouse gas reduction credit for soybean-to-jet if the soybean feedstock is produced using a “bundle” of applicable CSA practices — no-till and cover crop. This is a pilot program specific to the 40B credit, which is in effect for 2023 and 2024.

Producers of SAF are eligible for a tax credit of $1.25 to $1.75 per gallon. SAF that achieves a GHG emissions reduction of 50% is eligible for the $1.25 credit per gallon amount, and SAF that achieves a GHG emissions reduction of more than 50% is eligible for an additional 1 cent per gallon for each percentage point the reduction exceeds 50%, up to 50 cents per gallon.

To credit CSA practices in the Clean Fuel Production Credit, which becomes available in 2025, the agencies will do further work on modeling, data and assumptions, as well as verification. A new 45Z-GREET will be developed for use with the 45Z tax credit.

Impacts

Aviation GHGs make up 9% to 12% of U.S. transportation GHG emissions, according to the U.S. EPA.

The use of SAF in airlines had grown rapidly in the past few years, but still accounted for just 15.8 million gallons in 2022 — less than 0.1% of all fuel used by major U.S. airlines. The Biden administration has an SAF production goal of 3 billion gallons by 2030.

Airlines have committed to carbon-neutral growth in international commercial aviation beginning in 2021 and U.S. airlines have set a goal to reduce carbon dioxide emissions by 50% in 2050 compared to 2005 levels, according to a DOE report — SAF Review of Technical Pathways.

U.S. airlines have improved efficiency by 130% compared to 1978 levels. Additional efficiency improvements in planes and engines are not likely to be enough.

“Meeting the 2050 goal will required fuels that have a lower carbon footprint, referred to as SAF — defined by the International Civil Aviation Organization as alternative aviation fuels that “achieve net GHG emissions reduction on a life-cycle basis; respect the areas of high importance for biodiversity, conservation and benefits for people from ecosystems, in accordance with international and national regulations; and contribute to local social and economic development, and competition with food and water should be avoided,” the report stated.

“One challenge for providing SAF is that the size of the jet fuel market is large and growing. Global demand is expected to increase from 106 billion gallons in 2019 to 230 billion gallons in 2050.

“The domestic market in 2019 was 26 billion gallons. This market could consume several hundred million tons of biomass per year, which is consistent with the current availability of biomass in the U.S.

“A second challenge is that the price of SAF today is higher than petroleum-based Jet A fuel. Fuel price is a hurdle because fuel is 20% to 30% of the operating cost of an airline. Research and development can help bring the cost down.”

The new SAF tax credit is aimed at alleviating part of those additional costs.

Feedstock Options

An estimated 1 billion dry tons of biomass can be collected sustainably each year in the United States, enough to produce 50 to 60 billion gallons of low-carbon biofuels, according to the DOE Bioenergy Technologies Office. These resources include:

• Corn grain

• Oil seeds

• Algae

• Other fats, oils and greases

• Agriculture residues

• Forestry residues

• Wood mill waste

• Municipal solid waste streams

• Wet wastes — manures, wastewater treatment sludge

• Dedicated energy crops

“This vast resource contains enough feedstock to meet the projected fuel demand of the U.S. aviation industry, additional volumes of drop-in low carbon fuels for use in other modes of transportation, and produce high-value bioproducts and renewable chemicals,” according to the Bioenergy Technologies Office.