Ethanol-based sustainable aviation fuel (SAF) will qualify for a federal tax credit program under guidance finalized by the Treasury Department.
The program, which was designed to spur SAF production and was included in the Biden administration's 2022 Inflation Reduction Act, provides tax credits of between $1.25 and $1.75 per gallon to fuel producers and air carriers for SAF sales and usage.
To qualify for the minimum credit, SAF must have a lifecycle emissions reduction of at least 50% relative to traditional kerosene-based jet fuel. SAF with a reduction of more than 50% will get additional credits.
Treasury's guidance revised the methodology for determining lifecycle emission benefits. The new approach rewards producers of corn- and soy-based ethanol for farming and refining practices that reduce emissions and keep more carbon sequestered.
Producers that engage in Climate Smart Agriculture, which involves no-till farming, planting of cover crops and the use of energy-efficient fertilizer, will benefit from the new methodology, said Geoff Cooper, president of the Renewable Fuels Association trade group. Farmers will have to make use of all three approaches to receive the lifecycle emissions reduction bonus under the revised Treasury guidance.
"The new model essentially characterizes SAF from corn ethanol and soybean oil about the same way it did before," Cooper said. "That's to say there are still steps that farmers would need to take to further reduce the carbon intensity of ethanol to a point where it would qualify for the tax credit."
The changes made by Treasury update a lifecycle emissions calculation system developed by the Department of Energy that is known as GREET.
Environmental groups had battled with airlines and renewable-fuel producers over whether the GREET system should be deployed at all in determining emissions reduction eligibility for the SAF tax credit program.
Environmental groups instead wanted a methodology developed by the United Nations' International Civil Aviation Organization. The ICAO system treats indirect land-use changes, such as the conversion of food production to ethanol feedstock, more harshly than GREET.
Environmental advocates would prefer that SAF production be focused on inputs that create fewer indirect consequences. Among those inputs are forestry residue, garbage, used cooking oil and waste fat.
In a press release, Energy Department secretary Jennifer Granholm said the new guidance, which Treasury developed with input from other federal departments, "reflects the latest data and science needed to help create new economic opportunities for America's agricultural sector."
The Environmental Defense Fund issued a cautious statement about the new guidance.
"The science matters and we are concerned this decision may have missed the mark, but we are carefully reviewing the details before reaching any final conclusions," said Mark Brownstein, the Environmental Defense Fund's senior vice president of energy transition.
The Renewable Fuels Association, meanwhile, would have liked additional lower-carbon fertilizer products, as well as other farming practices, to receive emissions credit under the revised GREET methodology, Cooper said.
The SAF tax credit program began at the beginning of last year and expires on Dec. 31, but producers can receive credits for fuel that has already been produced. Beginning in 2025, a new tax credit program involving SAF and other transport fuels will take effect and last through 2027.
The Treasury Department plans to do further modeling work ahead of issuing a new GREET criteria for that program.
The Biden administration has set a goal of 3 billion gallons of SAF production annually by 2030, enough to account for 10% of aviation fuel consumption in the U.S.