The U.S. Treasury and Internal Revenue Service this morning released new guidance on which sustainable fuels are eligible for federal tax credits created by last year’s Inflation Reduction Act (IRA). The guidance expands the scope of fuels that will qualify for credits, including those that have been approved by the EPA under the Renewable Fuel Standard.
Under the IRA, SAF producers are required to use a carbon lifecycle assessment developed by ICAO to determine their qualification for SAF production incentives. The new guidance will accept the use of a Department of Energy standard, which many believe will weigh ethanol-derived SAF more favorably and make it eligible for subsidies under the IRA.
It will continue to incentivize the production of SAF that achieves a lifecycle greenhouse gas emissions (GHG) reduction of at least 50 percent, compared with conventional petroleum-based fuel. SAF that decreases GHG emissions by 50 percent is eligible for a $1.25 credit per gallon with one cent added per percentage point above 50 percent, to a maximum of a $1.75 credit per gallon. The DOE model will offer a new method for how that 50 percent reduction is calculated.
“The Biden Administration is driving American innovation to create good-paying jobs and help the U.S. clear hurdles in our clean-energy transition,” said Treasury Secretary Janet Yellen. “The incentives in the Inflation Reduction Act are helping to scale production of low-carbon fuels and cut emissions from the aviation sector, one of the most difficult-to-transition sectors of our economy.”
In consultation with the U.S. Environmental Protection Agency, Department of Transportation, and Department of Agriculture, the Department of Energy will release an updated version of its Greenhouse Gases, Regulated Emissions, and Energy Use in Technologies (GREET) standard by March 1, 2024. It will incorporate new data and science, including new modeling of feedstocks and processes used in SAF production. The latest version will provide another methodology for SAF producers to determine the lifecycle GHG emissions rates of their production, to qualify them for credit for SAF sold or used during calendar years 2023 and 2024.
The move had been lobbied for by the agriculture and aviation industries and was hailed by SAF producers that expect it will jumpstart investment in SAF production and spur demand.
“Today’s guidance is a much-needed step forward for SAF investment and innovation,” stated Patrick Gruber, CEO of Gevo. “Designating GREET for the 40B credit sets an accurate, science-based precedent for transparent carbon accounting across the SAF supply chain, from farm fields to the end use of the fuel.”
Yet the news was met with some caution from environmental groups concerned over the expansion of feedstocks that would be covered under the new guidance.
“We are concerned that a poorly chosen methodology could allow fuels made from corn and soybeans to receive tax credits,” explained David DeGennaro, a senior policy specialist at the National Wildlife Federation. “Given that the climate benefits of these fuels are uncertain at best, it does not make sense to incentivize the use of crops we know are harmful to water quality and wildlife habitat at home and in important ecosystems such as the Amazon.”
Others will hold their assessments until the new model is unveiled next year. “We’ll need to wait until March to see whether the Biden Administration will make decisions to award generous sustainable aviation fuel tax credits based on sound science and the Congressional intent clearly stated in the Inflation Reduction Act,” added Mark Brownstein, senior v-p of energy transition with the Environmental Defense Fund. "In the meantime, we are struggling to understand the Administration’s decision to allow fuels under the EPA Renewable Fuel Standard to qualify for taxpayer subsidy. Our initial assessment is that this would be a blank check for fuels made from sugar cane, soybean, and rapeseed, none of which are sustainable or consistent with Congress’s intent.”