Treasury, IRS Updates Guidance on SAF - Smart Energy Decisions

GHG Emissions, Commercial, Finance, Sourcing Renewables  -  May 9, 2024

Treasury, IRS Updates Guidance on SAF

The U.S. Department of the Treasury and Internal Revenue Service released guidance on the Sustainable Aviation Fuel (SAF) Credit established by the Inflation Reduction Act (IRA).

The Treasury Department worked closely with Biden-Harris Administration partners, including the Environmental Protection Agency (EPA), Department of Transportation (DOT), Department of Agriculture (USDA), and Department of Energy (DOE) on the Notice.  

“President Biden’s Inflation Reduction Act is driving American innovation to create good-paying jobs and help the U.S. clear hurdles in our clean energy transition,” said U.S. Secretary of the Treasury Janet L. Yellen in a statement. “Incentives in the law 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. Today’s guidance provides additional clarity and certainty to companies and producers.”

The Treasury Department’s guidance provides important clarity around eligibility for the SAF Credit. The credit incentivizes the production of SAF that achieves a lifecycle greenhouse gas (GHG) emissions reduction of at least 50% as compared with petroleum-based jet fuel. 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 $0.01 per gallon for each percentage point the reduction exceeds 50%, up to $0.50 per gallon. 

The agencies comprising the SAF Interagency Working Group (IWG) are jointly announcing 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 modified version of GREET incorporates new data, including updated modeling of key feedstocks and processes used in aviation fuel and indirect emissions. The modified GREET model also integrates key GHG emission reduction strategies, such as carbon capture and storage, renewable natural gas, and renewable electricity.

The notice released today also, on a pilot basis, incorporates a USDA pilot program to encourage the use of certain Climate Smart Agriculture (CSA) 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. 

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