In a move to promote innovation in the aviation industry and combat climate pollution, the Biden-Harris administration, in collaboration with several government agencies, has released guidance on the Sustainable Aviation Fuel (SAF) Credit. The credit is aimed at incentivizing the production of low-carbon sustainable aviation fuels.

The U.S. Department of the Treasury and the Internal Revenue Service (IRS) worked closely with partner agencies including the Environmental Protection Agency (EPA), Department of Transportation (DOT), Department of Agriculture (USDA), and Department of Energy (DOE) to develop the guidance, which is part of President Biden's Investing in America agenda.

The guidance issued provides clarity and certainty to companies and producers, while promoting the scaling of production of low-carbon fuels and reducing emissions from the aviation sector. The Treasury Department's guidance outlines eligibility for the SAF Credit, which provides a tax credit of $1.25 to $1.75 per gallon to producers of SAF.

To be eligible for the credit, SAF must achieve a greenhouse gas emissions reduction of at least 50% compared to petroleum-based jet fuel. SAF that surpasses the 50% reduction threshold can earn an additional credit of $0.01 per gallon for each percentage point the reduction exceeds 50%, up to a maximum of $0.50 per gallon.

In conjunction with the guidance, the SAF Interagency Working Group (IWG) has introduced the 40B SAF-GREET 2024 model. This updated model allows SAF producers to determine the lifecycle greenhouse gas emissions rates of their production for the purposes of the SAF Credit.

The modified GREET model integrates new data and updated modeling of key feedstocks, processes, and indirect emissions used in aviation fuel production. Furthermore, the model incorporates key strategies for greenhouse gas emission reduction, such as carbon capture and storage, renewable natural gas, and renewable electricity.

The Notice released by the agencies also includes a pilot program, in partnership with the USDA, to encourage the use of Climate Smart Agriculture (CSA) practices for SAF feedstocks. Incorporating CSA practices into SAF production offers multiple benefits, including lower overall greenhouse gas emissions and improved water quality and soil health.

Specifically, the pilot program offers a greenhouse gas reduction credit for corn ethanol-to-jet if certain CSA practices, including no-till, cover crop, and enhanced efficiency fertilizer, are implemented. Similarly, soybean-to-jet can earn a greenhouse gas reduction credit if the soybean feedstock is produced using a bundle of applicable CSA practices such as no-till and cover crop. This pilot program is specific to the 40B credit, effective for 2023 and 2024.

Looking ahead, further work will be done by the agencies to credit CSA practices in the Clean Fuel Production Credit (45Z), which becomes available in 2025. This will involve additional modeling, data, assumptions, and verification, and a new 45Z-GREET model will be developed for use with the 45Z tax credit.

The Biden administration's announcement marks a significant step forward in promoting the production and adoption of sustainable aviation fuels, strengthening America's position as a leader in clean technology. By encouraging innovation and providing clarity on tax incentives, the administration aims to reduce emissions from the aviation sector while creating new economic opportunities and contributing to the fight against climate change.