US offers tax credit path for ethanol SAF

Sustainable aviation fuel (SAF) made from ethanol and other renewable fuels could have an easier pathway to up to $1.75/USG in federal tax credits under guidance President Joe Biden's administration released today.

The guidance, issued by the US Treasury Department, delivers a win to ethanol producers that spent months lobbying the administration to retain the option of using a specific emissions model they say is critical for ethanol-derived SAF to qualify for the tax credit. The SAF tax credit, created by last year's Inflation Reduction Act, is only available to jet fuel with a lifecycle greenhouse gas emissions that is at least 50pc less than traditional jet fuel.

The Biden administration said it plans to allow companies to calculate the emissions intensity of SAF using an emissions model called Greenhouse Gases, Regulated Emissions and Energy Use in Technologies (GREET), but only after the model goes through a major update planned for March 2024. The existing model has been favored by ethanol companies and other renewable fuel producers, but opposed by environmental groups who say it fails to adequately capture the lifecycle emissions from farming land use changes.

The Treasury Department's guidance will also allow many fuel blending components qualified under the federal Renewable Fuel Standard — with the exception of corn-based ethanol — to qualify for the SAF tax credit. The guidance will automatically assign a 50pc lifecycle emissions cut to SAF blending components that have biomass-based D4 renewable identification numbers (RINs) or advanced biofuel D5 RINs. The guidance will assign a 60pc emissions cut to cellulosic biofuel-based D3 and cellulosic diesel D7 RINs.

Ethanol industry groups said they support the Biden administration's plan to allow the use of GREET for the tax credit, but say benefits to the industry will depend on next year's model updates. Federal officials say they plan to update the GREET model to account for technologies such as carbon capture and sequestration, indirect emissions from agriculture, renewable natural gas and other data.

"While there are important carbon modeling updates and details that still need to be worked out, we are cautiously optimistic that today's guidance could open the door to an enormous opportunity for America's farmers, ethanol producers and airlines," Renewable Fuels Association chief executive Geoff Cooper said.

Under the Inflation Reduction Act, SAF can only receive a "40B" tax credit if it cuts lifecycle greenhouse gas emissions by over 50pc compared to traditional jet fuel. Fuels that qualify are then rewarded a $1.25/USG tax credit, with another 1¢/USG awarded for each percentage point of additional greenhouse gas emissions reductions up to $1.75/USG.

While SAF does not currently qualify for the tax credit using the GREET model, regulators say they plan to update the model by 1 March 2024 and, once modified, the model could be applied to fuel sold or used from 2023 through 2024.

The 40B tax credit for SAF is scheduled to end after 2024, after which fuel could qualify for the 45Z clean fuel production credit, a separate program under the Inflation Reduction Act that awards tax credits on a sliding scale up to $1.75/USG, depending on the fuel's emissions reduction.

Climate groups argue the land required to produce enough corn ethanol to reach the US' target of 36bn USG of SAF, would be counterproductive to reducing emissions and could result in food insecurity.

"This would be devastating for food security and could increase carbon dioxide emissions by more than 340mn metric tonnes," World Resource Institute director Dan Lashof said. "The federal government should adhere to the best available science, which shows that crop-based fuels do not meet the law's requirement and are not the answer to cut aviation emissions."

By Chris Knight and Payne Williams