US releases guidance on SAF tax credits under Inflation Reduction Act
The US biofuels sector has welcomed news that an updated version of a key renewable fuels compliance model will be considered as part of eligibility criteria under the Inflation Reduction Act in a move that could make it easier to claim credits for corn-based ethanol to be used as a feedstock to sustainable aviation fuel (SAF) production.
The confirmation could prove significant for US corn, as it potentially opens up incentives for increased ethanol production to meet the upcoming rush to decarbonise aviation.
Most ethanol produced in the US does not currently meet the standard for sustainable aviation fuel credits established by the Inflation Reduction Act of 2022 - but that could change in coming months, according to guidance released December 15 by the US Department of the Treasury and the Internal Revenue Service.
The uS Department of Energy and other agencies will collaborate to update the current core Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation (GREET) model in early 2024 so that it can be used for calculating SAF credits.
The guidance also created a “safe harbor” for SAF components that generate certain renewable identification numbers (RINs) under the current Renewable Fuel Standard.
The Inflation Reduction Act calls for using the calculation approved by the International Civil Aviation Organization (ICAO) or “any similar methodology” for SAF.
The ICAO calculation estimates lower lifetime emissions reduction from most corn grain ethanol and could disincentivize its use as a feedstock for SAF.
Non-aviation biofuels are currently subject to the US Department of Energy’s GREET model, which calculates higher lifetime emissions reduction from land use conversion to biofuel crops such as corn for ethanol.
None of the current versions of the GREET model meet the requirements for calculating SAF credits, the guidance said.
The safe harbor section of the guidance says that SAF components will be assigned a 50% emissions reduction if they generate D4 or D5 RINs, and a 60% reduction if they generate D3 or D7 RINs.
Almost 90% of ethanol produced in the US is from corn starch (kernels) and generates a D6 RIN credit, meaning it reduces lifetime greenhouse gas emissions by at least 20%.
The SAF credit requires a lifetime emissions reduction of at least 50%.
Ethanol produced from corn stover (or corn straw), the stalk and leaves of the corn plants left in the field after the initial harvest, generates a D7 cellulosic biofuel RIN credit and would qualify for SAF credits as reducing life-cycle emissions by 60%.
Battle for feedstocks
Environmentalists have advocated for a focus on SAF feedstocks such as used cooking oil, captured atmospheric carbon dioxide, forestry waste and municipal garbage.
On the other side are airline trade groups and others who say the best way to reduce emissions and meet climate goals is to have as many feedstock options available as possible, including ethanol.
Recent research by the International Council on Clean Transportation estimated that the US would fall short of feedstocks to reach 2050 goals for SAF production even if the entire current corn grain ethanol supply was converted for SAF.
The ICCT research also said that the Alcohol to Jet production pathway, which includes ethanol, was prohibitively expensive in the near term.
The hydrotreated esters and fatty acids (HEFA) pathway in use for most current SAF production will be constrained by resources in the future, the research said.
The blending credit created by the 2022 Inflation Reduction Act is $1.25/gallon for US-produced SAF that reduces greenhouse gas emissions by at least 50% compared to conventional jet fuel.
An additional $0.01/gal credit is given for each additional percentage point of emissions reduction, up to a theoretical $1.75/gallon credit for 100% reduction in emissions.
The IRA 2022 blending credits apply to SAF sold between January 1, 2023 and December 31, 2024.