The U.S. Department of the Treasury and Internal Revenue Service on April 30 released updated guidance on the sustainable aviation fuel (SAF) tax credit. As part of that guidance, the SAF Interagency Working Group released the 40BSAF-GREET 2024 model, which incorporates a pilot-program to encourage the use of climate-smart agriculture practices for SAF feedstocks.&nbsp;The SAF tax credit, established by the Inflation Reduction Act in 2022, aims to incentivize the production of SAF that achieves a lifecycle greenhouse gas (GHG) reduction of at least 50% when compared to petroleum-based jet fuels. The tax credit starts at $1.25 per gallon for SAF that achieves a 50% GHG reduction. An additional 1 cent per gallon is available for each percentage point by which the lifecycle GHG emission of the fuel exceeds 50%, with a cap of $1.75 per gallon.&nbsp;Language included in the IRA specifies that the GHG reduction threshold can be calculated using the most recent Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) model that has been adopted by the International Civic Aviation Organization, or by a “similar methodology” to the most recent CORSIA model. The use of the European-based CORSIA model has been criticized by the U.S. agriculture and biofuel industries for failing to accurately account for U.S. agricultural practices and preventing crop-based fuels from participating in the SAF market.The Treasury Department and IRS on Dec. 15, 2023, <a href="https://biomassmagazine.com/articles/treasury-department-adopts-updated-greet-model-for-saf-tax-credit">released initial guidance</a> on the SAF tax credit, announcing that taxpayers will be able to use an updated version of the U.S. Department of Energy’s Greenhouse Gases, Regulated Emissions and Energy Use in Transportation (GREET) model to calculate lifecycle GHG reductions for the purposes of the SAF tax credit.&nbsp;As part of that guidance, the U.S. EPA, U.S. Department of Transportation, USDA and DOE announced the formation of the SAF Interagency Working Group to support the development of the updated GREET model, referred to as 40BSAF-GREET. The working group committed to release that updated model by March 1, 2024.&nbsp;The agencies failed to meet that self-imposed deadline. Agriculture Secretary Tom Vilsack on March 1 <a href="https://biomassmagazine.com/articles/vilsack-release-of-40bsaf-greet-model-to-be-delayed-by-weeks-not-months">announced</a> a short-term delay in the release of 40BSAF-GREET, citing the need to get calculations for climate-smart agriculture right.&nbsp;The updated guidance issued April 30 provides clarity around eligibility for the SAF credit, including release of the 40BSAF-GREET 2024 model.&nbsp;According to the agencies, the 40BSAF-GREET 2024 model incorporates new data, including updated modeling of key feedstocks and processes used in aviation fuel and indirect emissions. The model also integrates key GHG emission reduction strategies, such as carbon capture and storage (CCS), renewable natural gas (RNG) and renewable electricity.&nbsp;The notice released April 30 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 are associated with other environmental benefits, such as improved water quality and soil health.&nbsp;For corn ethanol-to-jet, the pilot provides a GHG reduction credit if a “bundle” of certain CSA practices (no-till, cover crop, and enhanced efficiency fertilizer) are used. It similarly would allow a GHG reduction credit for soybean-to-jet if the soybean feedstock is produced using a “bundle” of applicable CSA practices (no-till and cover crop). This is a pilot program specific to the 40B credit, which is in effect for 2023 and 2024.Within the notice, the IRS also provides a safe harbor provision that can ultimately allow a SAF synthetic blending component produced from CSA corn or CSA soybean to be eligible for an additional proxy reduction (CSA reduction) in the calculation of the emissions reduction percentage. The notice includes specific equations for calculating this emissions reduction percentage, and offers an example of a registered SAF producer that produces a SAF synthetic blending component via the ethanol-to-jet production pathway using 100% CSA corn, indicating the resulting fuel would achieve a 53% GHG reduction.&nbsp;To credit CSA practices in the Clean Fuel Production Credit (45Z), which becomes available in 2025, the agencies will do further work on modeling, data, and assumptions, as well as verification. A new 45Z-GREET will be developed for use with the 45Z tax credit.“Sustainable aviation fuel is a key part of the Biden-Harris Administration's efforts to transition the American economy to a clean energy future and rebuild the middle class from the bottom up to the middle out in rural America,” Vilsack said. “Today’s announcement is an important stepping stone as it acknowledges the important role farmers can play in lowering greenhouse gas emissions and begins to reward them through that contribution in the production of new fuels. This is a great beginning as we develop new markets for sustainable aviation fuel that use home grown agricultural crops produced using climate smart agricultural practices. USDA will continue to work with our federal agency partners to expand opportunities in the future for climate smart agriculture in producing sustainable aviation fuel.”“The guidance released today reflects the latest data and science needed to help create new economic opportunities for America's agricultural sector,” said&nbsp;U.S. Secretary of Energy Jennifer M. Granholm. “This interagency effort will help our climate goals take flight with cheaper, cleaner sustainable aviation fuel -- ensuring America maintains an innovative edge on the global clean technology stage.”The American Coalition for Ethanol applauded the guidance’s treatment of CSA and called the guidance a step in the right direction. “The Biden Administration is providing an important tailwind for corn ethanol produced with no-till, cover crops and enhanced efficiency fertilizers to qualify as a feedstock for SAF under 40B so long as all three of these climate-smart agriculture practices (CSA) are adopted,” said Brian&nbsp; Jennings, CEO of ACE. “This marks the first time a regulatory body has formally acknowledged the role CSA practices play in reducing corn ethanol’s GHG emissions, in this case enabling some ethanol-to-jet to qualify for the 40B credit.“The United States Departments of Agriculture (USDA) and Energy (DoE) deserve praise for diligently ensuring this first step is being taken with respect to CSA practices,” Jennings continued. “ACE is particularly grateful to U.S. Secretary of Agriculture Vilsack for successfully advocating that corn ethanol is part of the solution to fulfill the Biden Administration SAF goals and for his leadership on CSA pathways for corn ethanol under the new 45Z credit.“We are very encouraged the 40B GREET determination of indirect effects, including the land use change (LUC) penalty for ethanol-to-jet, was driven by science rather than arbitrarily inflated estimates which do not reflect real-world observations of land use and conversion. While today’s announcement is a step in the right direction, corn farmers and ethanol producers will face headwinds to produce qualifying corn ethanol feedstock for SAF given the all or none requirement to bundle CSA practices.“With the 2024 planting season underway and the expiration of the 40B credit on December 31, 2024, Treasury’s SAF guidance speaks more to the Administration codifying the important role CSA practices play in decarbonizing liquid fuels than the amount of ethanol-to-jet that will qualify for the 40B credit,” Jennings added. “Today’s announcement provides ACE a roadmap for how to prevent the conditions placed on CSA practices in 40B from being applied as 45Z is implemented. Ultimately, we need to enable farmers and ethanol companies to recoup value from these tax credits for their investments to reduce GHG emissions.The Advanced Biofuels Association is applauding the flexibility on SAF through the new modeling. “The Advanced Biofuels Association applauds the Treasury Department and IRS for their decision to offer increased modeling flexibility for measuring the carbon intensity of sustainable aviation fuel (SAF),” said Michael McAdams, president of the ABFA. “This move will facilitate greater production of SAF and pave the way for its widespread adoption. We look forward to continued and unequivocal support from the federal government for sustainable, low-carbon aviation fuels.“The Biden administration set the ambitious goal of supplying at least 3 billion gallons of SAF per year by 2030 and the aviation industry intends to reach net zero emissions by 2050,” he added. “To help meet these goals ABFA has long fought to extend advanced biofuels credits and to increase the Renewable Fuel Standard. These deadlines are fast approaching, and ABFA’s members stand ready to meet this challenge with the support of effective federal policy. The flexible modeling approach provided in today’s 40B rule greatly increases the likelihood of meeting these targets.“Later this year, the administration will have another opportunity to further boost advanced biofuel production when it establishes the model for qualifying fuels under the Clean Fuel Production Credit, or 45Z,” McAdams continued. “We hope that regulators will craft this rule transparently and in consultation with industry partners to achieve emissions reduction goals alongside economic outcomes.”The Renewable Fuels Association is welcoming the IRS guidance and release of the 40SAF-GREET 2024 model, but said additional work is needed. “Today’s guidance and modified GREET model help position ethanol-based SAF for takeoff, but more work is needed to fully clear the runway and get this opportunity off the ground,” said Geoff Cooper, president and CEO of the RFA. “We are encouraged that, for the first time ever, this carbon scoring framework will recognize and credit certain climate-smart agricultural practices. We’re also pleased to see the integration of other carbon reduction strategies—like renewable process energy and carbon capture and sequestration—into the model. However, RFA believes less prescription on ag practices, more flexibility, and additional low-carbon technologies and practices should be added to the modeling framework to better reflect the innovation occurring throughout the supply chain.”“We view today’s 40B announcement as the starting point—not the ending point—for additional modeling improvements, further integration of individual climate-smart agriculture practices, and emerging biorefinery technologies,” Cooper added. “45Z is where the rubber really meets the road. We look forward to working with USDA and other agencies across the administration to ensure 45Z is implemented in a way that truly swings the door wide open for farmers and ethanol producers to participate in the enormous decarbonization opportunity.”Growth Energy is calling the guidance and updated model an important first step. “This guidance crosses an important threshold in carbon modeling, recognizing for the first time that farming techniques can reduce the carbon intensity of crops, and, by extension, bioethanol production,” said Emily Skor, CEO of Growth Energy. “It's also the first time Treasury has used the Argonne National Laboratory’s GREET model in federal tax policy. These are promising big-picture developments and signal that agriculture is a key part of our nation’s climate strategy.&nbsp;“The new 40B GREET model is trending with scientific consensus when it comes to measuring indirect land use change (iLUC),” she added. “Years' worth of peer-reviewed research has shown that this number has been decreasing when it comes to bioethanol production. We hope future guidance for the 45Z tax incentive follows this trend and continues to reflect the falling iLUC values for American biofuels.&nbsp;“Still, the administration's restrictive all-or-nothing approach to recognizing the value of climate smart agriculture practices may ultimately limit innovation and make farmers, blenders, and producers less – not more – likely to invest in emissions-reducing technologies,” Skor continued. “America's potential SAF producers and their farm partners need flexibility to find the path that works best for them, but these rigid guidelines will leave carbon reductions on the table.”Clean Fuels Alliance America is welcoming the release of the 40BSAF-GREET model, but is urging federal agencies to further update the model to include additional comate CSA practices specific to oilseed crops. “Clean Fuels and its members appreciate the significant work of USDA and other federal agencies to account for the role that U.S. farmers will play in decarbonizing the nation’s aviation fuel,” said Kurt Kovarik, vice president of federal affairs for Clean Fuels. “U.S. farmers and SAF producers will continue to work with the agencies to rapidly expand SAF production over the next few years.”Clean Fuels said it continues to assess the changes to the GREET model unveiled today, including updated indirect emission penalties for U.S. oilseed crops like soy and canola. Clean Fuels believes there is more work to be done to enable credit for climate smart agriculture practices that U.S. farmers are deploying.“Biodiesel, renewable diesel, and SAF producers are already negotiating feedstock and fuel offtake contracts for 2025, so we look forward to working with Treasury and USDA to quickly turn attention to guidance for the Clean Fuel Production Credit that begins on January 1 next year.” Kovarik added. “We believe there are additional climate smart agriculture practices and industry data that can be incorporated in the GREET model to support the continued sustainable growth of the entire clean fuel industry.”Additional information, including a full copy of the IRS guidance, is available on the Department of Treasury <a href="https://home.treasury.gov/news/press-releases/jy2307">website</a>.&nbsp;

2024-04-30 - Treasury announces updated SAF tax credit guidance, release of 40BSAF-GREET 2024 model (4 publications)

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The Treasury Department and IRS on April 30 released new guidance on the SAF tax credit and announced the launch of the 40BSAF-GREET 2024 model, which incorporates a pilot-program to encourage the use of climate-smart ag practices for SAF feedstocks.

Treasury announces updated SAF tax credit guidance, release of 40BSAF-GREET 2024 model

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