Guidance Released for New Sustainable Aviation Fuel Credits

Additional Sustainable Aviation Fuel (SAF) Lifecycle Analysis Model – Enhanced Opportunities Under 40B; A Look at What May Come in 2025 under 45Z

On December 15, 2023, the Department of the Treasury and the Internal Revenue Service (IRS) issued guidance for the new Sustainable Aviation Fuel (SAF) credits. Notice 2024-06 provides two additional safe harbors for calculating the lifecycle greenhouse gas emissions reduction percentage under Section 40B(e)(2) and for certifying the sustainability requirements under Section 40B(f)(2)(A). These safe harbors include the use of an approved quality assurance plan (QAP).

With expansive modeling capabilities, as one of the few QAP providers, and as a full service accounting firm with extensive experience in biofuels tax credits, Weaver is available to assist in all facets for parties interested in these SAF credits. Contact us with any questions on the new guidance or for assistance in meeting the QAP requirements.

Summary of the Credit

SAF credits were enacted as part of the Inflation Reduction Act to promote the production of clean jet fuel. The SAF credits under IRC Section 40B and IRC Section 6426(k) provide producers of qualified SAF mixtures (blends of SAF and traditional petroleum based jet kerosene) with $1.25 for each gallon of sustainable aviation fuel synthetic blending component in a qualified mixture for sale or use in calendar years 2023 and 2024. A supplemental credit of one cent for each percent that the emissions reduction exceeds 50 percent can increase the credit by up to 50 cents per gallon with a maximum credit of $1.75 per gallon.

To qualify for the credit, the SAF must have a minimum reduction of 50 percent in lifecycle greenhouse gas emissions compared to petroleum-based jet fuel. Producers can use the most recent Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) method and any similar method that meets certain requirements of the Clean Air Act (CAA) to determine the lifecycle greenhouse gas emissions reduction percentage. The IRA also requires certain aspects of each method to be certified by an unrelated party.

Additional Safe Harbors

Emissions reduction calculation – Use of EPA’s Renewable Fuel Standard (RFS) Program Pathways

Under the new guidance, IRS will accept EPA’s RFS Lifecycle Modeling of its fuel pathways as a methodology similar to the most recent CORSIA model.

A SAF synthetic blending component will be assigned a 50-percent emissions reduction percentage if it has generated biomass-based diesel (D4) or advanced biofuel (D5) renewable identification numbers (RINs) under the EPA’s Renewable Fuel Standard (RFS) program and the RINs have been validated under a qualified assurance plan (QAP). SAF at 50-percent emissions reduction qualify for $1.25/gallon.

A SAF synthetic blending component will be assigned a 60-percent emissions reduction percentage if it has generated valid cellulosic biofuel (D3) or cellulosic diesel (D7) RINs under the RFS program and the RINs have been validated under a QAP. SAF at 60-percent emissions or greater reduction qualify for $1.35/gallon.

Third-party certification

The IRS will consider a producer of a SAF synthetic blending component to have met the third-party sustainability certification requirements if the SAF synthetic blending component is a Q-RIN with an eligible renewable fuel type. A Q-RIN is a RIN that has verified by a registered independent third-party auditor using an approved quality assurance plan (QAP).

Modified GREET Model

Notice 2024-06 also explains that the current Greenhouse gases, Regulated Emissions, and Energy use in Transportation (GREET) model of the Argonne National Laboratory and other GREET-based models do not currently satisfy the applicable statutory requirements for the SAF credit.

The Department of Energy is collaborating with other federal agencies to develop a modified version of the GREET model that provides another methodology for determining the lifecycle GHG emissions rates for the SAF credit. The agencies anticipate release of the new model in early 2024.

Prior Guidance

The Treasury Department and the IRS developed the guidance under Notice 2024-06 in consultation with the Environmental Protection Agency (EPA) and other agencies. The guidance follows Notice 2023-06, which explains the fuel eligibility requirements for the SAF credit, the credit and payment rules, and guidance on the registration requirements for producers and importers.

Notice 2023-06 also includes CORSIA-based safe harbors for determining the emissions reduction percentage under Section 40B(e)(1) and for providing an unrelated party certification of sustainability requirements under Section 40B(f)(2)(A)(i). It does not, however, provide guidance regarding the calculation of the emissions reduction percentage under Section 40B(e)(2) or the associated unrelated party certification of sustainability requirements under Section 40B(f)(2)(A)(ii).

What does this mean for existing producers?

To qualify for the 40B SAF credit under these safe harbors, the SAF producer must:

  1. Meet an existing pathway in Table 1 of 40 C.F.R. 80.1426, or have an EPA approved facility specific petition under 40 C.F.R. 80.1416, and
  2. Be under an approved QAP.

Currently, there are only a few producers meeting #1 above and even fewer meeting both parameters. Further, there are no existing approvals under #1 above for corn-based feedstocks and current models do not have corn-based feedstock to SAF qualifying. However, there is the potential that they may qualify if using Carbon Capture and Sequestration. Given the lack of existing CCS permits under the Safe Drinking Water Act, this may not a widespread opportunity in 2024.

Prelude to 45Z?

This notification only affects the current SAF credit under 40B and does not address the 45Z Clean Transportation Fuel Credit which starts in 2025. However, the fact that IRS is referencing EPA’s RFS program may indicate that it, and DOE, intend to have the GREET model updates include parameters that EPA uses in the RFS program.

Furthermore, the requirement for a third-party sustainability certification may indicate the IRS will lean heavily, if not rely entirely, on the EPA’s RFS Quality Assurance Program to meet this requirement.

Additional guidance is expected in 2024.

©2023

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Leanne Sobel

Leanne Sobel

Director, Motor Fuels and Excise Tax Services

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Leanne Sobel, J.D., has over 15 years of experience in legal tax matters. Her career focus includes federal and state tax and…

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