Energy Evolution, Episode 3

On this episode of Energy Evolution, our hosts discuss the new IRS guidance on the sustainable aviation fuel credits under Section 40B and Section 6426.

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Detailed Description of Weaver’s Energy Evolution, Episode 3

00:00:00

Leanne: Hi everyone. Welcome to the latest installment of Energy Evolution. Today it’s myself and Tony, and we’re going to be talking about the new guidance that came out from the IRS on the sustainable aviation fuel credits under Section 40B and Section 6426.

I think everybody knows that these are the blender credit equivalents for sustainable aviation fuel. They were enacted as part of the Inflation Reduction Act, and they exist to allow a credit for blenders of SAF synthetic blending component with a traditional petroleum-based jet kerosene. The credit is $1.25 as a base, with an additional $0.50, up to $1.75, depending on the GHG emissions reduction component. And it’s that GHG emissions reduction component that the IRS issued a notice on just last week. Tony, I thought it was interesting as a tax practitioner that this is really heavy on the EPA side, and I don’t think it quite does everything that we were hearing it was going to do. We were hearing a lot about it’s going to authorize Grete. It’s going to be great for the ethanol industry, particularly the corn growers. And I don’t think that it quite does that.

00:01:15

Tony: That’s right, Leanne, it is really interesting to read it and read a little bit more about what folks thought it may actually enable. And you’re right.

So right now, there’s the ability to have a CORSIA LCA modeling and to qualify for these credits, or you can have a CORSIA-like methodology. A lot of the early reporting did seem to indicate that maybe Grete would be enabled, but the notification does not actually enable Grete. But it does allow another CORSIA-like methodology, which was really interesting. It’s relying on EPA’s Renewable Fuel Standard program and their LCA analysis to determine whether a SAF producer would qualify for some of these credits. And what’s really nice about it is that EPA has done the modeling for a number of different pathways for SAF, they have some facility specific pathways. Under the notification, those would potentially qualify. There are a couple of catches and requirements that are identified in the notification, but it is an ability for parties that may not fall under CORSIA to be able to use what they might have already done, or already have qualification for in another agency program to qualify for these credits. So, some of those catches that I mentioned that are really interesting is that you actually have to fall into one of those pathways that EPA has either approved or have a facility specific pathway, and you actually have to be under a quality assurance program plan.

Weaver is one of those QAP providers that’s available, and there are a few others as well. But that is something that actually has to be done in order to fall under this methodology as part of the IRS notification. So those are very interesting to be able to qualify and to be able to kind of keep moving forward and qualify under 40B. The one thing that you had mentioned too that was some of the early indications is maybe cornstarch to SAF may qualify. CORSIA would pretty much kick the corn to SAF out of the program, because the scoring, the CI scoring, would not meet the 50% or 60% greenhouse gas reductions that’s required. It’s well over 90kg of CO2 equivalent per MMBtu and wouldn’t get anywhere close. Grete, on the other hand, is over 50. Still wouldn’t qualify. But if parties are able to enable certain technologies like carbon capture and sequestration, they may actually be able to qualify….

Click play above to hear the rest of the conversation on sustainable aviation fuel credits!