The United States Department of the Treasury and Internal Revenue Service have released guidelines surrounding the sustainable aviation fuel (SAF) credit, incentivizing SAF production and clarifying eligibility.
Under the new guidance, SAF producers are eligible for a tax credit of up to $1.75 per gallon. SAF producers will be awarded a larger tax credit based on how much emission reduction potential their fuel has -- emissions reductions of 50% are eligible for a base of $1.25 per gallon, and every additional percentage point reduction will add $0.01 per gallon.
SAF, an alternative to conventional jet fuel made from feedstocks such as oilseeds or agricultural waste, can reduce carbon emissions by up to 94% depending on the feedstock and technology used. It may be blended with conventional jet fuel to lower emissions, therefore it may be used by current aircraft without having to add new infrastructure.
SAF is currently made from a variety of natural sources, such as camelina oilseeds or woody biomass, with an accompanying range of emissions reductions. A project led by the University of Sheffield is also exploring the use of carbon capture to create SAF from carbon emissions.
The U.S. guidelines include valid biomass-based diesel, advanced biofuels, cellulosic biofuel, or cellulosic diesel that have been approved by the EPA under the Renewable Fuel Standard.
As airlines look to reduce emissions and countries set targets to decarbonize air travel by 2050, demand for SAF has increased dramatically. This year, United Airlines signed an offtake agreement to purchase up to 1 billion gallons of SAF, and Southwest Airlines has purchased 680 million gallons.
Meanwhile, SAF is not produced at a large enough scale to meet this demand, and SAF currently only represents 0.01% of jet fuel used overall. The International Energy Agency also said that SAF producers are headed for a feedstock crunch in the coming years unless necessary changes are made.
The U.S. guidance aims to accelerate production of the fuel while rewarding feedstock producers. For example, through the incentive, farmers may be able to earn extra income for growing SAF feedstocks.
“President Biden’s Investing in America agenda is creating pathways and incentives for innovators to create a cleaner, more sustainable future,” said Secretary of Energy Jennifer M. Granholm. “Sustainable aviation fuel will provide low carbon fuel made here in America to help decarbonize the hardest to reach areas in the transportation sector, and DOE is committed to supporting this effort which will lead to cleaner skies for all.”
