A fresh incentive woven into larger climate agenda
California Governor Gavin Newsom proposed budget includes a new Sustainable Aviation Fuel tax credit designed to close the remaining cost gap between conventional jet fuel and SAF. The credit will be available from 2027 to 2030 and stacks with the federal Section 45Z clean fuel production credit that begins in 2027. Together they create a clear price signal that many analysts say is finally sufficient to trigger large scale construction of SAF plants within the state.
How the mechanism will work
The draft language suggests a value up to twenty cents per gallon that declines as carbon intensity scores improve statewide. Unlike many earlier programmes, the credit is refundable, meaning companies with limited tax exposure can still benefit immediately rather than carrying losses forward. That feature quietly turns the measure into a flexible grant and removes a common barrier faced by early-stage producers.
- Key eligibility criteria will focus on verifiable carbon intensity scores.
- Feedstocks sourced from in state agriculture and waste streams receive preference.
- Credit stacking with federal programmes is explicitly permitted, increasing total potential value.
Economic and agricultural ripple effects
Corn growers and oilseed crushers in the Central Valley welcome the proposal. Surplus crop production, underscored by the recent record national corn harvest, can now find new premium markets. Logistics providers also anticipate fresh volumes as SAF moves from rural processing hubs
to coastal airports. The Renewable Fuels Association estimates that each one percent SAF penetration at California airports supports roughly five hundred direct and indirect jobs.
A non-obvious insight
Because the credit value shrinks as statewide average carbon intensity falls, there is a built in incentive for collaborative data sharing among producers. Firms that openly publish lifecycle improvements effectively reduce costs for everybody, turning transparency into a competitive advantage rather than a compliance burden.
Conclusion
California is positioning itself as a first mover in the growing SAF economy, using a carefully calibrated credit that rewards both production and performance. The policy blends climate ambition with pragmatic industry design and should accelerate investment decisions throughout 2026.