In a landmark move for sustainable aviation, the U.S. Treasury Department recently released updated guidance on the Sustainable Aviation Fuel (SAF) 40B tax credit. This new guidance aims to refine and clarify eligibility criteria for SAF producers, marking an important step forward for the aviation industry’s efforts to reduce greenhouse gas (GHG) emissions. Although the SAF tax credit is available only until the end of 2024, this update enhances clarity on qualification requirements and makes adjustments to the emissions calculation model used to evaluate SAF’s environmental impact.
Key Changes in the Updated SAF Tax Credit Guidance
Updated GREET Model
One of the most significant updates is the Treasury’s requirement that producers use the October 2024 version of the GREET (Greenhouse Gases, Regulated Emissions, and Energy Use in Technologies) model. This latest version corrects a calculation discrepancy in the previous GREET model related to catalyst inputs for Alcohol to Jet (ATJ) pathways, which SAF producers use to convert alcohol-derived materials into jet fuel. By addressing this issue, the Treasury aims to provide more accurate emissions reduction data, helping producers align with SAF credit requirements more efficiently.
Impact on ATJ SAF Pathways
The updated model is particularly impactful for the ATJ pathway, as it reduces the emissions associated with catalyst use, potentially making it easier for ATJ-derived SAF to qualify for the credit. This change may encourage more SAF producers to explore the ATJ pathway, fostering innovation in sustainable fuel options for aviation.
SAF Credit Requirements and Timeline
The SAF credit offers producers a valuable incentive, providing up to $1.75 per gallon of qualifying SAF that demonstrates at least a 50% reduction in lifecycle greenhouse gas emissions. Given the narrow window for claiming this credit—available only through 2024—this guidance will assist SAF producers as they race to qualify before the year-end deadline.
Transition to the New 45Z Clean Fuels Production Credit
Beginning January 1, 2025, the new 45Z Clean Fuels Production credit will replace the SAF credit. This consolidated credit aims to support a range of clean fuel production efforts, continuing the momentum set by the SAF credit. However, the timeline for implementing the 45Z credit is tight, and uncertainties remain about whether comprehensive guidance will be available before its activation. Producers aiming to qualify for the 45Z credit must register with the IRS by January 1, 2025, adding urgency to their preparation.
CSA Pilot Program Impact
The Climate-Smart Agriculture (CSA) Pilot Program also impacts SAF production by offering additional reductions for using certain sustainable farming practices when growing feedstocks like corn and soybeans. Farmers participating in the CSA program must meet strict requirements, including practices such as no-till farming and planting cover crops. The updated requirements have reduced the acreage eligible for SAF feedstock production. However, the upcoming 45Z credit may potentially broaden flexibility for feedstock qualification, supporting a wider range of sustainable practices.
VURDHAAN’s Role in Advancing SAF Integration
At VURDHAAN, we are committed to supporting the aviation sector’s transition to sustainable practices, offering expertise in Sustainable Aviation Fuel (SAF) implementation and compliance with regulatory frameworks like CORSIA and the EU and UK Emission Trading Schemes. By working closely with clients, we help them understand the intricacies of credits like the 40B and 45Z, navigate evolving tax guidance, and optimize sustainability practices across their operations.
Our holistic approach—supporting clients through regulatory alignment, educating stakeholders, and implementing targeted sustainability strategies—ensures that aviation industry players are well-equipped to leverage opportunities like the SAF credit effectively and responsibly.
The Road Ahead for SAF and Clean Fuels
The Treasury Department’s recent update marks a significant milestone for SAF producers. With clearer guidance on qualification criteria, a refined GREET model, and the upcoming Clean Fuels Production credit, the U.S. is demonstrating its commitment to advancing sustainable aviation fuels. These incentives encourage innovation within the SAF sector, positioning the industry to play a leading role in aviation’s journey toward net-zero emissions.
VURDHAAN remains dedicated to empowering the aviation sector with insights, support, and the strategies needed to drive sustainable progress. Together, through collaborative action and forward-thinking policies, we can build a cleaner, greener future for aviation.