U.S. Treasury and IRS Issue Guidance to Promote American Innovation and Reduce Emissions from the Aviation Sector

U.S. Treasury and IRS Issue Guidance to Promote American Innovation and Reduce Emissions from the Aviation Sector

The GREET Model will be updated and released in early 2024 by Biden-Harris Administration Partners to measure lifecycle emissions from sustainable aviation fuels.

As part of President Biden’s Investing in America agenda, the U.S. Department of the Treasury and Internal Revenue Service (IRS) released guidelines today regarding the Sustainable Aviation Fuel (SAF) Credit established by the Inflation Reduction Act (IRA). The goal of this initiative is to reduce climate pollution and create well-paying jobs by encouraging innovation in the aviation industry.

On today’s Notice, the Treasury Department collaborated closely with partners in the Biden-Harris Administration, such as the Department of Transportation (DOT), Department of Agriculture (USDA), Department of Energy (DOE), and Environmental Protection Agency (EPA).

“The Biden Administration is driving American innovation to create good-paying jobs and help the U.S. clear hurdles in our clean energy transition,” said Secretary of the Treasury Janet L. Yellen. “Incentives in the Inflation Reduction are helping to scale production of low-carbon fuels and cut emissions from the aviation sector, one of the most difficult-to-transition sectors of our economy.”

“President Biden’s Investing in America agenda is creating pathways and incentives for innovators to create a cleaner, more sustainable future,” said U.S. 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.”

“The Biden-Harris Administration is committed to harnessing the potential of sustainable aviation fuel to develop new economic opportunities for American agricultural producers. Today’s announcement is the next step in making this 36-billion-gallon industry all the more possible,” said U.S. Secretary of Agriculture Tom Vilsack. “By powering aviation through low-carbon fuels, farmers can earn extra income, tap into value-added climate-smart agriculture markets, and meet the demand for an aviation industry that seeks to accelerate sustainable production.”

“America ushered in the jet age, and aviation is a key part of our economy, society, and way of life. But the safety and sustainability of aviation depend on its ability to reach its goal of net-zero carbon emissions by 2050,” said U.S. Transportation Secretary Pete Buttigieg. “The time is now. That’s why President Biden is advancing the development of sustainable aviation fuels that will help us reduce carbon pollution while supporting economic growth and creating opportunity in American aviation.”

“Sustainable aviation fuel is a critical tool for tackling the climate crisis,” said John Podesta, Senior Advisor to the President for Clean Energy Innovation and Implementation. “Today’s guidance from Treasury provides certainty that multiple pathways are available to producers as they compete to decarbonize the aviation sector.”

The Treasury Department’s guidance offers crucial clarification about SAF Credit eligibility. When compared to jet fuel derived from petroleum, the credit encourages the manufacture of SAF that achieves a lifecycle greenhouse gas emissions reduction of at least 50%. A $1.25 to $1.75 per gallon tax credit is available to SAF producers. A SAF can receive a $1.25 credit per gallon if its GHG emissions are reduced by 50%. If its GHG emissions are reduced by more than 50%, it can receive an extra $0.01 per gallon for each percentage point the reduction exceeds 50%, up to a maximum of $0.50 per gallon.

Many fuels will be eligible for the credit under the guidelines released today, including legitimate diesel based on biomass, advanced biofuels, and cellulosic diesel that has been certified by the EPA under the Renewable Fuel Standard (RFS).

Under the most recent Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) standard, fuels that achieve a 50% or greater reduction in lifecycle greenhouse gas emissions will remain eligible under today’s advice. Furthermore, by March 1, 2024, EPA, DOT, USDA, and DOE plan to issue an updated version of DOE’s GREET model. The updated GREET model will give SAF producers another way to calculate the lifecycle GHG emissions rates of their production in order to be eligible for the SAF Credit for SAF sold or used in calendar years 2023 and 2024, pending additional guidance from the Treasury Department.

New data and scientific findings, such as improved modeling of important feedstocks and fuel production processes, will be incorporated into the revised model. The best available science and modeling of indirect land use change emissions will be integrated with other categories of indirect emissions, such as crop production and animal activity, in the updated model. Important techniques for reducing greenhouse gas emissions, like carbon capture and storage, renewable natural gas, renewable electricity, and climate-smart agricultural practices, will also be incorporated into the updated model.

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