The U.S. Treasury Department released guidance on the Sustainable Aviation Fuel (SAF) 40B credit provides important clarifications and changes for those seeking to qualify for the credit.
Here are the key points:
Updated GREET model. The Treasury has specified that those using the 40BSAF-GREET 2024 model to calculate emissions reduction percentages must now use the October 2024 version of the model. This update addresses a calculation issue in the previous April 2024 version, specifically related to catalyst inputs for Alcohol to Jet (ATJ) SAF pathways.
Impact on ATJ SAF pathways. The change in the model lowers the emissions associated with catalyst input for ATJ SAF pathways. This adjustment could potentially affect the eligibility of certain fuels for the credit.
SAF credit requirements. To qualify for the SAF credit, which ranges from $1.25 to $1.75 per gallon, the fuel must demonstrate a minimum reduction of 50% in lifecycle greenhouse gas emissions.
Timeline and availability. The SAF credit is only available through the end of 2024, so this update comes relatively late in the credit’s lifecycle.
Transition to Clean Fuels Production Credit. The Biden administration is working on the details of the new 45Z Clean Fuels Production credit, scheduled to start on Jan. 1, 2025. This credit is intended to replace and consolidate various expiring fuel incentives.
Uncertainty around 45Z guidance. There is uncertainty about whether the guidance for the 45Z credit will be available before the credit takes effect. This could potentially create challenges for producers planning to claim the credit in early 2025.
Registration requirements for 45Z. To be eligible for the 45Z credit for production starting Jan. 1, 2025, taxpayers must obtain a signed registration letter from the IRS dated on or before Jan. 1, 2025. The IRS set a deadline of July 15, 2024, for applications to be processed in time for the Jan. 1, 2025, start date.
Potential impact on corn acreage. It is unclear whether the model change will significantly affect the level of corn acreage that would qualify as a feedstock for the SAF credit. While these updates provide some clarity, the transition from the current SAF credit to the new 45Z Clean Fuels Production credit may present challenges for producers due to the tight timeline and pending guidance.
Background. Recall that the CSA Pilot Program establishes climate smart agriculture practices for cultivating domestic corn and soybeans as SAF feedstocks. The program provides an additional reduction credit for CSA corn (10 gCO2e/MJ) and CSA soybean (5 gCO2e/MJ) when used in SAF production. Farmers participating in the CSA Pilot Program must implement specific practices:
• For corn: no-till farming, planting cover crops, and using enhanced efficiency nitrogen fertilizer.
• For soybeans: no-till farming and planting cover crops.
Farmers and SAF producers must maintain detailed records and comply with specific requirements to participate in the program.
Of note: Those provisions have dramatically reduced the level of acreage and thus corn and soybean production that would qualify as feedstocks for the SAF credit. The hope has been that the coming 45Z credit will adjust those requirements and provide more flexibility.
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