US Treasury Department Issues Guidance on New Tax Credit for Sustainable Aviation Fuel
The Biden administration on Friday released long-awaited guidance on tax credits for aviation fuel that reduces greenhouse gas emissions compared to fuel made from crude oil.
Some environmentalists expressed concern that Treasury Department guidelines could allow credits for fuel made from corn and other crops they consider poor choices because of the water and other resources needed to grow them.
THE HIGH FAT FLIGHT IS THE FIRST PLANE TO MAKE A FOSSIL FUEL-FREE TRANSATLANTIC CROSSING FROM LONDON TO NEW YORK
Midwest lawmakers and companies that produce corn-based ethanol praised the guidelines, although their enthusiasm may be short-lived.
Congress approved the credits as part of President Joe Biden’s Inflation Reduction Act of 2022, which included provisions designed to boost cleaner energy. The credits are designed to increase supply and reduce the current high price of sustainable aviation fuel, or SAF.
Producers will be eligible for tax credits ranging from $1.25 to $1.75 per gallon, depending on how much their fuel reduces emissions compared to conventional products such as kerosene-based jet fuel.
In a key issue – and after months of deliberations – the Treasury Department agreed to measure those emissions reductions using a model developed by the US Department of Energy and supported by the ethanol industry.
However, the Treasury said the Biden administration plans to update the model by March 1, leaving uncertainty about the eventual tax treatment of ethanol used to power aircraft.
The Treasury said the update will include “new models of key feedstocks and processes used in aviation fuel” and will consider the impact on emissions of the crops used to make the fuel.
The Environmental Defense Fund said it will withhold final judgment on the guidelines until March, but that Friday’s guidelines could leave the United States out of step with international standards.
“Our initial assessment is that this would be a blank check for fuels made from sugar cane, soybeans and rapeseed, none of which are sustainable or consistent with Congress’ intent,” said the group’s senior vice president, Mark Brownstein.
Ethanol supporters countered that the Department of Energy’s model provides an accurate way to measure the benefits of agricultural feedstocks used in sustainable aviation fuel.
The standard “is great and I’m glad Treasury is finally realizing that,” said Sen. Joni Ernst, a Republican from Iowa, a major corn-producing state.
Airlines for America, a trade group for the largest U.S. airlines, praised the Treasury guidelines, which it said “will help accelerate SAF production and availability and spur new investment.”
According to estimates, about 2% to 3% of global greenhouse gas emissions come from aviation, but that share is expected to grow as air travel continues to boom. Widespread use of electrically powered aircraft is generally considered to be decades away.
