Reading Time: 2 minutes
The U.S. Treasury Department released new tax guidance for sustainable aviation fuel (SAF).
Below is a quick summary of high-level takeaways (CLICK HERE for Pinion’s holistic look at opportunity factors for Agriculture and Biofuels industries stemming from this release):
-
Biofuels – laying the groundwork:
-
- The rules will have minimal impact on production of the biofuel, since the Section 40B tax credit is only in effect through the end of the year, when a broader tax incentive, known as 45Z, will take effect.
-
Agriculture – new fuel recognized as farmer-centric:
-
- Ag feedstocks are eligible: Administration officials say the 40B requirements will lay the groundwork for the 45Z tax credit rules and should signal to SAF investors that agricultural feedstocks will be eligible for the incentive. Relatively little SAF is currently being made, but the airline industry has committed to using 3 billion gallons annually by 2030, or 10% of their projected fuel needs.
-
- Vilsack weighs in: “The guidance provided by the Treasury Department is going to provide a clear pathway to how best to qualify for the 40B tax credits, and also to create a process to expand opportunities under 45Z,” Agriculture Secretary Tom Vilsack told reporters. “President Biden, I think, understood intuitively the important role that America agriculture and farmers would play in this new future when he predicted that in the next 20 years, farmers would be at the center of the supply chain to create this new fuel,” Vilsack said.
-
- SAF tax subsidy: The 40B credit starts at $1.25 per gallon and can be worth as much as $1.75 per gallon, based on the carbon intensity of the fuel. The Treasury Department allows ethanol to qualify as a SAF feedstock, if the three climate-smart farming practices are used in production of the corn. The 45Z tax credit will be worth $1.75 a gallon for SAF. Both tax credits were created by the Inflation Reduction Act (IRA) of 2022.
-
- Soybean eligibility: He also indicated that soybeans produced with conservation tillage and cover crops would be eligible for the tax credit.
-
- Restriction-wary: One of the few lawmakers with farming experience, Sen. Chuck Grassley, R-Iowa, told reporters that restricting the tax credit to those climate-smart practices was impractical and would limit the amount of fuel that could be produced. “Those restrictions are going to slow progress on the next generation of aviation fuel,” he said.
-
Overdue GREET updates included:
- The administration also released updates to its GREET model for estimating the carbon intensity of biofuel feedstocks. The changes included an update to how the model accounts for indirect land use changes from biofuel crop production. Pinion advisors are digging into the details – stay tuned for more.
*UPDATE: Since this publication, Pinion advisors have explored the details of this guidance and provided more information on who is eligible to benefit and under what timeframes: CLICK HERE for Pinion’s holistic look at opportunity factors for Agriculture and Biofuels industries stemming from this release, as well as what’s coming.
Reach out to a Pinion biofuels or agriculture advisor with questions.
