US publishes guidance on SAF tax credits under Inflation Reduction Act

Although most ethanol produced in the USA does not currently meet the standard for SAF credits under the Inflation Reduction Act 2022, that could change in coming months, according to guidance published on 15 December by the US Department of the Treasury and the Internal Revenue Service.

Welcomed by the US biofuels sector, the new guidelines could make it easier to claim credits for corn-based ethanol to be used as a feedstock in SAF production, the 15 December report said.

The US Department of Energy and other agencies would collaborate to update the current core Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation (GREET) model in early 2024 so that it could be used for calculating SAF credits, AgriCensus wrote.

In addition, the guidance created a “safe harbour” for SAF components that generated certain renewable identification numbers (RINs) under the current Renewable Fuel Standard.

The IRA called for using the calculation approved by the International Civil Aviation Organization (ICAO) or “any similar methodology” for SAF, the report said.

As the ICAO calculation had estimated lower lifetime emissions reduction from most corn grain ethanol, it could disincentivise its use as an SAF feedstock, AgriCensus wrote.

Non-aviation biofuels are currently subject to the US Department of Energy’s GREET model, which calculates higher lifetime emissions reduction from land use conversion to biofuel crops such as corn for ethanol.

None of the current versions of the GREET model meet the requirements for calculating SAF credits, the guidance said.

The safe harbour section of the guidance said that SAF components would be assigned a 50% emissions reduction if they generated D4 or D5 RINs, and a 60% reduction if they generated D3 or D7 RINs.

Almost 90% of ethanol produced in the US was from corn starch (kernels) and generated a D6 RIN credit, meaning it reduced lifetime greenhouse gas emissions by at least 20%, the report said.

The SAF credit requires a lifetime emissions reduction of at least 50%.

However, ethanol produced from corn stover (or corn straw) generates a D7 cellulosic biofuel RIN credit and would qualify for SAF credits as reducing life-cycle emissions by 60%.

While environmentalists have called for SAF feedstocks to focus on waste products such as used cooking oil, airline trade groups have claimed the best way to reduce emissions would be to have as many feedstock options as possible, including ethanol, the report said.

According to research by the International Council on Clean Transportation, the USA would fall short of feedstocks to reach 2050 goals for SAF production even if the entire current corn grain ethanol supply was converted for SAF.