Sustainable aviation fuel credit eligibility criteria released

Content updated on Dec. 6, 2024

On April 30, 2024, the U.S. Department of the Treasury and Internal Revenue Service (IRS) released guidance on the sustainable aviation fuel credit (SAF) established by the Inflation Reduction Act (IRA). This guidance provides additional clarity and certainty to companies and producers, aiding in the scale-up of SAF production and reduction of emissions from the aviation sector. The announcement highlights the role farmers can play in reducing greenhouse gas (GHG) emissions by producing SAF from homegrown agricultural crops using climate-smart agricultural practices. Producers or importers of SAF synthetic blending components must register with the IRS under section 4101 and comply with specific certification and verification processes to qualify for the SAF credit.

The Treasury Department's guidance delineates the eligibility criteria for the SAF credit, offering a tax credit ranging from $1.25 to $1.75 per gallon based on the lifecycle GHG emissions reduction achieved by the fuel. To qualify, the SAF must achieve a GHG emissions reduction of at least 50% compared to petroleum-based jet fuel. A 50% reduction earns the producer a credit of $1.25 per gallon. For reductions exceeding 50%, the credit increases by $0.01 per gallon for each additional percentage point, up to a maximum of $0.50 per gallon. Thus, the highest possible credit is $1.75 per gallon for fuels achieving a 100% reduction in GHG emissions. Producers must provide certification from an unrelated party to demonstrate compliance with CORSIA or similar methodologies.

The SAF Interagency Working Group (IWG) announced the 40B SAF-GREET 2024 model, a new methodology for determining the lifecycle GHG emissions rates of SAF production. This model incorporates updated data and processes, including carbon capture, renewable natural gas and renewable electricity. Additionally, a USDA pilot program encourages the use of climate-smart agriculture (CSA) practices, offering credits for SAF feedstocks produced using no-till farming, cover crops and enhanced efficiency fertilizers. The notice also provides safe harbor provisions for calculating the emissions reduction percentage.

Producers must comply with additional verification guidelines, including on-site audits and maintaining detailed records to ensure full traceability of feedstocks used in SAF production. The notice outlines compliance with the Paperwork Reduction Act (PRA), detailing the information collections required for the SAF credit and their associated burden. For claims using the 40BSAF-GREET 2024 model and the USDA CSA Pilot Program, producers must submit specific certificates with their claims. These provisions ensure that the SAF credits are claimed accurately and in compliance with regulatory standards.

Updates to the guidance

The IRS issued Notice 2024-74 on Oct. 18, 2024, updating previous guidance in Notice 2024-37. This chain of notices provides a safe harbor for taxpayers if they use a specific Greenhouse gases, Regulated Emissions, and Energy use in Technology (GREET) model. GREET models are constructed by the Department of Energy to assess technologies' energy and environmental performance. Taxpayers can utilize specific GREET models to estimate the emissions of certain technologies to qualify for some of the IRA credits.

For the SAF credit, the IRS had previously announced that taxpayers could use the 40BSAF-GREET 2024 model when evaluating qualified fuels. Notice 2024-74 specifies that taxpayers seeking SAF credits based on GHG emission reductions must use the updated 40BSAF-GREET model, released in Oct. 2024, rather than the April 2024 version. This model now corrects miscalculations in the emissions for alcohol to jet (ATJ) pathways, standardizing results across SAF production methods.

For further details, including specifics on model calculations and compliance deadlines, refer to the full notice.

The SAF credit under IRC Section 40B expires on Dec. 31, 2024. Beginning Jan. 1, 2025, SAF producers will transition to the clean fuel production credit under IRC section 45Z. The Treasury Department is expected to provide guidance on section 45Z by Jan. 20, 2025, to help facilitate this transition.

Where to go from here?

For more details surrounding the specific changes and updates, review the IRS website. And to discuss how Baker Tilly can assist your organization with understanding section 40B tax credits and maximizing the available benefits of the IRA, contact us today.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.