Focus Outlook

US Treasury issues guidelines for a tax credit on sustainable aviation fuel.


The Biden administration finally unveiled guidance concerning tax credits for aviation fuel that curbs greenhouse gas emissions compared to crude oil-derived fuel. However, this move has sparked concern among environmentalists regarding potential credits for fuel produced from crops like corn, which they view as unsustainable due to high resource consumption. While Midwest lawmakers and corn-based ethanol producers welcomed the guidelines, uncertainty looms. These credits were part of President Biden’s Inflation Reduction Act of 2022, aimed at promoting cleaner energy and reducing the cost of sustainable aviation fuel (SAF).

The tax credits, ranging from $1.25 to $1.75 per gallon, are contingent on the degree of emissions reduction compared to traditional jet fuel. The Treasury Department endorsed a U.S. Energy Department-developed model, supported by the ethanol industry, to gauge emission reductions.

However, the Treasury intends to update the model by March 1, causing ambiguity regarding the treatment of ethanol for aviation purposes. This update will incorporate new data on feedstocks and processes used in fuel production, considering emissions from crop cultivation.

The Environmental Defense Fund expressed reservations, suggesting that these guidelines might favour fuels from non-sustainable sources like sugar cane, soybean, and rapeseed, possibly misaligning with Congress’ intentions.

Ethanol advocates argue that the Energy Department’s model accurately measures the benefits of agricultural feedstocks in sustainable aviation fuel, supporting its reliability.

Republican Senator Joni Ernst hailed the Energy Department’s model, emphasizing its precision, particularly benefiting corn-producing states like Iowa.

Airlines for America, representing major U.S. carriers, commended the guidelines, anticipating their role in accelerating sustainable aviation fuel production and fostering investment. Estimates indicate that aviation contributes 2% to 3% of global greenhouse gas emissions, a figure anticipated to rise with increased air travel. Despite hopes for electric aircraft, their widespread use remains distant, leaving aviation dependent on traditional fuels for the foreseeable future.


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