Sustainable Aviation Fuel Tax Incentives | Norton Rose Fulbright - July 2023

Among the Inflation Reduction Act’s package of credits and incentives for renewable fuel production is a new set of tax credits for sustainable aviation fuel (“SAF”).  These incentives support the Biden administration’s goal of producing 3 billion gallons of SAF in the U.S. by 2030.  Treasury adopted a two-phase implementation approach.  The first phase applies to SAF/conventional jet fuel blends sold during 2023 and 2024.  Phase one is found in section 40B of the tax code.  Phase two applies to clean fuel, including SAF, produced and sold from 2025 through 2027.  Phase two is found in section 45Z of the tax code.

Sustainable Aviation Fuel (SAF)

SAF Tax Credit Details

Two ways to claim the new SAF credits for qualifying mixtures.

• Section 40B income tax credit (not eligible for transferability or direct pay)
• Section 6426(k) excise tax credit
• Credit is same amount whether claimed against income or excise taxes

SAF must:

• Meet ASTM International Standards;
• Be derived from biomass, waste streams, renewable energy sources, or gaseous carbon oxides;
• Not be derived from palm oil;
• Reduce GHG emissions by at least 50%; and
• Be used in an aircraft or sold for use in an aircraft in the ordinary course of business

A “qualifying mixture” contains SAF and traditional aviation fossil fuel

Treasury is accepting two models for calculating the GHG emissions reduction percentage.

• Both are from the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).
• The GREET model is not accepted.
• But Treasury asked for comments on whether methodologies beyond CORSIA may be applicable.
  

Producers and importers of SAF must complete IRS Form 637 registration process.

Starting in 2025, SAF will be incentivized under the new section 45Z clean fuel production credit. 45Z is an “eligible credit” for transferability.

45Z applies to clean fuel produced after 2024 and sold before 2028.