The US Treasury Department, in collaboration with the Internal Revenue Service (IRS), released the long-awaited guidelines for the Sustainable Aviation Fuel (SAF) tax credits on Friday.

Congress has reportedly approved the tax credits as part of the Inflation Reduction Act 2022. Also established as part of President Joe Biden's broader agenda to promote job creation, lower the current high price of sustainable aviation fuel, and reduce climate pollution, the credits are designed to encourage the production of aviation fuel that decreases emissions of greenhouse gases compared to traditional fuel made from crude oil.

(Photo : Leon Neal/Getty Images)
IN FLIGHT - APRIL 17: Wind turbines are seen in the distance as an RAF Typhoon fighter jet is refuelled in-flight over the North Sea, from a Voyager aircraft flying on a 43% blend of sustainable fuel on April 17, 2023 in flight - Region EMEA.

US Releases Sustainable Aviation Fuel Tax Credit Guidelines

The guidelines provide essential clarity on eligibility for the SAF tax credits, which incentivize the production of sustainable aviation fuel that results in a minimum 50% reduction in lifecycle greenhouse gas emissions compared to petroleum-based jet fuel. 

Based on the guidance, SAF producers are eligible for a tax credit of $1.25 to $1.75 per gallon, while SAF that decreases GHG emissions by 50% is eligible for the $1.25 credit per gallon amount.

On the other hand, SAF that reduces GHG emissions by more than 50% will get an additional $0.01 per gallon for each percentage point the reduction exceeds 50%, up to $0.50 per gallon. 

As the guidance outlines, the SAF tax credits cover various eligible fuels, including biomass-based diesel, advanced biofuels, cellulosic biofuel, or cellulosic diesel approved by the Environmental Protection Agency (EPA) under the Renewable Fuel Standard. 

Based on the most recent Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) standard, fuels that achieve a 50% or greater reduction in lifecycle greenhouse gas emissions will continue to qualify under the new guidance.

READ ALSO: Alaska Airlines Agrees to Buy Struggling Hawaiian Airlines for $1.9 Billion

US Agencies Participate in Sustainable Aviation Fuels Lifecycle Analysis Working Group

After months of discussions, the Treasury Department accepted measuring those emission reductions using a model developed by the Department of Energy (DOE) and supported by the ethanol industry.

However, the Environmental Protection Agency, Department of Transportation, Department of Agriculture, and DOE, as part of the Sustainable Aviation Fuels Lifecycle Analysis Interagency Working Group (IWG), committed to releasing an updated version of DOE's GREET (Greenhouse Gases, Regulated Emissions, and Energy Use in Technologies) model by March 1, 2024.

The update will calculate the lifecycle greenhouse gas emissions reduction percentage for SAF sold or used after December 31, 2022. It will also include new data on critical feedstocks and processes used in aviation fuel and consider the effect on emissions from crops used to make the fuel.

"Sustainable aviation fuel is a critical tool for tackling the climate crisis," John Podesta, Senior Advisor to the President for Clean Energy Innovation and Implementation, said in a statement. "Today's guidance from Treasury provides certainty that multiple pathways are available to producers as they compete to decarbonize the aviation sector."

According to reports, around 2% to 3% of global greenhouse gas emissions come from aviation. 

READ MORE: US, China Risk a 'New Cold War' as Economic and Trade Conflicts Escalate, IMF Official Warns