US Readies Long-Awaited Guidance on Sustainable Jet Fuel Tax Policy

(Bloomberg) -- The Biden administration as early as Friday will release high-stakes policy guidance that will help determine the economic viability of producing lower-emitting jet fuel from US corn and other crops.

The long-awaited guidance from the US Treasury Department is expected to help companies determine how and if they might qualify for tax credits tied to the production of sustainable aviation fuel, or SAF. Yet key details aren’t expected to be revealed until next spring, according to people familiar with the matter. 

Treasury spokespeople didn’t immediately respond to a request for comment.

“There is definitely anxiety out there caused by this uncertainty about the implementation of the law,” said Timothy Urban, who leads the tax policy practice at Bracewell LLP. “In many cases, taxpayers have gone ahead with plans for clean energy facilities based on their reading of the statute, and now they are wondering whether the administration’s upcoming regulations will impose unanticipated rules that negatively impact their business plans.” 

At issue is debate over how to calculate greenhouse-gas emissions from SAF, which can be made from a wide array of ingredients, including ethanol. US makers of the corn-based biofuel are counting on SAF to significantly boost their product, which is now blended with gasoline for motor fuel and faces lower demand as electric vehicles gain market share. They have been concerned the tax credit guidance dealing with emissions could leave some ethanol firms ineligible for the government subsidies. 

US Agriculture Secretary Tom Vilsack said he was “confident” that the SAF guidance would reflect sustainable practices and other attributes biofuel makers have been seeking as part of the policy.

“The reason I’m confident is because it’s not just the farmers who are asking for this, it is the airlines that are asking for it,” Vilsack told reporters at the COP28 climate summit in Dubai. “They want a variety of feedstocks, they want choice, they want competition, and they want acceleration of the production of this important low-carbon fuel.”

For the aviation industry in the US to be sustainable and get those options, “the models that are utilized by the Treasury Department in awarding those credits have to be flexible enough to accommodate them,” he said. “And I think there’s a recognition of that.”

Biofuel producers including Poet LLC, the world’s biggest maker of corn ethanol, are pushing the Biden administration to embrace an emissions measuring approach used by the US Energy Department that would give credit for carbon sequestered in soil even after crops are removed. 

Environmentalists seek an alternative pioneered by the United Nations that they contend is more rigorous. Trade groups representing truck stops and fuel retailers also are pushing for the UN approach, arguing that it would ensure raw materials used to make both SAF and renewable diesel would only shift from motorway fuel uses when “environmentally justified.” 

Opponents claim the UN model is outdated and could prevent some ethanol-based SAF production from qualifying for the tax credits. Poet has already warned that it will turn away from green jet fuel projects if US policy freezes out the industry. 

With a growing number of national and state incentives to make low-emitting fuels, the US ethanol industry is attempting to slash its overall carbon-dioxide intensity rating by focusing on everything from how corn is grown to the way ethanol is delivered to customers. 

The SAF tax credits are part of President Joe Biden’s landmark Inflation Reduction Act, which includes a raft of incentives aimed at fighting climate change by encouraging a net-zero US energy economy.

Treasury Department officials have repeatedly said the guidance is set to come before the end of the year.

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