The US Treasury Releases Guidance on SAF Emissions Rates, but How Many Questions Does it Answer?
By Krista Sutton – Principal Process Engineer
Last week, the Treasury released their long-anticipated guidance [1] on emissions rate calculations for the 40B sustainable aviation fuel (SAF) tax credit established by the Inflation Reduction Act (IRA), which is likely to serve as a model for the 45Z clean fuel tax credits with regards to SAF (although such guidance has not been issued, or equivalency explicitly indicated). Let’s dive in…
What is at stake?
Under Section 40B, the IRA established a tax credit value of $1.25 per gallon of SAF, meaning aviation fuel with an emissions rate at least 50% lower than fossil jet fuel. The act includes an adder of 1¢ per additional percentage-point reduction beyond 50%, up to a maximum of $1.75 per gallon. Section 40B makes tax credits available through the end of 2024.
Under Section 45Z, also newly created by the IRA and which makes tax credit available from 2025 through 2027, credit value is calculated as an emissions factor multiplied by an applicable amount, which for SAF is $1.75 per gallon. The emissions factor is calculated as follows, meaning that tax credit value accrues from a baseline emissions rate of 50 kgCO2e per MMBTU.
The SAF emissions are calculated through a lifecycle analysis (LCA) methodology – a topic of much debate. At the heart of the issue is whether corn-based ethanol-to-jet production and soybean oil-to-jet production will qualify for the tax credit. The guidance around LCA methodology will ultimately determine how competitive 13.8 billion gallons a year of US ethanol production [2] would be with respect to other feedstocks for the production of SAF.
Why is there an argument?
A debate has been raging since the passage of the IRA over which lifecycle analysis modeling methodologies should be accepted to estimate SAF emissions. Sections 40B and 45Z specifically call out the International Civil Aviation Organization (ICAO) Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) methodology:
“the most recent Carbon Offsetting and Reduction Scheme for International Aviation which has been adopted by the International Civil Aviation Organization with the agreement of the United States, or…”
but leaves room for debate in the following paragraph:
“any similar methodology which satisfies the criteria under section 211(o)(1)(H) of the Clean Air Act (42 U.S.C. 7545(o)(1)(H)), as in effect on the date of enactment of this section.”
On one side of the debate, the biofuels industry and airlines have argued for the inclusion of the ANL-GREET (Argonne National Labs (ANL) Greenhouse Gas, Regulated Emissions, and Energy Use in Transportation) model which is used as the basis for lifecycle analysis for all the other low carbon fuels eligible for the 45Z tax credits. These stakeholders cite its more frequent update cycle and more recent datasets containing the most up-to-date advances in the industry. [3]
On the other side, environmental groups have argued that the GREET model is not as stringent in accounting for emissions resulting from indirect land use change (ILUC) as the ICAO CORSIA methodology, and that the use of the ANL-GREET model would grossly undercount emissions from a land use transition to grow crops for SAF production. [4]
What is the difference between the models?
Estimates for direct emissions from these models are actually quite similar, as a version of GREET was used to derive the default LCA factors by the ICAO. However, there are key differences related to the modeling of input assumptions for indirect emissions between the ANL-GREET and ICAO CORSIA methods; specifically:
- How the two models develop the ILUC factors;
- The allowed land-use basis;
- The data referenced for each type of land use conversion; and,
- Whether they give credit for sustainable farming practices via soil organic carbon (SOC) modeling.
These assumptions can make a large difference in the final emissions numbers according to the International Council of Clean Transportation:
“ILUC modeling cited in some configurations of the default GREET model estimates land-use emissions for corn ethanol and soy that are only 25% – 33% of the total emissions estimated through public regulatory assessments by the U.S. Environmental Protection Agency and the California Air Resources Board” [5]
So, what did the guidance say?
A likely less contentious part of the guidance establishes a safe harbor for fuels that qualify for D4, D5, D3, or D7 Renewable Identification Numbers (RINs) under the incumbent renewable fuels standard (RFS) administered by the EPA. Fuels meeting D4 or D5 certification will be automatically considered to have a 50% emissions reduction and fuels meeting D3 or D7 certification will be considered to have a 60% emission reduction for the purposes of 40B credits.
On the modeling side, the guidance, at least on the surface, has handed a win to the airlines and biofuels industries, and particularly ethanol producers that are transitioning to SAF production, by authorizing a GREET-based model as an acceptable alternative for determining the life cycle GHG emissions of SAF. In reality, they have kicked the can down the road as the guidance references a new GREET model being developed to meet the criteria of 40B that is planned to be released on March 1st, 2024. The updated model could incorporate more stringent indirect land-use change factors. This would effectively authorize the use of the GREET model (what the industry wants) and implement stricter ILUC factors (what environmental groups want). For now, it leaves the door open for a wider pool of crop-based SAF to qualify for 40B credits so we can be sure that the debate will continue, and we will see which way the pendulum swings on March 1st, 2024.
Sources:
[1] https://home.treasury.gov/news/press-releases/jy1998
[4] https://theicct.org/wp-content/uploads/2023/09/ID-16-Briefing-letter-v3.pdf
[5] https://theicct.org/long-shadow-model-inputs-could-dilute-ambition-of-saf-grand-challenge-nov23/