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January 5, 2024

Treasury Department and IRS Issue Guidance on SAF Credit

Lynn L. Bergeson Carla N. Hutton

On December 14, 2023, the Treasury Department and the Internal Revenue Service (IRS) issued Notice 2024-06 for the new Sustainable Aviation Fuel (SAF) credit created by the Inflation Reduction Act of 2022 (IRA). According to the IRS’s December 15, 2023, press release, the SAF credit applies to a qualified fuel mixture containing SAF for certain sales or uses in calendar years 2023 and 2024. The SAF credit is $1.25 for each gallon of SAF in a qualified mixture. The IRS states that to qualify for the credit, the SAF must have a minimum reduction of 50 percent in lifecycle greenhouse gas (GHG) emissions. The IRS notes that there is a supplemental credit of one cent for each percent that the reduction exceeds 50 percent, for a maximum increase of $0.50.

The Inflation Reduction Act of 2022 (IRA) provides two methods to determine the lifecycle GHG emissions reduction percentage that can be used to qualify for and calculate the credit. These are the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) method and any similar method that meets certain requirements of the Clean Air Act (CAA). Additionally, the IRA requires certain aspects of each method to be certified by an unrelated party.

According to the IRS, Notice 2024-06 provides additional safe harbors using the U.S. Environmental Protection Agency’s (EPA) Renewable Fuel Standard (RFS) program and related guidance. The RFS program uses a methodology similar to CORSIA and meets the requirements of the CAA, and the safe harbors in Notice 2024-06 can be used to calculate the emissions reduction percentage and for the corresponding unrelated party certification for the SAF credit.

The IRS notes that Notice 2024-06 “explains that the current Greenhouse gases, Regulated Emissions, and Energy use in Transportation (GREET) model of the Argonne National Laboratory and other GREET-based models do not currently satisfy the applicable statutory requirements for the SAF credit.” According to the IRS, the U.S. Department of Energy (DOE) is collaborating with other federal agencies to develop a modified version of the GREET model that would satisfy the statutory requirements for the SAF credit. The agencies developing this modified GREET model currently anticipate its release in early 2024.