Treasury rules for aviation fuel tax credit give ag a ‘tailwind’

By Mike Lee, Marc Heller | 04/30/2024 04:28 PM EDT

The Inflation Reduction Act created a tax credit for fuel that cut carbon emissions compared with conventional jet fuel. Deciding what kinds of fuels qualify has led to behind-the-scenes battles.

A plane flies into clouds.

The Treasury Department is implementing tax credits for aviation fuel that reduces emissions of greenhouse gases compared with conventional fuel. Scott Barbour/AFP via Getty Images

The Treasury Department opened the door for U.S.-made ethanol and other biofuels to qualify for a sustainable aviation fuel tax credit under the Inflation Reduction Act, although the opening isn’t as wide as some agriculture officials and their congressional allies had hoped.

The decision disappointed environmentalists, who are concerned that the tax credit won’t go far enough to incentivize newer, cleaner types of fuel.

The Inflation Reduction Act established the tax credit of up to $1.25 for fuel that reduces carbon emissions by 50 percent compared with conventional, kerosene-based jet fuel. The credit rises to as much as $1.75 per gallon for fuel that cuts emissions more than 50 percent.


The Treasury Department, agriculture groups and environmentalists have been arguing behind the scenes about which mathematical model to use in calculating the emissions reductions from the new types of fuel.

The Treasury Department, in a decision released Tuesday, opted to use a modified version of the GREET (Greenhouse gases, Regulated Emissions and Energy use in Technology) model, which the agriculture industry favored.

“Today’s announcement is an important stepping stone as it acknowledges the important role farmers can play in lowering greenhouse gas emissions and begins to reward them through that contribution in the production of new fuels,” Agriculture Secretary Tom Vilsack said in a news release.

Ethanol industry groups and supporters said the announcement was a partial victory on a long-sought goal of making the crop-based fuel a big part of the aviation industry.

Because the guidance requires farmers to adopt at least three climate-smart conservation practices, ethanol may be held to such a high standard that producers will have trouble qualifying, they said.

Industry groups said they had been on the lookout for such a “bundling” requirement, and that the guidance appears overly prescriptive to producers, in their view.

Sen. Chuck Grassley (R-Iowa) told reporters today that it’s hard to tell sometimes whether or not a farmer has reduced tillage, which is one of the requirements under the formula. Further, he said, corn from farms without such practices is commingled with corn from other farms, once it reaches an ethanol plant — a practical consideration he suggested may be hard to overcome.

The American Coalition for Ethanol called the announcement “an important tailwind” as biofuels become a bigger piece of the clean energy future. But the group said the government continues to overestimate the impact of land-use changes, such as converting carbon-saving grassland or forests to crops.

The Environmental Defense Fund and other nonprofit groups had urged the Treasury Department to adopt a different model, known as CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation), that was developed by the International Civil Aviation Organization.

The CORSIA model does a better job tracking the land-use changes and other long-term effects associated with biofuel production. EDF has been concerned that using ethanol or other biofuels would lead to environmental damage as more land is cleared to grow crops.

To truly make jet fuel carbon-neutral, companies will have to develop fully synthetic fuels, said Mark Brownstein, a senior vice president at EDF.

“The longer we flood the market with the same old stuff, we’re actually inhibiting the economic incentive to develop the better stuff at scale,” he said.

The new formula will apply to the so-called 40B, which is for sustainable aviation fuel produced in 2023 and 2024. The Treasury Department is developing a separate formula for the 45Z tax credit, which will cover fuel produced in 2025.