Aviation fuel tax credits in limbo over accounting dispute

U.S. senate legislation announced last month and recent Department of the Treasury regulatory comments illustrate a behind-the-scenes argument simmering between sustainable aviation fuel (SAF) producers and environmental groups. 

The divide is largely over whether SAF derived from corn-based ethanol and other agricultural crops should qualify for a tax credit created by the Inflation Reduction Act (IRA).

Currently, most SAF is produced by treating waste, cooking oil, animal fats and byproducts — those processes are not what’s at issue. The concern stems from the food security challenges posed by growing crops for fuel. If land is converted to grow more SAF feedstock, the conversion releases greenhouse gases (GHG) and damages ecological diversity, according to the High Integrity SAF Handbook, published by the Environmental Defense Fund.

How that impact is calculated depends on which accounting methodology is used. The two primary options today are Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), developed by the United Nations International Civil Aviation Organization, and Greenhouse Gases, Regulated Emissions and Energy use in Transportation (GREET), advocated by the Department of Energy and industry.

Both calculate SAF life-cycle emissions reductions but differ in how they account for GHG emissions produced by land use change. CORSIA offers a certification that proves a fuel has followed a sustainable process, which GREET does differently, and less effectively, according to environmental groups.

As of right now, the federal government requires the use of CORSIA to calculate IRA tax credits for the use of SAF. But SAF producers and industry allies wanted them based on the GREET model. A group of senators led by Sen. Tammy Duckworth (D-IL) in June wrote a letter to the Treasury Department and co-sponsored a bill that would make GREET the official methodology for calculating the subsidy.

Why GREET?

In short, the model is less stringent than the U.N.’s CORSIA model, according to EDF. In public comments to the Treasury Department, the NGO refers to GREET as “an analytical tool, not a methodology.”

On the other side, SAF producers claim the GREET model is more accurate than CORSIA because it allows them to claim GHG benefits from agricultural innovations. The senators suggest GREET is superior because it uses newer data, noting that CORSIA relies on outdated metrics from a previous iteration of GREET. Finally, the GREET model is already used for other federal tax credit programs related to biofuels, proponents argue.

Some producers of agriculturally derived SAF claim they could roduce more aviation fuel faster if the production was subsidized using the GREET methodology, rather than CORSIA.

Gevo, an ethanol producer, told E&E News it plans to produce 1 billion gallons of SAF annually in 2030, one third of the 3-billion-gallon goal set by President Joe Biden’s administration for the amount of SAF to be produced annually by the end of the decade. Gevo said subsidies calculated under GREET are easier to get than under CORSIA. This is because SAF producers can use feedstock from land farmers converted from wildland or wetland into agricultural land. CORSIA accounts for a more robust life-cycle emission inclusive of land use changes and would not allow subsidies for SAF grown on certain converted wildlands.  

Drawbacks to GREET

There are significant drawbacks to the GREET model, according to Andrew Chen, principal for climate-aligned industries at RMI. GREET risks “inaccurate accounting,” which could incorrectly give GHG emissions reductions credit where credit is not due, he said. Put bluntly, this shortcoming could “negate the entire climate benefits and even increase emissions several-fold compared to fossil jet fuels,” according to EDF. 

EDF’s handbook on high integrity SAF, a tool for policymakers to determine best practices in subsidizing and accounting SAF use, suggests that many SAF-related policies “allow all biogenic fuels to claim zero climate impact, even though, on a life-cycle basis, some of these fuels are worse than fossil fuels.” What’s more, “they allow fuels to be called ‘sustainable’ even if their production hurts ecosystems and communities,” according to the handbook.

GREET falls under this category, EDF argued. The NGO said only CORSIA can accurately account for a fuller cost of producing biofuels. This is because it examines land use change in a way that predicts the negative effects on GHG emissions, communities affected and ecological assets 

As of June, nine batches of SAF had been certified under the CORSIA methodology, including SAF produced by Neste, which uses “100 percent renewable waste and residue materials” such as cooking oil or animal fats. Neste provides SAF to jets at the San Francisco and Los Angeles International Airports. So while CORSIA may be more stringent, Neste’s certification suggests it is not an impossible standard.

The bottom line

As noted in a past newsletter, aside from announcing an ambitious but seemingly impossible SAF Grand Challenge — which calls for supplying enough SAF to fuel 100 percent of flights by 2050 — the federal government has barely begun to support the nascent SAF industry. 

It has taken 11 months for the Treasury Department to issue full guidance on what SAF feedstocks and technologies will qualify for the IRA tax credit. What’s worse is the IRA tax credits expire at the end of 2024, meaning the fight over how the tax credit will work is happening as the clock begins to run out. Regardless of whether the Treasury Department uses GREET or CORSIA, it needs to set a flight path soon or SAF may never take off in time.

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