The IRS and U.S. Department of the Treasury released on Dec. 15, 2023, Notice 2024-06 regarding Section 40B of the Internal Revenue Code. Effective for fuel mixtures sold or used after Dec. 31, 2022, and before Jan. 1, 2025, Section 40B provides a tax credit for each sustainable aviation fuel (SAF) in a qualified mixture. Notice 2024-06 follows the initial guidance of Notice 2023-06, which provided rules regarding the life cycle greenhouse gas (GHG) emissions for certain fuels, and provides a safe harbor for the use of life cycle GHG emissions percentages and details registration requirements.
The Credit Amount
The credit amount equals $1.25 per gallon, plus an additional cent per gallon for each percentage point over 50 percent reduction of the life cycle GHG emissions for the SAF as compared to petroleum-based jet fuel. Therefore, to qualify for the credit, the SAF must have a life cycle GHG emissions reduction percentage of at least 50 percent. The credit is capped at $1.75 per gallon.
A "qualified mixture" is a mixture of SAF and kerosene that is produced in the U.S. and used by the taxpayer or sold by the taxpayer for use in an aircraft. In addition, the sale or use must be done in the ordinary course of the taxpayer's business, and the fueling of the aircraft must occur in the United States. SAF is a liquid fuel that is not kerosene and that meets certain other standards.
The notice provides additional guidance, including:
- safe harbors for calculating the life cycle GHG emissions reduction percentage and for certifying the related requirements
- fuels eligible for the credit, including biomass-based diesel, advanced biofuels, cellulosic biofuel and cellulosic diesel that have been approved by the U.S. Environmental Protection Agency (EPA) under the renewable fuel standard (RFS)
- New Model Certificate for SAF Synthetic Blending Component
- explanation that the existing Greenhouse gases, Regulated Emissions, and Energy use in Transportation (GREET) model of the Argonne National Laboratory does not satisfy the requirements to calculate the emissions reduction percentage for purposes of Section 40B; the U.S. Department of Energy (DOE) is working on an updated GREET model, expected to be available in early 2024, that taxpayers will be able to use to calculate the emissions reduction percentage for SAF.
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