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IRS notice provides additional safe harbors for sustainable aviation fuel tax credit
June 2024
In brief
What happened?
The IRS on April 30 released Notice 2024-37, which provides additional safe harbors for computing and certifying a fuel’s lifecycle greenhouse gas emissions reduction percentage for purposes of the Section 40B tax credit for sustainable aviation fuel. The IRS issued earlier guidance on Section 40B and related excise tax provisions in Notice 2023-6, which addressed standards for sustainable aviation fuel, computing the supplemental credit, claim procedures, and certification and registration requirements; and in Notice 2024-6, which provided an initial safe harbor for computing the emissions reduction percentage. See the PwC Insights IRS issues guidance on sustainable aviation fuel credit, requests comments and IRS supplements guidance on sustainable aviation fuel tax credit for more information.
Why is it relevant?
The Notice 2024-37 safe harbors-use of a modified, compliant Greenhouse gases, Regulated Emissions, and Energy use in Transportation (GREET) model and participation in the Department of Agriculture Climate Smart Agriculture (CSA) Pilot Program--provide additional options that simplify establishing that a fuel meets the Section 40B credit requirements. Notice 2024-37 also authorizes a simplified certification process in connection with the GREET safe harbor and provides for achieving a lower emissions reduction percentage in connection with the CSA program.
Action to consider:
Although Notice 2024-37 is specific to Section 40B, taxpayers that anticipate qualifying for and claiming the Section 45Z clean fuel production credit should review the guidance and the new safe harbors to determine if feedback to the IRS and Treasury is warranted, as forthcoming Section 45Z regulations may include one or both safe harbors.
In detail
Statutory background
Section 40B provides a credit of $1.25 per gallon of sustainable aviation fuel included in a qualified fuel mixture produced by a taxpayer and used or sold after 2022 and before 2025. Sustainable aviation fuel must have a baseline lifecycle greenhouse gas emissions reduction percentage of 50%. The credit is increased by a supplementary amount of one cent for each percentage point by which the lifecycle greenhouse gas emissions reduction percentage exceeds 50%, to a maximum of an additional $0.50 per gallon.
A fuel’s 50% emissions reduction percentage must be certified in accordance with the most recent Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) that has been adopted by the International Civil Aviation Organization with US agreement, or through a similar methodology that satisfies the criteria of the Clean Air Act.
To qualify for the Section 40B credit, a fuel producer or importer must register with Treasury and provide a certification from an unrelated party. The certification must demonstrate compliance with the requirements of CORSIA (including specific sustainability requirements relating to supply chain traceability and information transmission) or of an acceptable similar methodology, and provide other information required by Treasury.
Guidance
40BSAF-GREET 2024 model safe harbor
Emissions reduction percentage computation safe harbor
Notice 2024-6 provided a safe harbor allowing taxpayers to compute a fuel’s emission reduction percentage under EPA’s Renewable Fuel Standard as a “similar methodology” to CORSIA. The notice advised that the GREET model developed by the Argonne National Laboratory and similar models did not satisfy the Clean Air Act criteria and would not be recognized. However, an acceptable GREET model was being developed.
Notice 2024-37 advises that the Department of Energy on April 30 released the 40BSAF-GREET model, which meets the requirements of the Clean Air Act and Section 40B and is a similar methodology to CORSIA. Accordingly, the IRS will accept a properly certified emissions reduction percentage that is calculated in accordance with the 40BSAF-GREET 2024 model. The 40BSAF-GREET model is available at https://www.energy.gov/media/322677.
Certification safe harbor
Notice 2024-37 also advises that a registered sustainable aviation fuel producer or importer using the 40BSAF-GREET model can satisfy the Section 40B certification requirements if the producer obtains a certification from a California Air Resources Board Low Carbon Fuel Standard (LCFS) program accredited verifier, in a format that is substantially similar to an LCFS Verification Statement (CARB certification).
The producer must report the verifier’s Verifier Executive Order number on the certificate that must be submitted with the credit claim and provide to the verifier a copy of the Excel workbook used to calculate the emissions reduction percentage. Appendix C to Notice 2024-37 provides a model certificate for claimants using the 40BSAF-GREET model.
Note: Notice 2023-6 described the requirements for producers and importers of the synthetic blending component of sustainable aviation fuel and US blenders of qualified mixtures to (1) register with the IRS under Section 4101 and (2) submit a certificate attesting to certain information with a credit claim. The notice provided model certificates. For a detailed discussion of these requirements and credit claim procedures, see the PwC Insight IRS issues guidance on sustainable aviation fuel credit, requests comments.
40BSAF-GREET 2024 model in conjunction with USDA pilot program safe harbor
Emissions reduction percentage computation safe harbor
The CSA safe harbor reduces the emissions reduction percentage when the 40BSAF-GREET 2024 model is used in conjunction with the CSA program. The CSA program establishes climate smart agriculture practices for cultivating domestic corn and soybeans for use as sustainable aviation fuel feedstocks.
Under the CSA safe harbor, the emissions reduction percentage is decreased when the synthetic blending component of sustainable aviation fuel is produced using corn or soybeans grown under the CSA program. The reduction is determined under a formula using a lifecycle emissions value that is reduced by 10 gCO2e/MJ for corn and 5 gCO2e/MJ for soybeans.
Certification requirements
To qualify for the CSA safe harbor, a registered producer must provide the CARB certification for the 40BSAF-GREET 2024 model and obtain unrelated party certification of compliance with CSA program requirements. Appendix A to Notice 2024-37 describes the CSA program, which includes program audits by CSA certifiers, as applied to the CSA safe harbor.
Under Notice 2024-37, a registered producer that wants to use the CSA safe harbor must (1) contract directly with farmers for CSA corn or soybeans, (2) collect from the farmer and maintain a Certificate for Climate Smart Agriculture Crops for each CSA crop, (3) comply with the CSA program recordkeeping requirements, (4) make records available to a CSA certifier, and (5) maintain and make available to the IRS the CSA program certification and the Certificate for Climate Smart Agriculture Crops.
Notice 2024-37 provides a model Certificate for Climate Smart Agriculture Crops in Appendix B and a model CSA safe harbor certificate in Appendix D.
Registration and claims
Notice 2024-37 advises that a credit claimant may use either of the new safe harbors for claims under Section 40B, 6426(k), or 6427(e)(1), and must submit a certificate with the claim in substantially the same form as the model certificates in Appendix C or D. A claimant that registered with the IRS and was issued an activity letter “SA” or had a registration application pending before release of Notice 2024-37 must notify the IRS of its change in methodology by contacting the office where the claimant is registered or the application is pending.
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