Decarbonisation Technology - November 2024 Issue

International regulations: Harmonising CI calculations On the international stage, countries like Canada and regions such as the European Union (EU) have also adopted carbon accounting frameworks that are designed to support the transition to renewable fuels (see Table 1 ): • In Canada, federal regulations rely on the openLCA model to calculate CI scores for its Clean Fuel Regulations (CFR), while British Columbia uses the GHGenius model (an Excel-based spreadsheet model) for its LCFS programme. These models help to regulate and provide financial incentives for producers of renewable fuels while promoting adherence to carbon-reduction goals. • In Europe, the Renewable Energy Directive (RED) III and its implementing measures set minimum blending mandates for RD and SAF at minimum GHG-reduction targets, incentivising producers to incorporate renewable fuels into their portfolios while supporting the EU’s broader climate goals. • Globally, the International Civil Aviation Organization (ICAO) regulates SAF through its Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). To estimate and verify the CI scores of CORSIA-approved SAF pathways, ICAO has developed its version of the GREET model, known as ICAO-GREET, to help ensure compliance with global aviation emissions reduction targets. In the US, tax credits have become another key component of renewable fuel incentives, as demonstrated by several provisions in the Inflation Reduction Act of 2022 (IRA): • 40BSAF-GREET: This model, adopted by the US Department of the Treasury, calculates the

CI score for a particular set of parameters for SAF production under the Sustainable Aviation Fuel Credit (Section 40B), including meeting other policies such as prevailing wage, US-made content, and apprenticeship requirement. The CI score determines the credit generation range of the produced fuel. In 2025, Section 40B is expected to be replaced by the Section 45Z Clean Fuel Production Tax Credit. • 45VH2-GREET: Another US Treasury- approved model, 45VH2-GREET, determines emissions rates for clean hydrogen production tax credits under Section 45V of the US tax code. These credits aim to incentivise clean hydrogen production, with substantial financial rewards tied to achieving low CI scores. By establishing these frameworks, governments are encouraging producers to adopt more sustainable practices and meet increasingly stringent environmental requirements, driving the renewable fuel market forward, promoting innovation, and making low-carbon technologies more economically viable. Optimising ROI by improving CI scores Grasping the complexities and significance of data management and the timing of LCAs is central to success in regulatory compliance markets that use CI scores. However, managing CI scores alone is not equivalent to success in carbon accounting. Instead, companies must measure variables through LCAs that allow for calculating a CI score, representing one method or aspect of carbon accounting. Companies that understand the intricacies of CI-related compliance requirements, timing, data management, and the available LCA models can unlock substantial financial incentives.

Clean hydrogen production credit (45V)

45V Tax credit ($/kg-H-produced)

Credit awards clean hydrogen producers for every kilogram of hydrogen produced in the US 45V can serve as a key driver to bring clean hydrogen cost down Department of Treasury released proposed rule in December 2023

Well-to-Gate carbon intensity (kgCOe/kgH)

Meets labour standards

Doesn’t meet labour standards

<4, ≥ 2.5

$0.60 $0.75 $1.00 $3.00

$0.12 $0.15 $0.20 $0.60

<2.5, ≥ 1.5 <1.5, ≥ 0.45

<0.45

Figure 4 Section 45V under the U.S. IRA provides incentives for low-CI hydrogen Source: US Department of Energy (US DoE, 2023)