Decarbonisation Technology - November 2024 Issue

Clean fuels tax credits (45Z)

In January 2025, the sustainable aviation fuel tax credit transitions to a per-gallon credit for all clean fuel that incentives low-carbon fuels Law divides clean fuels into two categories: 1) Sustainable aviation fuels (SAF) and 2) All other fuels The tax credit is in eect for three years, from 2025-2027 Registration is currently open and must be completed to claim credit

Carbon intensity (gCOe/MU)

45Z Value - Non-SAF ($/gal)

45Z Value - SAF ($/gal)

47 or greater

38 24

0.20 0.5 0 0.80

0.35 0.88 1.75 1.40

9.5

1.0

Figure 5 Under the Section 45Z tax credit, SAF producers are incentivised to reduce the CI of SAF/RD Source: US Department of Energy (US DoE, 2024) Summary

Some programmes are considering penalties for entities that fail to meet minimum CI limits, making precise compliance with regulatory requirements essential. For instance, under Section 45V of the US IRA, producers of clean hydrogen can earn up to $3.00/kg of hydrogen produced if the CI score is below 0.45kg CO₂e/kg of hydrogen, contingent on meeting other key requirements like prevailing wage and apprenticeship requirements (see Figure 4 ). Similarly, under the Section 45Z tax credit, which is expected to go into effect in January 2025, SAF producers can receive up to $1.75 per gallon (/gal) if they achieve a zero CI score in gCO 2 /MJ (see Figure 5 ). The ability to report on verified CI scores provides producers with several competitive advantages, including:  Increased financial returns: By lowering CI scores, companies can potentially earn more tax credits and generate more credits in regulated fuel and voluntary carbon markets.  Access to new markets: Governments worldwide are increasingly prioritising low- carbon products. By improving CI scores, companies can potentially access new markets with stricter carbon regulations or attract environmentally conscious buyers.  Enhanced brand reputation: Companies with strong carbon accounting practices and low CI scores can enhance their brand reputation, appealing to investors, customers, and other key stakeholders.  Risk mitigation: By adhering to evolving carbon regulations and continuously improving CI scores, companies can mitigate the risk of penalties or exclusion from key markets.

As the global economy transitions toward a low-carbon future, carbon accounting will play an increasingly central role in shaping the strategies and success of industries worldwide. The evolution of regulatory frameworks, financial incentives, and carbon markets presents opportunities and challenges for producers in the renewable fuel sector. By fully understanding and embracing carbon accounting practices, ensuring proper data management, and leveraging advanced tools, companies can better manage the complexities of the carbon economy and achieve their sustainability goals. Renewable fuels like RD and SAF are poised to become critical components of the global energy transition, especially as governments set more ambitious climate targets. While production costs remain a challenge, combining financial incentives, tax credits, and carbon trading schemes can make low-carbon fuels a viable option for companies willing to invest in CI score optimisation and compliance. Ultimately, proper carbon accounting offers a technical blueprint for organisations to drive their low-carbon strategy, meet regulatory requirements, and thrive in a low- carbon, competitive market. For companies across industries – from renewable fuels to manufacturing – carbon accounting is no longer optional but a key driver of long-term profitability and sustainability. VIEW REFERENCES Kristine Klavers kklavers@ecoengineers.us