Korean refiners alarmed by U.S. tax credits for biofuels under IRA

South Korean refiners also may face sales setbacks from the U.S. Inflation Reduction Act (IRA) due to the provision of restricting tax credit to producers of eco-friendly biofuels for jet engines.

According to interviews by Maeil Business Newspaper on Monday, Korean refiners raised concerns about a possible loss from the new IRA during a conference to monitor the 2,409 core items for U.S. supply hosted by the Ministry of Trade, Industry and Energy recently.

One of the participants warned that tax incentives to biofuels could affect Korean refiners’ jet fuel exports to the U.S. as they mostly ship out fossil fuel-based jet fuel to the U.S.

Of the country’s total jet fuel exports worth $7.79 billion in the first eight month of this year, the largest of $2.68 billion worth went to the U.S.

The new legislation extends a tax credit of $1.25-1.75 per gallon for sustainable aviation fuel (SAF) used and sold from next year.

The SAF is a biofuel used to power aircrafts and made from sustainable resources that have the potential to reduce carbon emissions by up to 80 percent. It is very expensive, but the price gap with the existing fuel has narrowed much since Russia’s invasion of Ukraine early this year that has lifted the fossil fuels.

The European Union also is actively seeking to expand the use of biofuels and thus, the market could grow faster. Korean producers, however, have not established related production facilities to export biofuels, said an industry official.

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