New tax credits for sustainable aviation fuel in U.S. raise concerns in Korea

The recent decision of the U.S. government to subsidize sustainable aviation fuel (SAF), which reduces greenhouse gas emissions, in the form of tax credits is raising concerns among South Korean refiners as it may affect their exports.

The U.S. Treasury Department announced the detailed regulations for SAF tax credits awarded under the Inflation Reduction Act (IRA) on Friday, local time.

SAF is a low-carbon jet fuel made from biomass, cellulose, and ethanol instead of fossil fuels. Under the IRA, tax breaks are granted to taxpayers who produce, sell, or use SAF in the U.S. starting this year.

Under the regulations, a tax credit of $1.25 per gallon is provided to SAF that reduces lifecycle carbon emissions by 50 percent compared to jet fuel made from oil. If the reduced emissions exceed 50 percent, an additional $0.01 is deducted for each percentage point, bringing the maximum tax credit to $1.75.

These rules are likely to have a ripple effect on the Korean refining sector as the U.S. currently relies on Korea for more than half of its jet fuel imports.

According to the U.S. Energy Information Administration (EIA), 53 percent of the U.S. daily average import of oil-based jet fuel came from Korea.

The domestic refining industry, however, believes that SAF is priced too high to match the price of conventional jet fuel in the near future.

This means the tax credit will have a limited impact on the industry as SAF is two to three times more expensive than conventional jet fuel.

“The price of SAF is already too high, and the subsidy alone will hardly drive its price lower than existing jet fuel,” said an official from the local oil refining industry.