Illinois passes sustainable aviation fuel tax credit
Illinois state lawmakers have approved legislation to create a $1.50/USG sustainable aviation fuel (SAF) tax credit that airlines can use to satisfy all or part of their state use tax liabilities.
The legislation, which must be signed by governor JB Pritzker (D), will create a tax credit for every gallon of SAF sold to or used by an air carrier in Illinois from 1 June 2023 to 1 June 2033. The state ranks 5th in the US for jet fuel demand, at nearly 70,000 b/d.
The Illinois SAF credit differs from SAF credits generated under California, Oregon, and Washington low carbon fuel standards (LCFS) in that it is given only to airlines operating in the state that buy the fuel — not to the producers of the fuel. The credit only applies for SAF used in domestic flights, since airlines do not pay taxes on jet fuel used for international flights.
Airlines in Illinois will be able to claim the SAF tax credit up to a set quota dependent on the amount they spend on domestic conventional jet fuel that year. They can also combine the Illinois credit with the new $1.25-$1.75/USG credit under the federal Inflation Reduction Act and $369bn clean-technology investment plan.
The Illinois SAF tax credit will effectively lower the price airlines pay for SAF used at airports in the state. This differs from other states where SAF producers do not usually pass on a large percentage of the LCFS credit to the airlines.
The Illinois law also caps the volume of soybean oil-derived SAF that airlines can claim credits for to 10mn USG/yr, a measure intended to appease trucking associations concerned that the credit would lead biofuel refiners to cut back on renewable diesel production — which also uses soybean oil — and thus increase prices at the pump.
Starting in June 2028 the state tax credit will only apply to SAF derived from domestic feedstocks. This will allow SAF from Finnish producer Neste to flow into Illinois in the near term but not crowd out other domestic SAF suppliers in the future, including those in Illinois.
Commercial volumes of SAF are not expected to increase in Illinois until later this year, given the amount of time it takes for airlines and distributors to adapt to the new law.
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