IRA-based subsidy payment standards disclosed… Tax credit of up to $1.75 per gallon
SAF reduces carbon emissions by up to 80%
Korea unable to produce SAF due to lack of laws
“Active support is needed to keep up with advanced countries.”
The U.S. government has decided to provide subsidies in the form of tax credits to sustainable aviation fuel (SAF), which reduces greenhouse gas emissions. If the United States increases SAF imports, Korean oil refineries’ exports of aviation fuel to the United States will inevitably decrease. Korean oil refineries are unable to produce SAF because the law is not in place.
On the 15th (local time), the U.S. Treasury disclosed the criteria for subsidy payments to SAF based on the Inflation Reduction Act (IRA). In the United States, if you sell or use SAF, which reduces carbon emissions by more than 50% compared to existing aviation fuel, you will receive a tax credit of $1.25 to $1.75 per gallon depending on the level of reduction. Accordingly, airlines and SAF producers are expected to benefit. The subsidy is applied retroactively to use after January 1 of this year. The Ministry of Finance announced that it will additionally disclose the specific reduction calculation method that will be the basis for subsidy payment before March 1 of next year.
SAF is aviation fuel made from eco-friendly raw materials such as waste cooking oil and ethanol rather than existing fossil fuels such as oil or coal. Although it is two to three times more expensive than existing aviation fuel, it can reduce carbon emissions by 50 to 80%. The global oil refining industry has called for subsidies to expand use of SAF because it is expensive. This measure by the United States is expected to significantly expand the SAF market by making SAF more price competitive. According to market research firm Modo Intelligence, the SAF market, which was worth $3.1243 billion (about 4.04 trillion won) last year, will grow to $21.5652 billion in 2027.
The Korean oil refining industry is ‘disgusted’ by the US measures. About half of the aviation fuel imported by the United States comes from Korea. Last year, the United States imported an average of 120,000 barrels of fossil fuel aviation fuel per day, and more than half, 64,000 barrels, were imported from Korea. As the use of SAF in the United States increases, the amount of aviation fuel imported from Korea will inevitably decrease.
Although the SAF market is considered a blue ocean, the domestic oil refining industry has not even entered the global SAF market. This is because SAF is not included in alternative petroleum fuels in the current Petroleum and Petroleum Substitute Fuel Business Act. It is illegal to make petroleum products using raw materials other than petroleum. As a result, oil refineries are conducting research on SAF development, but have not been able to secure production facilities. Last month, the National Assembly’s Trade, Energy, Small and Medium Venture Business Committee approved an amendment to the Petroleum and Petroleum Substitute Fuel Business Act to expand the business scope of oil refineries to ‘a mixture of eco-friendly refining raw materials’. The revision of the law allowing domestic oil refineries to conduct SAF business is only now being discussed.
Even if the law is revised, it will take time for oil refineries to equip production facilities. In the meantime, global SAF producers are likely to improve their technology and quality and establish sales channels. Countries such as the United States, Europe, and Japan are expected to increase government-level support to take the lead in the SAF market.
An official in the oil refining industry said, “Korea is an underdeveloped country in SAF. “Foreign airports are active in supplying SAF, but Korea does not even have SAF refueling facilities at airports,” he said, pointing out, “If foreign airlines ignore Korean airports, they may lose future aviation competitiveness.”
Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.