Colorado Swaps Unused SAF Credit for a Per-Gallon Payout

Colorado just repealed a sustainable aviation fuel tax credit that zero companies ever claimed, replacing it with a credit that pays for fuel actually purchased. Governor Jared Polis signed House Bill 26-1289 on June 3, 2026, ending the state's construction-based SAF production credit and launching a per-gallon purchase credit capped at 3 million dollars a year starting in 2027.

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Why did Colorado kill its SAF production credit?

Colorado repealed the credit because no company could use it. The Sustainable Aviation Fuel Production Facility Credit launched in 2024, offering a refundable credit covering part of the cost of building a SAF facility in the state.

It sounded promising on paper. In practice, the credit required something Colorado didn't have, a production facility already under construction.

The Colorado Office of the State Auditor reported that as of January 2025, no SAF facilities in Colorado had applied for the credit. The U.S. Department of Energy found only four operational SAF production facilities nationwide as of August 2024, none in Colorado. One project had been proposed in the state, with construction costs estimated at roughly 117 million dollars, a steep barrier for a market still finding its footing.

Other states are already producing at scale. Montana Renewables recently signed a deal to deliver more than 70 million gallons of SAF over three years, the kind of volume Colorado's credit was meant to encourage but never reached.

The U.S. Department of Energy defines sustainable aviation fuel as a biofuel that performs like conventional jet fuel but carries a smaller carbon footprint, typically made from biomass like used cooking oils, municipal waste, or crops. The state auditor identified two companies already importing SAF into Colorado and reselling it there, though it remained unclear whether either qualified for state incentives.

How does the new purchase credit work?

The new credit pays buyers of SAF instead of builders of SAF plants. Starting in tax year 2027, qualified taxpayers who purchase SAF for use in Colorado can claim 1.50 dollars per gallon as a baseline.

That amount climbs higher as the fuel gets cleaner. For every whole percentage point that a fuel's carbon intensity reduction exceeds 50 percent, the credit increases by one cent per gallon, with the Colorado Energy Office authorized to adjust the rate annually.

• Baseline credit: 1.50 dollars per gallon purchased
• Bonus: 1 cent per gallon for each percentage point of carbon intensity reduction above 50 percent
• Annual cap: 3 million dollars in total credits issued, 2027 through 2032
• Refundable but not carried forward to future tax years

Taxpayers apply to the Colorado Energy Office for a credit certificate. The CEO verifies eligibility and reports approved credits to the Department of Revenue before any money moves.

Colorado is already building similar verification systems in a related program. The state's push for Class VI carbon storage primacy began with an application filed in October 2025, and the EPA proposed approving it in March 2026, a process built around the same kind of agency-level verification now applying to SAF purchase credit claims.

What does this mean for states without local SAF production?

It means incentive design has to match market reality, not policy aspiration. Colorado spent two years offering a construction credit for an industry that hadn't broken ground in the state yet.

A purchase credit sidesteps that problem entirely. It rewards the act of buying SAF, regardless of where that fuel was made, which fits a state that imports its fuel rather than produces it.

That framing matters here. Colorado's airports and corporate flight departments are potential SAF buyers right now, even without an in-state refinery, and the new credit gives the state's existing SAF importers a clear financial reason to grow that activity.

Production pathways for that imported fuel are diversifying fast. Twelve's new E-Jet fuel plant in Washington state makes SAF from captured CO2 and renewable electricity rather than biomass, while Honeywell's modular processing technology is scaling similar fuel conversion at a biofuels complex in Brazil.

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How does Colorado's approach compare to federal SAF incentives?

Colorado's purchase credit sits alongside existing federal incentives for SAF, working at a different point in the supply chain.

Incentive	Who Claims It	Base Rate
Colorado SAF Purchase Credit (new)	Fuel buyers in Colorado	1.50 dollars per gallon
Colorado SAF Production Credit (repealed)	In-state facility builders	Percentage of construction cost
Federal 45Z Clean Fuel Production Credit	SAF producers nationally	35 cents per gallon, up to 1.75 dollars with wage compliance

The federal Clean Fuel Production Credit already pays producers 35 cents per gallon for SAF, rising to 1.75 dollars per gallon at facilities meeting prevailing wage and apprenticeship standards. Colorado's new credit stacks on top of that, at the point of sale rather than production.

That stacking effect could matter most for producers like Green Plains, whose Nebraska ethanol plants already collect federal clean fuel credits and could ship SAF feedstock toward Colorado buyers without a Colorado refinery.

Could other states learn from Colorado's pivot?

Other states weighing SAF incentives now have a real-world test case. Colorado tried the construction-first model, watched it sit unused for two years, then switched to rewarding consumption instead.

States without existing refining capacity face the same mismatch Colorado did. A credit built for builders does nothing in a market with no builders.

A purchase credit works regardless of geography. Carbon transport infrastructure connecting Wyoming, Nebraska, and Colorado already moves captured CO2 across state lines for storage, suggesting fuel can move just as easily toward wherever demand incentives exist.

Colorado and Wyoming signed a formal agreement in May 2026 to coordinate permitting on carbon storage projects near their shared border, a sign that regional infrastructure networks like the Trailblazer pipeline are pushing states toward cross-border systems that could support demand-side fuel incentives too.

Colorado's fiscal note projects the purchase credit will draw close to its full 3 million dollar annual cap once it takes effect in 2027, a sharp contrast to the zero dollars claimed under the old program. A similar swing followed when Louisiana's carbon storage program moved from planning to active deployment, where incentive uptake jumped once infrastructure matched the policy on paper.

Colorado didn't abandon its SAF ambitions. It just stopped paying for fuel plants that weren't getting built, and started paying for fuel that's actually flying.

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