New SAF tax credit included in proposed California budget

California’s newly proposed 2026–27 state budget put forward by Governor Gavin Newsom includes a significant climate and clean-fuel initiative: the introduction of a tax credit to promote sustainable aviation fuel (SAF) production within the state.
The measure would create a tax credit against diesel excise tax liability specifically to encourage in-state production of SAF, which is a lower-carbon alternative to traditional jet fuel and plays an important role in reducing greenhouse gas emissions in the aviation sector, one of the most challenging areas to decarbonise.
The rationale behind this proposal is to support California’s ambitious climate and air-quality goals by incentivising private investment and scaling up clean transportation fuel technologies.
By reducing the tax burden for SAF producers, the state aims to make sustainable aviation fuels more competitive with conventional petroleum-based jet fuels, helping to accelerate market adoption and stimulate innovation in a sector that currently accounts for a large portion of transport-related emissions.
This SAF tax credit is part of a broader suite of budgetary proposals designed to steer California’s economy towards more sustainable industries, although it must still be approved by the state legislature during the budget process.
If adopted, it would mark a notable step by a US state in using fiscal policy to directly support the growth of alternative fuels. This approach mirrors federal efforts to encourage SAF through tax incentives, though California’s version is notably targeted at in-state production.