SB 2403

THE SENATE
S.B. NO.
2403
THIRTY-THIRD LEGISLATURE, 2026
STATE OF HAWAII
A BILL FOR AN ACT
relating
to renewable fuel.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
���� SECTION 1.� The legislature finds that, because of the
recent Navahine F. v. Hawaiʻi Department of
Transportation CIV. NO. 1CCV-24-0000631 (Hawaiʻi
Cir. Ct.) settlement, there is a clear need for the State to take meaningful
and coordinated action to reduce its greenhouse gas emissions, particularly
within the transportation sector.� The
settlement underscores the State's constitutional responsibility to ensure a
life‑sustaining climate for current and future generations.� It also calls for the development and
implementation of a comprehensive energy security and waste reduction plan to
guide decarbonization efforts over the next twenty years, including the
adoption of sustainable aviation fuel as a key strategy.
���� The legislature further finds that the transportation
sector is the single largest contributor to greenhouse gas emissions in Hawaii,
accounting for forty-eight per cent of statewide emissions, well above the
national average. �Within that sector,
aviation plays a critical role, supporting commerce, tourism, and essential
interisland travel, and contributes significantly to overall emissions. �Hawaii consumes approximately seventeen
million barrels, or seven hundred fourteen million gallons of jet fuel annually.
�Transitioning this system away from
fossil fuels is essential to achieving the State's climate goals. �Even producing a modest portion of that fuel
locally, using renewable feedstocks, can yield outsized benefits, stimulating
local agriculture, creating economic opportunities, reducing emissions, and
building energy resilience. �Rather than
continuing to grow the State's annual fossil fuel demand by small increments
each year, Hawaii has the opportunity to stop that trajectory and instead take
a bold, measurable step toward emissions reduction and local sustainability in
a single year.
���� The legislature recognizes that renewable
fuel used for sustainable aviation fuel (SAF) offers a near-term and scalable
solution to decarbonize aviation without requiring changes to aircraft or
infrastructure.� However, SAF remains
several times more expensive than conventional fuels.� Without targeted policy support, including
financial incentives, local SAF production and adoption will remain
cost-prohibitive.� Other states have
enacted policy tools and tax credits to bridge this gap.� The State must act similarly to remain
competitive, meet its legal obligations, and seize the economic opportunities
offered by renewable fuel production.
���� Updating the renewable fuels production tax
credit to increase incentives is a critical component of this effort. �Revising this tax credit will support local
production of SAF and other renewable fuels, enabling investment in energy
infrastructure, job creation, and economic development. �These fuels benefit a broad spectrum of the
State's residents, from households that rely on propane for cooking to patients
who depend on affordable interisland flights for medical care, ensuring that
climate action is equitable and far-reaching.
���� The legislature believes that an updated renewable
fuels production tax credit also encourages agricultural innovation by
supporting energy crops that serve as regenerative cover crops, helping to
restore soil health while complementing food production and requiring minimal
water. �These crops offer farmers an
additional source of revenue and generate byproducts that can be used as feed
for local livestock and aquaculture, reinforcing both food and energy
resilience.� Importantly, this transition
creates new jobs in agriculture, a sector that will play a vital role in the
State's renewable fuels future and long-term sustainability.� Moreover, local renewable fuel production
supports skilled employment, allowing Hawaii's refinery workforce to adapt and
thrive in a clean energy economy.� These
jobs offer long-term, high-value career pathways for residents and contribute
to workforce development aligned with the State's decarbonization goals.
���� Accordingly, the purpose of this Act is to
fulfill the State's climate commitments by expanding the renewable fuels
production tax credit.
���� SECTION 2.� Section 235-110.32, Hawaii Revised Statutes,
is amended as follows:
���� 1.�
By amending subsection (a) to read:
���� "(a)�
Each year during the credit period, there shall be allowed to each
taxpayer subject to the taxes imposed by this chapter a renewable fuels
production tax credit that shall be applied to the taxpayer's net income tax
liability, if any, imposed by this chapter for the taxable year in which the
credit is properly claimed.
���� For each taxpayer producing renewable
fuels, the annual dollar amount of the renewable fuels
production tax credit during the ten-year credit period shall be equal to [[20]]
35 cents per seventy-six thousand British thermal
units of renewable fuels using the lower heating value sold for
distribution in the State; provided that [[the]]:
���� (1)� The
taxpayer's production of renewable fuels is not less than two billion five
hundred million British thermal units of renewable fuels per calendar year;
provided further that [[the amount of the tax credit claimed under this
section by a taxpayer shall not exceed $3,500,000 per taxable year; provided
further that the tax credit shall only be claimed for fuels with lifecycle
emissions below that of fossil fuels.� No]]
no other tax credit may be claimed under this chapter for the costs
incurred to produce the renewable fuels that are used to properly claim a tax
credit under this section for the taxable year[[.]];
���� (2)� The
tax credit shall only be claimed for fuels that meet the lifecycle greenhouse
gas emissions reduction threshold and product transportation emissions
threshold;
���� (3)� There
shall be an additional credit value of $1.00 per diesel gallon equivalent for
low lifecycle emissions renewable fuels; and
���� (4)� There
shall be an additional credit value equal to $1.00 per gallon if the renewable
fuel is sustainable aviation fuel.
���� Each taxpayer, together with all of its
related entities as determined under section 267(b) of the Internal Revenue
Code and all business entities under common control, as determined under
sections 414(b), 414(c), and 1563(a) of the Internal Revenue Code, shall not be
eligible for more than a single [[ten-year]] credit period[[.]];
provided that taxpayers who previously claimed a tax credit under this section
before July 1, 2026, may claim another tax credit for taxable years beginning
after December 31, 2025."
���� 2.�
By amending subsections (c) and (d) to read:
���� "(c)�
No later than thirty days following the close of the calendar year,
every taxpayer claiming a credit under this section shall complete and file an
independent, third-party certified statement, at the taxpayer's sole expense,
with and in the form prescribed by the Hawaii state energy office, providing
the following information:
���� (1)� The
type, quantity, and British thermal unit value, using the lower heating value,
of each qualified fuel, broken down by the type of fuel, produced and sold
during the previous calendar year;
���� (2)� The
feedstock used for each type of qualified fuel;
���� (3)� The
proposed total amount of credit to which the taxpayer is entitled for each
calendar year and the cumulative amount of the tax credit the taxpayer received
during the credit period;
���� (4)� The
number of full-time and [[number of]] part-time employees of the facility
and those employees' states of residency, totaled per state;
���� (5)� The
number and location of all renewable fuel production facilities within and
outside of the State; [[and]]
���� (6)� The
lifecycle greenhouse gas emissions [[per]] in kilograms of carbon
dioxide equivalent per million British thermal units for each type of
qualified fuel produced[[.]]; and
���� (7)� The
lifecycle greenhouse gas emissions reported to the United States Department of
the Treasury, if different than the emissions reported pursuant to paragraph
(6).
���� (d)�
Within thirty calendar days after the due date of the statement required
under subsection (c), the Hawaii state energy office shall:
���� (1)� Acknowledge,
in writing, receipt of the statement; and
���� (2)� Issue
a certificate to the taxpayer reporting the amount of renewable fuels produced
and sold, the amount of credit that the taxpayer is entitled to claim for the
previous calendar year, and the cumulative amount of the tax credit during the
credit period[[; and]
���� [(3)]� [Provide
the taxpayer with a determination of whether the lifecycle greenhouse gas
emissions for each type of qualified fuel produced is lower than that of fossil
fuels]]."
����� 3.�
By amending subsection (f) to read:
���� "(f)�
The total amount of tax credits allowed under this section for all
eligible taxpayers in the aggregate in any calendar year shall not exceed [[$20,000,000
for all eligible taxpayers in any calendar year.]] the program cap.� In the event that the credit claims under
this section exceed [[$20,000,000]] the program cap for all
eligible taxpayers in any given calendar year, the [[$20,000,000]] total
amount allowed shall be [[divided between all]] allocated to
eligible taxpayers [[for that year]] in proportion to the total amount of
renewable fuels [[produced by all eligible taxpayers.� Upon reaching $20,000,000 in the aggregate,
the Hawaii state energy office shall immediately discontinue issuing
certificates and notify the department of taxation.� In no instance shall the total dollar amount
of certificates issued exceed $20,000,000 per calendar year.]] production
tax credit claims under this section for the calendar year.� No taxpayer shall be eligible for more
credits than allowed under the single producer cap.� The total aggregate amount of additional
credit value for sustainable aviation fuel under subsection (a)(4) shall not
exceed the sustainable aviation fuel additional value cap.� To the extent that the proportional allocation
and applications of the single producer cap and sustainable aviation fuel
additional value cap results in total credits lower than the program cap, the
difference between the program cap and the total shall be allocated to any
remaining eligible claims from taxpayers that have not exceeded either the single
producer cap or sustainable aviation fuel additional value cap in proportion to
the renewable fuels production tax credit claims for those taxpayers in the
calendar year.� To the extent that the
limitations of this subsection reduce the amount of a taxpayer's credit, the
amount of the reduction shall be available to the taxpayer to be used as a
credit in the subsequent calendar year; provided that the credit shall not be
carried over for any calendar year thereafter; provided further that the
carryover credit shall be subject to the limitations of this subsection."
���� 4.�
By amending subsection (o) to read:
���� "(o)� [[As used in]] For the
purposes of this section:
���� "Credit
period" means a maximum period of ten consecutive years, beginning from [[the
first taxable year in which a taxpayer begins renewable fuels production at a
level of at least two billion five-hundred million British thermal units of
renewable fuels per calendar year.]] July 1, 2026. 
���� "Feedstock
transportation emissions threshold" means the carbon intensity
contribution associated with the oceangoing transportation of the feedstock
from the feedstock producer to the renewable fuel producer is less than
      grams per megajoule as determined by the
lifecycle greenhouse gas emissions analysis.
���� "Lifecycle greenhouse gas
emissions" means the aggregate attributional core lifecycle greenhouse gas
emissions values utilizing one of the following:
���� (1)� The
most recent version of the United States Department of Energy's Argonne
National Laboratory's greenhouse gases, regulated emissions, and energy use in
technologies (GREET) model, including agricultural practices and carbon capture
and sequestration; or
���� (2)� Another
lifecycle methodology approved by the Hawaii state energy office.
���� "Lifecycle greenhouse gas emissions
reduction threshold" means a reduction in lifecycle greenhouse gas
emissions of fifty per cent compared to the fossil fuel for which the renewable
fuel is most likely to replace.
���� "Low lifecycle emissions renewable
fuels" means renewable fuel that meets the lifecycle greenhouse gas
emissions reduction threshold, product transportation emissions threshold, and
feedstock transportation emissions threshold.
���� "Net
income tax liability" means income tax liability reduced by all other
credits allowed under this chapter.
���� "Product
transportation emissions threshold" means the carbon intensity
contribution associated with the oceangoing transportation of the finished fuel
from the renewable fuel producer to the final distribution storage facility is
less than       grams per megajoule as determined by
the lifecycle greenhouse gas emissions analysis.
���� "Program cap" means $20,000,000.
���� "Renewable
feedstocks" means:
���� (1)� Biomass
crops and other renewable organic material, including but not limited to logs,
wood chips, wood pellets, and wood bark;
���� (2)� Agricultural
residue;
���� (3)� Oil
crops, including but not limited to algae, canola, jatropha, palm, soybean, and
sunflower;
���� (4)� Sugar
and starch crops, including but not limited to sugar cane and cassava;
���� (5)� Other
agricultural crops;
���� (6)� Grease,
fats, tallows, and waste cooking oil;
���� (7)� Food
wastes;
���� (8)� Municipal
solid wastes [[and]], industrial wastes[[;]], and
construction and demolition wastes;
���� (9)� Water,
including wastewater; [[and]]
��� (10)� Bio-intermediate
ethanol produced from renewable feedstock;
�� [[(10)]] (11) Animal residues and wastes[[,]];
��� (12)� Biogas
or renewable natural gas;
��� (13)� Gaseous
carbon dioxide; and
��� (14)� Renewable
or zero carbon energy resources,
that can be
used to generate energy.
���� "Renewable fuels" means fuels
produced from renewable feedstocks; provided that the fuel:
���� (1)� Is
sold as a fuel in the State; [[and]]
���� (2)� Meets
the lifecycle greenhouse gas emissions reduction threshold; and
��� [[(2)]] (3)� Meets the relevant ASTM International
specifications or other industry specifications for the particular fuel,
including but not limited to:
��������� (A)� Methanol,
ethanol, or other alcohols;
��������� (B)� Hydrogen;
��������� (C)� Biodiesel
or renewable diesel;
��������� (D)� Biogas;
��������� (E)� Other
biofuels;
��������� (F)� Renewable
[[jet fuel or renewable]] gasoline[[;]] or renewable naphtha;
��������� (G)� Renewable propane or renewable liquid petroleum gases;
��������� (H)� Sustainable aviation fuel; or
���� �� [[(G)]]� (I)� Logs,
wood chips, wood pellets, or wood bark.
���� "Single producer cap" means
seventy-five per cent of the total amount of credits allowed in any calendar
year.
���� "Sustainable aviation fuel"
means liquid fuel that:
���� (1)� Consists
of synthesized hydrocarbons and meets the requirements of the American Society
for Testing and Materials International Standard D7566 or D1655; and
���� (2)� Is
derived from renewable feedstocks.
���� "Sustainable aviation fuel additional
value cap" means fifty per cent of the total aggregate amount of renewable
fuels production tax credits allowed in any year."
���� SECTION 3.�
Statutory material to be repealed is bracketed and stricken.� New statutory material is underscored.
���� SECTION 4.�
This Act shall take effect on July 1, 2026, and shall apply to
taxable years beginning after December 31, 2025.
INTRODUCED BY:
_____________________________
Report Title:
Fuel Tax
Credit; Renewable Fuel; Sustainable Aviation Fuel; Renewable Fuels Production
Tax Credit
Description:
Expands
the provisions of the renewable fuels production tax credit.
The summary description
of legislation appearing on this page is for informational purposes only and is
not legislation or evidence of legislative intent.