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California Governor Gavin Newsom's proposed 2026-27 state budget introduces a tax credit aimed at promoting sustainable aviation fuel (SAF) production. This measure would create a tax credit against diesel excise tax liability to encourage in-state SAF production, which offers a lower-carbon alternative to conventional jet fuel.

The initiative supports California's climate and air-quality goals by incentivizing private investment in clean transportation fuel technologies. The tax credit aims to reduce the tax burden for SAF producers, making these fuels more competitive with petroleum-based jet fuels and stimulating innovation in a sector responsible for significant transport-related emissions. The proposal is part of a broader budgetary strategy to promote sustainable industries, pending approval by the state legislature.