US SAF stakeholders call for coordinated support

Government needs to provide stronger and more harmonized regulation to encourage sustainable aviation fuel (SAF) production in the US, according to a number of industry stakeholders.

The high cost of SAF compared with conventional jet fuel requires federal and state regulatory policy to help minimize risks for SAF plant investors, said Bruce Fleming, chief financial officers of SAF producer Montana Renewables at the Argus North American Biofuels, LCFS and Carbon Summit today.

But while there is broad support, a "tapestry of different regulations, with important details materially at odds" is creating an unstable regulatory environment, he said.

Producers have a roughly 10-year recovery period on investments, according to Fleming, so investors require long-term certainty of their return through offtake agreements and support from lawmakers, but this has thus far been inconsistent.

On a federal level, there's a "donut hole" in the proposed switch in incentives from the current blenders' tax credit to the new 45Z clean fuel production tax credit which is due to be implemented from 1 January 2025, said Fleming. But detailed guidelines for the new credit have not yet been released, and it is only guaranteed until 2028, rather than for the 10 or more years that would smooth investors' risk profile.

Meanwhile the Environmental Protection Agency has signaled it will miss its statutory deadline to [finalize 2026 biofuel blending targets, creating further confusion, Fleming said.

Mismatch internationally, locally

US policies are also somewhat at odds with other regions, notably the EU which is mandating 2pc SAF in the jet fuel mix from next year, which could draw US volumes away from the domestic pool.

On a local level, different US states are going at different speeds with regards to their low carbon fuel standard programs and the feedstocks they will accept, injecting further complexity in the calculations for SAF producers and airlines.

Illinois, for example, is implementing a $1.50/USG credit but is capping the volume of soybean-derived SAF and making it only available to airlines operating in the state rather than producers — at odds with similar schemes in California, Washington and Oregon.

Tax incentives also need tweaking to encourage flexibility in manufacturers to produce SAF rather than renewable diesel, said Sean Newsum, Airlines for America Managing Director of Environmental Affairs.

Renewable diesel consumption has grown so quickly in markets such as California because the mix of RINs and LCFS credits essentially meant customers are paying no premium for the product over fossil fuel diesel, Newsum said. Now even stronger incentives are required to lower the final cost airlines are paying for SAF to close the price gap over jet fuel, and push producers towards renewable aviation rather than road fuels.

The uncertain regulatory environment means the US is due to fall far short of its SAF Grand Challenge target to supply 3bn USG/yr in the domestic market by 2030, according to speakers at the conference and Argus analysis, rising up to 35bn USG/yr by 2050.

There is 3.5bn USG/yr of SAF production capacity planned by 2030, according to Argus data, but only around 90mn USG/yr is currently operational and 535mn USG/yr of the planned projects are categorized as "firm" — meaning there is a relatively high degree of confidence they will move forward. The rest are either seen as only "provisional" or "very provisional" given the difficulty in answering the risk questions posed.

By Amandeep Parmar