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The new climate law will help clean up air travel

The Inflation Reduction Act, which passed Congress this week, will provide new tax credits and research funding for sustainable aviation fuel.

An aircraft fueler in Chicago supplies sustainable aviation fuel for a United Airlines flight. (United)
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Editor’s note, August 12: This story was originally published on August 8, 2022. It has been updated to reflect passage of the bill by Congress.

As aviation companies develop the first hydrogen-powered jets and electric regional aircraft, a more immediate way to curb the industry’s climate pollution is to burn sustainable aviation fuel.” Made from waste materials such as used cooking oil, landfill gas and forest residue, the fuels can be blended with fossil jet fuel and used in existing engines. The problem is that today’s sustainable supplies amount to a tiny drop: well below 1 percent of global jet fuel demand.

This week, the House and Senate approved a climate and tax law with nearly $370 billion to help decarbonize the U.S. economy, including funding to swiftly boost U.S. production of sustainable aviation fuel (SAF). The Biden administration has previously called for increasing SAF production in the U.S. to at least 3 billion gallons per year by 2030. That’s nearly 100 times more than the entire world will produce this year.

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Known as the Inflation Reduction Act, the law includes two key provisions that experts say will multiply the nation’s SAF supply.

First, fuel companies will receive tax credits worth $1.50 per gallon for sustainable fuels with 50 percent lower life-cycle greenhouse gas emissions than standard jet fuel. The greater the emissions reduction, the more money producers can earn, up to $1.75 per gallon. Those calculations account for the fuel’s induced land-use change value,” meaning the emissions created by displacing crops or natural areas to produce fuel feedstocks. The idea is to favor fuels that don’t compete with food production or environmental conservation. 

The law’s second provision dedicates nearly $300 million in research and development grants to initiatives that make, transport, blend or store SAF, as well as projects to develop fuel-efficient aircraft or otherwise reduce emissions from flying. 

The grants will also support fuel makers, airlines and engine manufacturers in their efforts to achieve 100 percent SAF use during flight. Today, the amount of SAF that can be blended with conventional fuel is limited to 50 percent. That’s primarily because existing sustainable fuels don’t meet the industry’s criteria for jet fuels, and industry regulators want to ensure all fuels are compatible with aircraft engines and infrastructure worldwide. Companies are developing new synthetic compounds and refining engine technologies to enable fossil-fuel-free flights.

How much would the SAF incentives actually help? 

Airline CEOs and industry trade groups expressed support for the climate law’s aviation provisions, saying the policies would spur much-needed investments to reduce the environmental toll of flying people and cargo. Commercial planes and business jets account for roughly 3 percent of total U.S. greenhouse gas emissions, a share that’s on track to soar as passenger travel grows.

A United flight in December 2021 used only sustainable aviation fuel in one of its two engines. (United)

The fuel tax credit is a welcome recognition of the role SAF plays and the challenges it faces,” Chris Cooper, president of Neste​’s U.S. division, said by email. The global parent company is the world’s largest producer of alternative diesel and jet fuel. 

Aviation fuel analysts said the R&D program in particular would help spur innovation and fuel production over the long run. But they offered mixed perspectives on how effective the tax credit would actually be at scaling U.S. production from millions of gallons to billions of gallons per year in the near future.

One key issue is the tax credit’s narrow timeline. As written in the new law, the incentive only applies to SAF produced after Dec. 31, 2024 and sold before Dec. 31, 2027. That isn’t necessarily a problem for existing SAF makers, who primarily produce their fuel from hydroprocessed esters and fatty acids — a category that includes pork fat, beef tallow and the yellow grease collected from fast-food kitchens. 

But the world only discards so much burger grease. In order for SAF to scale, producers will need to develop new methods for making fuel from new materials. California-based startup Twelve is making its E-Jet” fuel from carbon dioxide that’s captured from places like pulp and paper mills and ethanol refineries. Irish startup XFuel is producing sustainable jet fuel using waste materials from construction, forestry and agriculture. Global producer Neste is exploring making SAF from municipal solid waste and algae.

Building and operating a first-of-a-kind refinery at commercial scale will likely take more than five years’ time, said Nik Pavlenko, who leads the fuels program at the International Council on Clean Transportation in Washington, D.C.

It’s quite possible that [a new refinery] won’t even produce its very first gallon of fuel before this tax credit is already phased out,” he said. Whether for conventional or novel types of SAF, the tax credit won’t do very much to support SAF production at all.”

A jar of clear liquid
Startup Twelve makes "E-Jet" fuel from CO2 using an electrochemical process. (Twelve)

Daisy Robinson, head of renewable fuels at BloombergNEF in London, said policy longevity and certainty are especially important for the small companies looking to finance development of new technologies. Not knowing what support is going to be on offer when your project actually comes to fruition is quite a challenging environment,” she said. 

Still, U.S. policymakers historically have extended or reinstated tax credits for renewable diesel — which is blended with petroleum-based diesel in cars and trucks — suggesting that Congress might later extend the SAF tax credit beyond 2027

Robinson noted that existing renewable fuel policies at the federal level and in California offer more incentives for biofuels used in road transportation than in aviation. This law could help level the playing field. It’s definitely a step in the right direction, in terms of supporting the nascent SAF industry,” she said.

Aamir Shams of the think tank RMI was even more optimistic, saying that the aviation provisions could keep the U.S. industry on track to meet the Biden administration’s goal of 3 billion gallons of SAF by 2030. This should really help get projects going,” said Shams, a senior associate in RMI’s Climate-Aligned Industries program in Denver. (Canary Media is an independent affiliate of RMI.)

Will SAF compete with biodiesel?

Beyond the timeline, another sticking point for the SAF tax credit is whether it will simply encourage producers of renewable diesel for vehicles to use their feedstocks — like spent french-fry oil or, more problematically, corn or soy crops — to make aviation fuel instead. If it did, would there be any net benefit for the climate? Industry groups representing America’s truck stops and gas-station retailers have argued that, because SAF is more energy-intensive to produce than biodiesel, the tax credit risks undermining Congress’ broader climate goals.

When it comes to sustainable fuels, however, prioritizing aviation over road transportation is a better strategy for addressing climate change, experts say.

The heavy-duty trucking sector already has promising alternatives for decarbonizing, such as vehicles that run on batteries and hydrogen. A recent RMI analysis found that 65 percent of medium-duty and nearly half of heavy-duty trucks in North America could be electrified today using existing electric-vehicle technology. 

Aviation, meanwhile, is still potentially decades away from ditching the combustion engine. Researchers at the International Council on Clean Transportation recently found that, even in an aggressive carbon-cutting scenario, SAFs could still account for nearly four-fifths of aviation’s total energy demand by 2050. Hydrogen would supply about one-fifth of demand, while batteries would contribute a negligible amount.

These biofuels are very important in the short term to decarbonize aviation,” Shams said. When it comes to cleaning up this notoriously hard-to-abate sector, the only way forward with the current state of technology is SAFs.”

Maria Gallucci is a clean energy reporter at Canary Media, where she covers hard-to-decarbonize sectors and efforts to make the energy transition more affordable and equitable.