President Biden supports sustainable aviation fuel incentives as the airline industry seeks to reduce emissions. But the legislation remains stuck on Capitol Hill with little clarity on how it will become law.
President Joseph Biden renewed calls this week for a Sustainable Aviation Fuel Tax Credit, or SAF, as part of a strong endorsement of the airline industry’s goal to reduce carbon emissions.
“We’re on the cusp of so many big things that are going to happen in this country — not just on the fuel side, but over the next 10 years,” Biden said. “Your kids are going to see more change in the next 10 years than we’ve seen in the last 40 years. That’s how fast technology moves.
The question, at least for aviation, is whether SAF will take off in the next decade as the president hopes. The sector has a disappointing history of big promises and missed targets. For example, United Airlines first invested into Fulcrum Bioenergy in 2015 with a 10-year SAF supply commitment that was due to start in 2017. Fulcrum completed its first plant in 2021 but has not yet started supplying the airline.
Industry trade group the International Air Transport Association (IATA) estimated global SAF production to be 26 million gallons in 2021. A seemingly huge number, but a fraction of 1% of demand world of jet fuel before the pandemic.
European airlines are also increasing pressure on their governments to support the production of SAF. Luis Gallego, CEO of British Airways and International Airlines Group (IAG), parent company of Iberia, said in late March that 30 SAF factories could be built across Europe by the end of the decade with “the good policy in place”. SAFs could account for up to 5% of the world’s aviation fuel supply by 2030 with support, he added.
And in South America, Latam Airlines Group CEO Roberto Alvo recently appeals to government and private industry to “collaborate, play their part and drive the energy transition” to make the continent a leader in SAF production.
Savanthi Syth, an aviation analyst at Raymond James, estimated last June that – barring additional government support – the world was only on track to produce just 1 billion gallons of SAF per year. by the second half of the decade. A big increase from current levels, but still only 1% of aviation fuel burn.
“You see encouraging changes in the UK and a change in US policy in terms of production incentives [that] will go far,” she said Thursday. A federal tax credit or other incentives could boost SAF production above the forecast 1 billion gallons, Syth added.
The airline industry has rallied around SAF to reduce emissions. Fuels are considered the quickest and most effective short-term solution to drastically reduce the use of fossil fuels. The technology exists to create sustainable fuels, which can be derived from a number of feedstocks including woodchips, switchgrass and municipal solid waste, but significant capital is needed to scale up production. These fuels must meet full life-cycle sustainability measures, for example, they cannot be too water-intensive or use raw materials that compete with food production.
Other methods of decarbonizing aviation, including renewing airline fleets with more gas-powered planes and purchasing carbon offsets, are considered limited. Offsets, for example, are subject to criticism as to whether they actually deliver the promised carbon savings. And electric planewho have great support in Silicon Valley, are not expected to reach a level of technological maturity capable of significantly reducing aviation emissions for at least a decade, if not longer.
How President Biden’s call for an FAS tax credit becomes law is the de jure question in Washington, D.C. Last year, Rep. Brad Schneider (D-Ill.) introduced the Sustainable Sky Act which offer a tax credit of up to $2 per gallon for sustainable fuels. The legislation remains pending despite bipartisan support from at least 70 other representatives. However, in typical Capitol Hill fashion, the proposal could be added to a larger budget or another bill.
“If the United States is serious about this shift of airlines from fossil fuels to net zero carbon emissions by 2050, it’s a must, not a treat to have,” said analyst Helane Becker. at Cowen & Co.