Quick Takes: U.S. Ambitions for Sustainable Aviation Fuel Face Turbulence Amid Low Margins and High Costs

November 1, 2023 Written by: Aviation Seminars

Sustainable Aviation Fuel United Airplane

The United States is navigating a bumpy ride in its quest to significantly boost the production of Sustainable Aviation Fuel (SAF) due to producers recoiling at the low profit margins associated with the biofuel and airlines expressing apprehensions over the expensive transition, as per industry experts.

President Joe Biden, with climate action as a focal point of his tenure, initiated a bold challenge in 2021 aiming to ensure a supply of at least 3 billion gallons of SAF annually by 2030. This objective marks a monumental increase from the existing 15.8 million gallons, according to official US figures.

Sustainable Aviation Fuel Pump

However, forecasts by S&P Global Commodity Insights project the US production of SAF will reach 2.1 billion gallons by 2030, considering the upcoming projects, falling short of the ambitious target.

“There’s a substantial investment gap to reach that 3 billion gallon mark,” noted Gordon McManus, an analyst from Wood Mackenzie.

The spotlight is on SAF as the U.S. Energy Department stated that other alternative fuels like battery technologies and hydrogen may not significantly curb aviation emissions until post-2050.

According to Corey Lavinsky from S&P Global Commodity Insights, the set goals focus on domestic production rather than consumption.

“At present, the cost differential may deter an airline from opting for SAF over conventional jet fuel. Making SAF usage mandatory could change this narrative,” explained Lavinsky.

The current market prices underscore this dilemma with traditional jet fuel priced at around $2.85 per gallon, while SAF stands at $6.69 per gallon, based on data from Argus Media.

Leading airlines like Delta Air Lines and Southwest Airlines aspire to substitute 10% of jet fuel with SAF by 2030. Yet, SAF’s share in the total US jet fuel pool is a mere 0.1% presently.

Zero Emissions by 2030

The hurdles of escalating costs and supply constraints are significant, and more backing is required for the industry to achieve the net zero emissions goal by 2050, as revealed by a survey commissioned by GE Aerospace.

Unlike the US, European regulators have enacted a mandate to ascertain SAF comprises 2% of fuel at EU airports by 2025, escalating to 6% in 2030, 20% in 2035, and eventually 70% in 2050.

Oskar Meijerink from Dutch company SkyNRG, involved in constructing a SAF plant in the US, remarked, “A robust policy framework, not necessarily mirroring the European model, is vital to facilitate this transition.”

Currently, SAF producers can avail a tax credit of up to $1.75 per gallon under the Inflation Reduction Act (IRA), but analysts argue this might not sufficiently counterbalance the thin margins.

“Given the current scenario, producers might find it challenging to invest additional capital for SAF production over renewable diesel,” McManus pointed out, highlighting that both fuels can be derived from similar feedstocks.

The high project costs for SAF owing to the extra processing needed for the biofuel and the tight supply of feedstocks like cooking oil further compound the challenges.

In parallel, the Biden administration is mulling over the part ethanol plays in the aviation fuel subsidy program. A decision on easing the qualification for SAF produced from corn-based ethanol for IRA subsidies is likely to be postponed till December.

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