The sustainable aviation fuel (SAF) industry has seen no shortage of big promises in recent years, with airlines lining up in droves to pledge their support and intentions to incorporate the biofuel into their blends.But those lofty promises will struggle to amount to much if the financial incentives aren’t there for projects to get financed, plants to get built and gallons to be produced.The International Air Transport Association says at least 43 airlines have committed to use about 4.3 billion gallons of SAF in 2030. In the U.S., the Biden administration in its 2021 SAF Grand Challenge set a goal of boosting SAF production to 3 billion gallons per year by 2030, but we’re a very long ways away from that in 2024.Global SAF production was about 160 million gallons in 2023, more than double 2022’s total, according to IATA. Production is expected to more than triple this year to 500 million gallons, but that’s still a drop in the bucket—about half of 1% of global jet fuel demand.So, How Do We Get There?&nbsp;&nbsp; Tax incentives provide a good start. The Inflation Reduction Act of 2022 authorized two-year funding for a $1.25 per gallon credit for SAF blending. That credit is awarded to fuel blends that can reduce carbon emissions by at least 50% compared with conventional jet fuel. For every additional percentage point in reduced emissions, the credit increases by 1 cent, up to a cap of $1.75 per gallon.Beginning in 2025, that tax credit will be replaced by the Clean Fuel Production credit. The CFP will be offered to all transportation fuels with a carbon intensity (CI) score of no more than 50 kilograms of CO2 per MMBtu. To administer that scheme, the secretary of the treasury will publish an annual assessment of the lifecycle emissions ratings of various transportation fuels. Using that assessment, credits will be rewarded at rates of 35 cents per gallon to $1.75 per gallon for SAF. That credit will be in effect through 2026.These tax incentives provide a solid foundation and near-term certainty for prospective SAF producers seeking funding for new projects, but they certainly won’t get them across the finish line.The best way for SAF production to really flourish and achieve those near-term goals out to 2030 is for the fuel to be backed by strong policy support from programs like the Renewable Fuel Standard and California’s Low Carbon Fuel Standard.The SAF industry is currently very much in its infancy stages, all while hearing promises of how much support it’s going to get and praises about how wonderful it is. But it is far from being able to walk on its own.Renewable diesel was just like that a few years ago—think of renewable diesel as SAF’s big brother. It was in its own infancy stages around 2018 or so. At that point, there were just a couple of producers churning out meaningful volumes. But every quarterly earnings call, it seemed like those producers were touting $2 to $3 per-gallon-margins on their breakthrough fuel, while traditional biofuels producers and refiners alike were scraping by on razor-thin margins.More and more refiners and biofuels producers jumped on the bandwagon, announcing projects and making major investments in renewable diesel, not unlike the announcements we’ve seen lately around SAF. Renewable diesel production topped 1 billion gallons for the first time in 2021, more than doubling to around 3 billion gallons in 2023. It may double again two years from now. Notably, renewable diesel production eclipsed biodiesel production in 2023, outsizing a decades-old industry in a matter of a few years.Now, renewable diesel is like a rowdy 6-year-old, full of energy, running around with its mouth covered in Cheeto dust and hitting people in the shins with a stick. But it didn’t get there on tax credits alone.Figure 1 illustrates the combined incentives provided by renewable identification number (RIN) credits under the RFS, credits under California’s Low Carbon Fuel Standard as well as the federal tax credits for a gallon of renewable diesel and SAF. These assume a CI score of 37.93 for renewable diesel and 38.68 for SAF.That combined incentive peaked in June 2021, when a typical renewable diesel producer might have enjoyed a whopping $5.74 per gallon of incentives, thanks to $2 D4 biomass-based diesel RINs and LCFS credits that were worth nearly $200 at the time. That incentive averaged $4.51 per gallon in 2022, $3.79 per gallon in 2023 and tumbled to barely top $2 per gallon in February, when both RINs and LCFS credits were assessed by OPIS at multiyear lows.Frankly, both the RFS and the LCFS programs have been overwhelmed by the surging amount of renewable diesel hitting the market, and their respective targets can’t keep up.For a fuel that can cost anywhere from $5 to $10 per gallon to produce—depending on a wide variety of factors, including production methods, feedstocks used and other inputs—SAF is going to need more help from the RFS and the LCFS to bridge the gap and become a feasible blend for traditional jet fuel.The California Air Resources Board, the agency that oversees the state’s LCFS program, was set to implement more stringent targets in March before postponing that decision in a surprise February announcement that has LCFS bulls hoping for revised targets that would boost prices.The RFS program, which is overseen by the U.S. EPA, has its volumetric targets set through 2025, but market stakeholders are expecting those goals to be easily achieved, hence the tumbling RINs prices. A multiyear proposal for 2026, 2027 and 2028 that better takes into account the projected growth of renewable diesel and SAF would likely be supportive for RINs prices, providing more stable footing for the young fuels.OPIS is a price-reporting agency that launched daily price assessments for renewable diesel and SAF in December 2023 with an aim to provide the growing markets with accurate, fair and transparent price discovery that utilizes bids, offers and trades in the spot market. We’re the benchmark provider of RINs and LCFS pricing, with futures contracts on the Intercontinental Exchange that utilize our assessments for hedging purposes. Author: Jordan Godwin&nbsp;&nbsp; Director of Biofuels Markets,&nbsp;&nbsp; OPIS Dow Jones Company&nbsp;&nbsp; jgodwin@opisnet.com&nbsp; &nbsp;

2024-03-12 - SAF: Ready to Soar (SAF Magazine)

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The sustainable aviation fuel market is poised for takeoff, but overnight growth may be difficult without policy support that renewable diesel enjoyed in its early years.

SAF: Ready to Soar

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