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It's Not Enough - SAF Production Will Need More Than the IRA Tax Credit to Really Take Off

Around the world, there’s a strong push to put aviation on a more sustainable footing and reduce the industry’s greenhouse gas (GHG) footprint. Increasing the production of sustainable aviation fuel (SAF) — a close cousin of renewable diesel (RD) — is key to this effort. But while the economic case for producing RD in the U.S. has been compelling for some time thanks to government subsidies, the returns on investment for producing SAF appear more dubious, despite a seemingly generous production tax credit for SAF in the Inflation Reduction Act (IRA). As we discuss in today’s RBN blog, the incentive for making jet fuel is likely too small — and too short-lived — to overcome the higher cost of production for SAF compared to RD, and additional incentives may be needed to spur meaningful increases in SAF production.

Jet fuel is the planet’s third-most consumed transportation fuel, totaling about 7 MMb/d globally. Although worldwide consumption of jet fuel is significantly less than diesel (28 MMb/d) and gasoline (24 MMb/d), it represents a respectable 12% of these “Big Three” clean transportation fuels. In the U.S., jet fuel accounts for a similar portion. Therefore, its considerable volume presents a valid target for carbon reduction. Many airlines have set “net-zero-by-2050” targets and (many would argue) the increased use of SAF would have more of a climate impact than carbon offsets. So, when combined with the environmental objectives of consuming airlines, there seems to be a case to be made for SAF. But is it economic to produce?

As we said in Sail Away, SAF and RD not only provide lower-carbon, renewable-based alternatives to petroleum-based jet fuel and diesel, respectively, they are also the chemical twins of those widely used fuels and therefore can serve as “drop-in” replacements for them. Further, SAF and RD (like traditional jet fuel and diesel) have similar — but not identical — chemical makeups, with the specs for SAF (like jet fuel) reflecting the special needs of jet engines and jet aircraft (such as a very low freeze point).

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