Biden Backs Sustainable Aviation Fuel Tax Incentives as Congress Waits

President Joseph Biden renewed calls this week for a Sustainable Aviation Fuel, or SAF, tax credit, in a strong endorsement for the airline industry’s goal to slash carbon emissions.

“We’re on the cusp of so many significant things that are going to happen in this country — not just in the fuel side, but in the next 10 years,” said Biden. “Your children are going to see more change in the next 10 years than we’ve seen in the last 40 years. That’s how rapidly technology is changing.”

The question, at least for aviation, is whether SAF will takeoff 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 in Fulcrum Bioenergy in 2015 with a 10-year SAF supply commitment that was due to begin in 2017. Fulcrum completed its first plant in 2021 but has yet to begin supplying the airline.

A SAF demonstration flight that United flew to Washington’s Reagan National Airport in December used fuels produced by World Energy, another SAF supplier.

Industry trade group the International Air Transport Association (IATA) has estimated that global SAF production was 26 million gallons in 2021. A seemingly sizable number but a fraction of 1 percent of pre-pandemic global jet fuel demand.

European airlines are also mounting pressure on their governments to back SAF production. Luis Gallego, CEO of British Airways and Iberia-parent International Airlines Group (IAG), said at the end of March that 30 SAF plants could be built across Europe by the end of the decade with “the right policy in place.” SAF could make up as much as 5 percent of global aviation fuel supplies by 2030 with support, he added.

And in South America, Latam Airlines Group CEO Roberto Alvo recently called on government and private industry to “collaborate, play their role and lead 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 globe was only on track to produce just 1 billion gallons of SAF annually by the second half of the decade. A big increase from current levels but still just 1 percent of aviation fuel use.

“You are seeing some encouraging changes in the UK, and a change in U.S. policy in terms of production incentives [that] will go a long way,” she said Thursday. A federal tax credit or other incentives could boost SAF production above the 1 billion gallons forecast, Syth added.

The airline industry has coalesced around SAF to cut emissions. The fuels are seen as the quickest and most effective near-term solution to significantly reduce the use of fossil fuels. The technology exists to create sustainable fuels, which can be derived from a number of feedstocks including wood chips, switchgrass, and municipal solid waste, but significant capital is needed to scale up production. These fuels must meet full-lifecycle sustainability metrics, for example they cannot be overly water intensive or use feedstocks that compete with food production.

Other methods of decarbonizing aviation, including renewing airline fleets with more gas-sipping jets and buying carbon offsets, are viewed as limited. Offsets, for example, face criticism over whether they actually result in the carbon savings promised. And electric aircraft, which have a big backing in Silicon Valley, are not expected to reach a level of technology maturation to materially reduce aviation emissions for at least a decade if not more.

How President Biden’s call for a SAF tax credit becomes law is the question du jure in Washington, D.C. Last year, Representative Brad Schneider (D-Ill.) introduced the Sustainable Skies Act that provide an up to $2 per gallon tax credit for sustainable fuels. The legislation remains pending despite bipartisan support from at least 70 other representatives. Though, in typical Capitol Hill fashion, the proposal could be tacked onto a larger budget or other bill.

“If the U.S. is serious about this shift for airlines from fossil fuels to net zero carbon emissions by 2050, this is a must have not a nice to have,” Cowen & Co. analyst Helane Becker said.