How Multiple SAF Incentives Impact The Green Premium

Written By Emily

Displacing conventional, petroleum-based jet fuel with sustainable aviation fuel (SAF) presents a promising avenue for directly mitigating aviation's emissions. However, the journey towards SAF adoption is multifaceted, encompassing challenges ranging from production costs to supply chain resilience. Policy intervention has emerged as a key building block to a successful SAF scale-up over the coming decades. To comprehend the role of policy and its effectiveness, it is crucial to understand why SAF costs what it does and how the industry can leverage multiple incentives at once to reduce prices. 

What is the Green Premium? 

Central to the discussion of SAF is the concept of the green premium—the price difference between conventional JetA fuel and blended SAF. Often times it is not the overall price of SAF that matters as how it relates to JetA. For instance, if JetA is $8 per gallon and SAF is $9.50 per gallon, the extra cost of using SAF or the green premium of SAF is $1.50 per gallon.  

This premium serves as a crucial metric in assessing the economic viability and adoption of SAF and can vary significantly across different locations and operators. While some might be able access SAF for a modest premium of $0.30 per gallon over JetA, others might face premiums exceeding $5.00 per gallon. This variability underscores the importance of strategic localized and stackable incentives, ultimately driving down the cost of SAF to levels comparable to or even at price parity with JetA. 

Several factors contribute to the current cost disparity, including capital-intensive production pathways, technological risks, and certification complexities. Additionally, the scarcity of current SAF production facilities exacerbates market prices beyond the production cost premium alone. 

The Role of Policy 

Policy plays a pivotal role in shaping the landscape for SAF adoption. The US policy approach for SAF aims to stimulate supply through incentives (often referred to as “the carrot-approach”) to foster research and development, reduce the cost of production, and motivate consumers to uplift. Thus far, US regulatory support primarily targets producers, with the goal of reducing the cost for end-users downstream. 

It’s been suggested that SAF warrants its own policy treatment outside of other renewable fuels, for several reasons: First, aviation’s forecasted growth rate underscores the urgency of implementing sustainable alternatives (ICAO suggests global growth over 4% annually over the next 20 years). Second, while alternatives like battery-powered and hydrogen-fueled aircraft hold potential, their expected penetration remains limited to short and medium haul transport, emphasizing the importance of SAF. Thirdly, SAF presents a substantial opportunity for addressing aviation emissions (ATAG’s report suggests that SAF will likely account for 53-71% of the industry’s decarbonization by 2050). 

Simultaneous Credit Fulfillment Explained  

To reduce the green premium of SAF, stakeholders have turned to a method where a quantity of SAF can fulfill multiple regulatory or voluntary compliance scheme requirements simultaneously. Many incentives for SAF are designed to overlay and stack onto other credits, allowing an individual gallon of SAF to be eligible for multiple national, sub-national, and local incentives. In locations where these incentives can be combined, stakeholders can significantly mitigate the cost disparity between SAF and conventional Jet A fuel. The following table provides an overview of the diverse range of credits available for stacking within the United States, showing the multifaceted approach to incentivizing SAF production and adoption: 

These incentives, tailored to encourage various production pathways or delivery points, have different requirements and pertain to different users—they cannot all be claimed on the same gallon of fuel but many can be applicable in combination. It's also crucial to recognize that each of these incentives has additional specific requirements that must be met for credits to be claimed, ensuring the integrity and effectiveness of the incentive mechanisms. 

In addition to the incentives listed above, many additional loan or funding programs exist to assist in SAF plant construction or capital needs, helping to also reduce the end cost, but typically with smaller per gallon impacts than the programs above. 

Washington is a good example of a state with great future potential to reduce the SAF green premium, as the following credits could be applicable on a single gallon: 

  • When imported or refined in accordance with the specific requirements of the US EPA’s Renewable Fuel Standard (RFS), it generates a Renewable Identification Number (“RIN”). 

  • If the fuel is produced with a minimum reduction of 50% in lifecycle greenhouse gas emissions, the producer or blender can qualify for the SAF Blenders Tax Credit. 

  • If the fuel is produced in Washington and meets a carbon intensity below the current benchmark, it can qualify for the state's Clean Fuel Standard, generating additional credits within the system.  

  • If the fuel is produced in Washington with a minimum reduction of 50% in lifecycle greenhouse gas emissions, it could qualify for a $1.00-$2.00 reduction from the Washington SAF Tax Credit. This could be claimed by either the producer or aircraft operator, but only once on a given gallon of fuel.  

In another example, we can visualize how the price of a liter of SAF produced via municipal solid waste might be reduced by stacking a variety of incentives:

Image Description: Graph showing a municipal solid waste facility that could combine a $75 million capital grant, three BTC incentives, RINs, and LCFS. The baseline cost is without incentives, and the gray area is the traditional jet price range. By stacking incentives, the price per liter comes within $0.25 of traditional jet fuel. 

Source: Frontiers | Cumulative Impact of Federal and State Policy on Minimum Selling Price of Sustainable Aviation Fuel (frontiersin.org), Figure 8: Progressive impact of incentives on FT-MSW SAF MSP for pioneer plants.

Will There Ever be Price Parity with JetA? 

While fulfillment of multiple credit incentives presents an exciting opportunity for reducing the green premium, SAF still has a considerable distance to cover before achieving price parity with conventional JetA. ‘Stackable’ credits play a vital role in making SAF financially viable and reducing risk for adoption, highlighting the indispensable role of policy support.  

Additionally, demonstrating technologies at a pre-commercial scale is essential to mitigate technology risk. Entities like the Department of Energy (DOE) are actively involved in scaling multiple pathways to increase capacity and reduce overall risk in SAF production. 

Despite these challenges, the price of SAF is likely to continue varying from airport to airport, mirroring the variability seen with JetA. Leveraging the book and claim mechanism allows SAF to be delivered to an airport close to its production point, minimizing costs and maximizing sustainability benefits. This approach proves to be the most cost-effective way to initiate SAF usage, capitalizing on delivery benefits and linking interested buyers with physical supply, even when it's not readily available. This process also enables incentives to be maximized by delivering fuel to airports with the best net price. 

In light of these considerations, the significance of tax credits, including state-level incentives, cannot be overstated. These incentives will play a crucial role in providing consistent support for new supply, aiding in project finance-ability, and bridging the green premium gap between SAF and fossil jet fuel. 

Claiming SAF for Business Aircraft Operators 

Because most US regulatory support primarily targets SAF farther upstream in the fuel supply chain, business aircraft operators will primarily be concerned with claiming the emissions reductions toward the end of the supply chain. SAF can support both voluntary and regulatory end-use emission reduction claims that can stack on top of upstream credits, further driving down the net green premium. However, each framework comes with its own set of rules, requirements, documentation, and recordkeeping needs. 

First, in order to access claims from the SAF, an operator must have legal title to the emission reduction claim. In general, if you don’t pay the green premium, you can’t claim the SAF. Many locations comingle SAF with conventional fuel to streamline storage and distribution. Even if an airport carries physical SAF, operators must ensure that their invoice lists SAF, along with the required documentation to support its sustainability attributes, before claiming it.  

Through robust recordkeeping, often through fuel management software or a SAF registry, aircraft operators can confidently claim reductions from SAF to further reduce the green premium of using it.  

Some policies are designed to fit and work together, but not all of them. It is easy to understand when thinking about different levels of jurisdiction. For example, an entity would obviously not be able to claim a state delivery tax credit from Nebraska and California on the same gallon. This concept arises from regulation from overlapping jurisdictions that share responsibility for the emissions from a particular gallon. A nation, state and airport are each responsible for the emissions within their purview and can create programs that encourage reducing emissions in their jurisdictional boundary. Policies can be designed to complement one another and where these policies overlap most beneficially is likely to be where the most SAF gets deployed. 

Understanding which policies can be stacked versus which ones are unrelated or out of scope from each other is critical, and the use of multiple regulatory incentives is a powerful tool to bridge the SAF green premium and reduce the cost of adopting SAF.

 
Emily
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