National Regulations to Increase SAF Use

In our recent article entitled “Where is the SAF going to come from?”, we explained how facilities designed to produce renewable diesel (RD) can be designed or modified to produce significant volumes of sustainable aviation fuel (SAF). Since SAF is more expensive to produce than RD using this technology (known as HEFA or hydrogenated esters fatty acids)[1], additional lasting incentives for investments are required to assure significant production levels. In this article, we examine the different types of incentives that could be used and describe their strengths and weaknesses. We also examine the key issue of how these incentives impact increasing SAF use versus reducing carbon emissions.

We have identified at least three general types of policies that could create incentives for SAF production and use – a volume mandate, a low carbon fuel (LCF) program which includes aviation fuels, and the inclusion of aviation fuel in the Renewable Fuel Standard (RFS). Each policy approach involves trade-offs between cost, level of carbon reduction, and volume of SAF used. These trade-offs are complex and, as with all regulations of this sort, the devil is in the details! Let’s look at each option in turn.

SAF Blending Mandate. SAF production and consumption levels in the U.S. are currently quite small. In 2022, U.S. SAF production was just 0.13% of U.S. jet fuel consumed as shown in the figure below.

Since current levels are near zero on a national basis, enforced levels of a SAF blending mandate would have to be very low to start but could eventually be raised to 5% or more as production comes online. The parties obligated to comply could either be the airlines or the fuel suppliers, but it’s clear that the airlines would bear the costs required in excess of any other incentives provided by state and federal programs to assure sufficient production volumes. These costs would be passed through to the customer (i.e., added to the price of air travel which is known to have a higher demand elasticity than gasoline); as such, demand for air transportation could be impacted significantly.[2] If implemented successfully, a SAF blending mandate has the benefit of assuring pre-determined, quantifiable increases in SAF consumption. However, a simple blending mandate may also result in SAF production with lower carbon reductions than an LCF or RFS program because volume mandates lack the added value for increased carbon reduction offered by an LCF program or the required minimum carbon reduction required for qualification under the RFS. If the higher costs added to jet fuel reduce air travel, carbon emissions from flying would be reduced further, but at the cost of impacting local economies dependent on tourism and with a likely increase in emissions from the use of automobiles as an alternative to flying.

Expanded RFS. The RFS could be modified to include SAF by expanding the advanced and total RINs obligations in the program by the same amount. Then all the obligations would be based on Gasoline (G) plus Diesel (D) plus Jet (J) volumes rather than just G+D as is currently the case. This method has the challenge that RINs from RD could meet most of the category requirements which could result in more increases in RD than SAF volumes. The nesting of RINs associated with this option is shown in the figure below.

Another approach would be to establish a new RIN type for SAF that would be included as an advanced biofuel. This would mean the minimum volumes would be met as the SAF RIN type would price high enough to assure it would happen, but it also means that the costs added to jet fuel could be greater than those added to diesel. The nesting of RINs associated with creating a new SAF RIN (called DJ here) is shown in the figure below.

This second option likely results in higher SAF volumes than a simple blending mandate but at potentially a higher cost added to jet fuel.

A National LCF Program. Under an LCF program, like California’s Low Carbon Fuel Standard (LCFS), the focus is on carbon reductions and not the volume of SAF used. A national LCF program might be difficult to implement, but it has advantages in terms of minimizing the costs of carbon reduction in the transportation sector. Petroleum gasoline, diesel, and jet fuel would create deficits that would have to be offset by credits generated from low-carbon fuels such as ethanol, biodiesel (BD), RD, SAF, renewable natural gas (RNG), and electricity used to power the transport sector. The sectors that are least expensive to decarbonize achieve higher carbon-reduction levels and the extra credits are used to offset deficits generated in the other sectors. Accordingly, a national LCF program, by itself, does not assure attainment of specific SAF volumes. However, this could be combined with a blending mandate to achieve the specified volumes while simultaneously incentivizing the use of larger volumes of lower carbon SAF produced from renewable feedstocks.

Alternately, a separate LCF program could be implemented for jet fuel. This would require progressive reductions in carbon intensity of the total jet fuel consumed, so SAF credit would specifically offset deficits generated by jet fuel. This incentivizes production of lower carbon SAF, results in attaining the greatest reduction in carbon emissions for the costs required, and results in lower overall SAF volumes if larger quantities of lower carbon waste feedstocks are available.

Conclusion. The existing combination of incentives created in the U.S. by the RFS, the Inflation Reduction Act (IRA), state LCF programs, and state SAF incentives have caused several RD producers to consider maximizing SAF production, but the jury is still out as to how much the volume of SAF production will grow over the next few years. The current incentives are enough to justify some switching from RD to SAF production. Since some of these programs expire in just a few years, however, producers are challenged to justify capital expenditures to expand SAF production with investments that typically require ten years or more to pay off. Establishment of longer-term incentives like those outlined above would enable more investments, but these policy frameworks are complicated and require coalition-building, careful thought concerning potential outcomes, and acceptance of the potential costs.

If you have questions or would like advice about SAF incentives and how they might impact your business, contact Stillwater!