425: US SAF Deployment Hampered by Regulatory Inefficiencies, Producers Say

US sustainable aviation fuel (SAF) deployment is being slowed by regulatory inefficiencies, leading producers to target markets with mandates like the EU, according to industry members.

Summary

• Current US policy incentives are insufficient to support the rollout of sustainable aviation fuel (SAF), causing producers to focus on markets with mandates.
• The US relies on voluntary measures to incentivize SAF adoption, which is less effective than mandates in the European Union.
• Mihir Dange, CEO of XCF Global, stated that SAF production would likely move to Europe due to higher pricing models associated with mandates.
• The EU's Refuel EU legislation mandates fuel suppliers to incorporate 2% SAF in 2025, 6% in 2030, and 70% in 2050.
• The UK will require SAF to comprise 2% of jet fuels in 2025, increasing to 10% in 2030 and 22% in 2040.
• The US offers tax credits for SAF production, such as the existing 40B ($1.25/gallon) and the upcoming 45Z ($1.75/gallon).
• Jeremy Baines of EcoCeres suggests a global system, whether mandate or incentive, for a level playing field.
• United Airlines' chief sustainability officer has also called for policy alignment across jurisdictions.
• Analytics group cCarbon projected a 30-fold surge in SAF production by 2030, with North America holding the largest share at 36%.
• US airlines like Southwest and United have fallen short of their pledges to boost SAF usage.
• IATA forecasts the airline industry's net profits in 2024 to reach $30 billion, a 3% net profit margin or $6 per passenger.
• The sector's transition costs to achieve net zero by mid-century are estimated to rise from $1.4 billion in 2025 to $744 billion in 2050.
• California's Low Carbon Fuel Standard (LCFS) proposals are considered 'consumer-centric' and have disappointed SAF producers.
• LCFS credit prices for prompt delivery averaged $64.39 through the first half of April and have been above $65 since the beginning of October.
• Existing inefficiencies in the US may impede SAF growth, potentially moving viable SAF to jurisdictions with mandates in the near term.

Sentiment

Score: 5

Explanation: The sentiment is neutral. While there's projected growth in the SAF market, the article highlights significant challenges and inefficiencies in the US regulatory environment, potentially hindering progress.

Positives

• The US offers tax credits for SAF production, including $1.25/gallon under 40B and $1.75/gallon under 45Z.
• cCarbon projects a 30-fold surge in SAF production by 2030, with North America claiming 36% of the market.
• IATA forecasts the airline industry's net profits in 2024 to reach $30 billion.

Negatives

• US SAF deployment is hindered by regulatory inefficiencies, prompting producers to target markets with mandates.
• US airlines like Southwest and United have fallen short of their pledges to boost SAF usage.
• California's LCFS proposals are seen as 'consumer-centric' and lacking support for SAF producers.

Risks

• Regulatory inefficiencies in the US may impede SAF growth, potentially moving viable SAF to jurisdictions with mandates.
• Airlines are resistant to mandates due to concerns about rising fuel prices and lower margins.
• The sector's transition to net zero by mid-century is estimated to cost $744 billion by 2050, posing a significant financial challenge.
• US SAF potential may not be fully realized without advancements in policy, production, and prices.

Future Outlook

The SAF market is projected to experience a 30-fold surge in production by 2030, but US SAF potential may not be fully realized without advancements in policy, production, and prices.

Management Comments

• Mihir Dange, CEO of XCF Global, stated that SAF production would likely move to Europe due to higher pricing models associated with mandates.
• Jeremy Baines of EcoCeres suggests a global system, whether mandate or incentive, for a level playing field.
• Bruce Fleming, CEO of Montana Renewables, echoed similar sentiments towards California's involvement or lack thereof in supporting SAF producers.

Industry Context

The article highlights the competitive landscape between the US and Europe in SAF deployment, with the EU's mandates providing a stronger incentive for production compared to the US's incentive-based approach. It also touches on the airline industry's concerns about rising fuel costs and the need for policy alignment across jurisdictions.

Comparison to Industry Standards

• The EU's Refuel EU legislation sets a clear benchmark for SAF adoption, mandating specific percentages of SAF incorporation by certain dates, which contrasts with the US's voluntary approach.
• United Airlines' SAF consumption trails several European carriers, indicating a gap in SAF usage compared to industry leaders in Europe.
• The transition costs to achieve net zero by mid-century are estimated to be $744 billion by 2050, which is a significant financial challenge for the airline industry globally.

Stakeholder Impact

• Shareholders: The success of SAF deployment could impact the long-term value of companies involved in SAF production and airlines.
• Employees: The growth of the SAF industry could create new job opportunities.
• Customers: Higher fuel prices due to SAF mandates could potentially impact airline ticket prices.
• Suppliers: SAF producers will need reliable sources of sustainable feedstocks.
• Creditors: The financial viability of SAF projects will depend on supportive policies and market demand.

Next Steps

• Advancements in US policy, production, and prices are needed to fully realize SAF potential.
• California regulator ARB could provide SAF leadership by creating a SAF-specific policy.
• The industry needs to address the significant transition costs to achieve net zero by mid-century.

Key Dates