Tax credit plan fuels fight for fat

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Rep. Brad Schneider (D-Ill.) Led the campaign for tax credits with support from airlines, environmental groups and companies that make both clean jet fuel and renewable diesel. He said the proposal is a key part of the larger global warming effort.

“SAF represents the only currently viable solution to reducing aviation emissions, while other transport sectors have multiple paths,” Schneider said in a statement. “From the start, our goal has been to ensure market success, avoid supply chain disruptions and, most importantly, achieve our climate goals. “

Build Back Better would allow a tax credit of $ 1.25 per gallon for FAS that would reduce emissions by at least 50% compared to conventional jet fuel. For each additional percentage point of reduced emissions, the tax relief would increase by 1 cent to a maximum of $ 1.75. The grant would take effect in 2023.

The sweetener is bigger than the $ 1 per gallon biodiesel tax credit, which Build Back Better would extend for five years.

The tax break is being offered as the Biden administration aims to halve US emissions by 2030. Achieving that goal requires targeting the transportation sector, which is the biggest contributor to the problem. Aircraft contribute about 10 percent of the industry’s emissions, while medium and heavy trucking, rail and shipping combined contribute about 28 percent, according to the EPA.

Investors are closely watching whether there will be enough raw materials available as biodiesel and SAF production expands, and there is a lot of uncertainty right now, said Prashant Rao, director of research at biofuels shares at Citigroup.

“The main concern is the pace,” Rao said in an interview. “Can the commodities market keep pace with the number of projects announced?” As with any large energy project, there is also the risk that some may not be completed.

Kim Carnahan, director of disruptive technologies at ENGIE Impact, a sustainable development consultancy, made another assessment. She said there is a limited amount of raw material available, but it won’t be saturated for a decade or more.

By then, road transport could shift towards electrification or other technologies like hydrogen fuel, said Carnahan, who also manages the Sustainable Aviation Buyers Alliance. The group is creating a monitoring system for carbon credits generated by SAF.

Biodiesel represents about 9 percent of the US biofuel market, while renewable diesel represents 5 percent, according to the Energy Information Administration. Only a few million gallons of SAF are in production, which is well under 1 percent of the industry.

Major petroleum refiners, including Chevron, Marathon and Phillips 66, have announced expansions in renewable diesel. Their leaders also say they are watching where the SAF tax credit lands and may consider manufacturing the fuel if economic conditions are right. The Biden administration in September set a goal to produce at least 3 billion gallons of FAS per year in the United States by 2030, compared to just 5 million gallons today.

One of the main obstacles to the expansion of renewable diesel on its own is the availability of grease, oil and grease feedstocks, the EIA said. Goldman Sachs last year estimated there could be a 13 billion pound feedstock shortfall by 2024 as more capacity starts up.

Meanwhile, studies commissioned by pressure groups have reached conclusions that support their positions.

The Advanced Biofuels Association last week touted report who found that there was more than enough raw material to meet the demand forecast until 2040. The consulting firm that wrote this report, LMC International, prepared a separate study two months earlier for the National Association of Truck Stop Operators which determined that a limited supply of used oils and greases could switch from renewable diesel to SAF if Congress passes additional aviation tax credits. The group used the study to strengthen its opposition to tax credits.

LMC said their two conclusions do not conflict. The supply of used oils and fats will be limited in the short term as it will take time to set up new supply networks, according to Andrea Kavaler, executive vice president of the company. In the long run, for all oils and fats at large, there will be enough to meet the demand for biofuels.

David Fialkov, a lobbyist for NATSO and the Society of Independent Gasoline Marketers of America, said that not only is there not enough raw material for everyone, but SAF is also a less efficient use of these resources because it takes more raw material to make a gallon of it compares to biodiesel.

“Without parity between the tax credit for biodiesel and sustainable aviation fuel, we are just shifting carbon emission reductions from the ground to the air with fewer benefits and a higher cost to them. taxpayers, “Fialkov said.

SAF is already eligible for incentives similar to biodiesel, including the federal renewable fuels standard, said Neville Fernandes, vice president of corporate affairs and development for the Renewable Energy Group. If Congress does not keep them on a level playing field, companies like his could be at a disadvantage in competing for fats, oils and greases, he said.

REG had 11 biodiesel plants, but closed one in houston in November, and also operates a renewable diesel power plant.

“Any incentive mechanism for SAF should be equally and equally available for biodiesel and renewable diesel (especially if it is made from the same feedstock),” Fernandes said.

Supporters of the SAF say this ignores the current reality of the market, which largely favors renewable diesel. REG’s own President and CEO, Cynthia Warner, acknowledged during a call for results in November, just like oil refinery executives Phillips 66 and Marathon.

Warner said the company will continue to “optimize” renewable diesel production given current market conditions and customer demand. If the economic situation changes for SAF, the company will reassess and “take action to capture the rise.”

Gene Gebolys, president and CEO of World Energy, said he expects a lot of renewable fuel production on the road for the foreseeable future, even if Congress passes the additional incentives for SAF.

“We have to start now on the aviation side,” Gebolys said. “It is one of the most difficult sectors [to decarbonize]. “

He added that the SAF industry will be built on fats, oils and greases, and that he expects production to reach between 10 and 20 billion gallons globally with existing raw materials.

“We also need to look to new raw materials,” he said. “Obviously, if the end goal is to move every drop of aviation fuel around the world – and it does – then we’ll have to go way beyond existing raw materials. It is a generational effort.

Other makers of SAFs, including LanzaJet, say the new tax credits will help advance other technologies that aren’t dependent on fats, oils and greases. LanzaJet targets 1 billion gallons by 2030 using alcohol jet technology, the White House said in September. Velocys plans to produce 300 million gallons using woody biomass and municipal solid waste.

Analyzes by the global consulting firm ICF and the ministry of energy found that while almost all of SAF production today uses oils and fats, this will change in the decades to come as other technologies evolve.

“We can do both – keep the biodiesel industry vibrant while doing the necessary and hard work to build a new industry that is needed to decarbonize aviation and sustain global economic growth,” said Jimmy Samartzis, LanzaJet CEO, in an emailed statement.

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