Battle brews over climate law credits for aviation biofuels

By Brian Dabbs | 04/05/2023 06:54 AM EDT

The debate echoes those of other fuels like hydrogen and natural gas, where analysts disagree on what is defined as “clean.”

Photo collage with airplane, ethanol and collage papers

Claudine Hellmuth/POLITICO (illustration); Jan Rosolino/Unsplash (airplane); Kiichiro Sato/AP (ethanol)

The Inflation Reduction Act is setting up a fight over the climate footprint of biofuels for aviation, with significant implications for the nation’s emissions trajectory, the U.S. transportation sector and rural communities.

In coming weeks, the Treasury Department will unveil a new sustainable aviation fuel (SAF) tax credit called for in the climate law last summer. It will give up to $1.75 to producers for each gallon of sustainable fuel, based on the amount of carbon reductions in the product compared to conventional jet fuel.

The credit could provide a major boon to biofuel products made of wastes and oils, but producers are also eyeing a big new market for corn-based ethanol.


“We’re talking about potentially billions of bushels of new demand of agricultural crops,” said Geoff Cooper, president of the ethanol-focused Renewable Fuels Association.

“The thought of farmers growing crops that ultimately will be powering our aviation sector … it’s a beautiful thing,” he said. “It has the potential to really transform the ag sector as we know it today.”

The push for sustainable aviation fuel unites both producers and environmentalists, who say it will slash emissions. But the two camps disagree on how best to measure the greenhouse gas reductions of individual SAF gallons, raising questions about how the tax credit will be implemented and whether it can help achieve Biden’s climate goals. The debate echoes those of other fuels like hydrogen and natural gas, where analysts disagree on what is defined as “clean.”

So far, the U.S. government has largely failed in bolstering SAF, which is generally defined as a non-petroleum-based biofuel that can power jet engines with less greenhouse gas emissions than traditional kerosene-based fuel.

More than a decade ago, the Federal Aviation Administration set a goal for U.S. airlines to use 1 billion gallons of sustainable aviation fuel annually by 2018. Last year, U.S. production reached a fraction of that — 15.8 million gallons — or less than 0.1 percent of total fuel consumed by U.S. airlines. The U.S. development comes amid skyrocketing growth in the fuel globally, with Finland-based Neste set to produce 500 million gallons of waste-based SAF annually by the end of 2023.

Ahead of the Treasury decision, industry and environmentalists are backing two different models for calculating life-cycle greenhouse gas emission reductions in each gallon of SAF. The calculations determine if a given biofuel undercuts jet fuel emissions by 50 percent per gallon, in which case a producer would receive $1.25-a-gallon credit. Each additional percentage in carbon reduction earns the producer another cent a gallon, up to $1.75. Experts say that incentive could go a long way in making SAF cost-competitive with jet fuel.

Environmentalists prefer a European methodology known as CORSIA run by the International Civil Aviation Organization (ICAO) to calculate emissions per gallon, arguing that the methodology best assesses land use changes that they say can spike greenhouse gas emissions on farms, such as the removal of trees and wetlands for crops.

“We see strong benefits with aligning with that international standard,” said Andrew Chen, principal for climate-aligned industries at the environmental group RMI. “The ultimate risk is inaccurate accounting, meaning that you thought you did this much good but you actually did a different amount.”

Producers say the U.S. GREET model, which is run by the Department of Energy’s Argonne National Laboratory, is more accurate than ICAO and does not overly penalize farmers for using land to cultivate crops. They say GREET better considers precision farming tactics that lower emissions like strip-tilling, which uses less diesel fuel emissions than standard tilling, and nitrogen fixation, which reduces the need for nitrogen fertilizer.

The Inflation Reduction Act calls on Treasury to authorize the European tool, along with “any similar methodology” that meets Clean Air Act requirements. That could potentially include GREET. ICAO already uses GREET to influence its findings.

Some U.S. companies, meanwhile, are emerging as potential major players in the SAF market. Last year, biofuels producer Gevo, which broke ground at its plant in Lake Preston, S.D., signed a deal with Delta Airlines to provide 400 gallons of SAF by 2030. Gevo is aiming to produce 1 billion gallons annually of biofuel by 2030. In comparison, the Biden administration has a goal for the U.S. to produce 3 billion gallons of SAF annually by next decade.

Like other producers, Gevo is putting its weight behind the GREET model.

“That is what we believe to be the most scientifically based tool for the calculation of life-cycle analysis for transportation and aviation fuels,” Tim Cesarek, chief commercial officer at Gevo, said in a recent interview on the sidelines of the CERAWeek by S&P Global energy conference in Houston.

“We’ve been making ethanol for a very long time. We know that farmers are exceptionally efficient. We know that plants are much more efficient at taking CO2 out of the air,” said Cesarek.

Gevo is using a technology to achieve sustainable aviation called alcohol-to-jet, a process that converts feedstocks like traditional ethanol into fuel that can power international flights.

Other non-ethanol processes use animal fats and sugar, and entrepreneurs globally are developing many new technologies. A “hydroprocessed fatty acid esters and fatty acids” sustainable fuel from Neste, the world’s largest SAF producer, is now being used to power jets at the Los Angeles and San Francisco international airports, for example.

Like the cement and steel industries, aviation is much harder to decarbonize than the power and auto sectors. Electricity emissions have dropped dramatically in recent years because of greater use of natural gas and renewables displacing coal generation. But lithium-ion and other batteries aren’t energy dense enough and are too heavy to power a jet.

“We view SAF as the critical lever for decarbonizing aviation. And that’s especially true in this decade, but it’s still very relevant by midcentury,” said Chen of RMI. “The rollout of electric and fuel cells or hydrogen is underway. We’re not going to see that technology take over large international aircraft, or even medium haul aircraft, for some time.”

Aviation accounts for approximately 2 or 3 percent of global emissions. The main global airline association, the International Air Transport Association, is targeting net-zero emissions in the sector by 2050, the year that the Biden administration is aiming to zero out all U.S. emissions. Earlier this year, United Airlines struck a joint venture with Tallgrass Energy and Green Plains to make and use SAF.

Farmers, ethanol and ‘the next Solyndra’

Even though various types of biofuels are growing in the market, the fight over SAF largely revolves around whether corn-based ethanol should qualify for the tax credit. Many environmentalists argue that only waste products such as corn leaves and stalks — not ethanol — should qualify in order to limit environmental degradation, increase farm efficiency and preserve global food supply.

“Fundamentally, for SAF to count as SAF, it needs to come from a waste stream, not from a direct crop source,” said Chen.

In formal comments on the SAF tax credit, the Environmental Defense Fund urged the Internal Revenue Service to “ensure that only” the ICAO model is used, arguing that it better captures the emissions reductions tied to conservation-driven agriculture practices like cover crops and innovative tillage.

Sheila Korth, an environmental specialist at the nonprofit Taxpayers for Common Sense whose family has a farm in Nebraska, also is warning the Biden administration against allowing ethanol to be used for SAF.

“I’ve seen the firsthand impacts of what happened when we had the ethanol ramp up and commodity prices increased because of ethanol demand and biofuels demand increasing. We lost a lot of wetlands and a lot of grass buffers,” Korth said, pointing to federal subsidies for ethanol dating back to the late 1970s. “We shouldn’t repeat past mistakes with implementation of the sustainable aviation fuel credit.”

Korth’s group submitted joint comments to the IRS — which is overseeing the SAF tax credit process — with Environment America, Friends of the Earth and other groups.

Ethanol demand has skyrocketed in the era of the renewable fuel standard, a federal mandate to blend ethanol into gasoline in order to reduce emissions. Next year, EPA is proposing to mandate the blending of 21 billion gallons of biofuels into gasoline to run cars and other vehicles.

Ethanol proponents say huge strides are being made on corn and other farms to cut emissions that the Treasury Department can best reward using the GREET model.

“If they actually give producers the ability to take credit for upstream efficiency improvements, then you are going to see a situation where farmers and individual farms and rural America get sucked into a best carbon practices value proposition,” said Brooke Coleman, executive director of the Advanced Biofuels Business Council, referring to precision farming tactics like nitrogen fixation.

“ICAO has an overarching massive and outdated land use change penalty that will distort markets away from land-based biofuels relative to other solutions,” he said. “From a U.S. interest perspective, we have one primary advantage globally. It’s arable land.”

The Department of Energy is also playing a role in developing the SAF market by doling out biofuel grants to spur advances in the SAF field. Along with programs at the Agriculture Department and Defense Department, DOE’s programs fit together into federal “grand challenge” to produce 3 billion gallons of SAF annually by 2030.

DOE is “actively engaged” with Treasury on the SAF credit, according to a Ramzey Smith, a DOE spokesperson.

A Government Accountability Office report last month faults the Biden administration for not establishing “performance measures to monitor, evaluate, and report the results” of all federal tax and grant programs that could help deliver on the 3-billion-gallon-a-year White House target. The GAO report does not discuss the methodology dispute between environmentalists and producers.

The departments of Energy, Transportation and Agriculture agreed with recommendations from GAO for greater coordination among agencies.

The fight over the tax credit comes as Capitol Hill lawmakers are watching administration ethanol and sustainable fuel policies closely. Last week, Senate Commerce Chair Maria Cantwell (D-Wash.) called for tripling funding for an FAA emissions reduction program, potentially as part of a new FAA reauthorization bill.

“Sustainable aviation fuel presents the most promising near-term tool to dramatically reduce aviation emissions and will be critical to longer-term efforts to decarbonize aviation,” Kevin Welsh, executive director of the Federal Aviation Administration’s Office of Environment and Energy, said at the hearing.

But Sen. Ted Cruz (R-Texas), ranking member of the committee, said the search for SAF might end before it really begins.

“When anything is subsidized by the government, the risk of wasting taxpayer dollars is profound. We’re already seeing this happen with sustainable aviation fuel or SAF,” he said at the hearing, before pointing to a solar panel company that in 2011 defaulted on a $535 million loan from DOE.

“SAF risks becoming the new Solyndra,” Cruz said.