Boost for Agriculture Companies and Refiners in the Green Jet Fuel Industry

The federal government has announced new rules aimed at supporting agriculture companies and refiners in their efforts to produce green jet fuel from plant and animal fats. While the move is expected to drive growth in the industry, environmental groups have raised concerns about the low standards set by the rules.

Under the new regulations, the Treasury Department will provide tax credits of up to $1.75 per gallon for various biofuels, including corn-based ethanol and soybean fuel. This will potentially open up a market of 36 billion gallons for sustainable aviation fuel, a sector that is still in its infancy.

Secretary of Agriculture Tom Vilsack emphasized the significance of this development for American agriculture and farming, describing it as a major milestone. Current players in the clean jet fuel industry include Neste from Finland and Calumet Specialty Partners based in Indianapolis. However, agricultural giants like ADM also have ambitious plans to contribute to sustainable aviation fuel production. In 2021, ADM entered into a partnership with biofuels company Gevo to produce up to 500 million gallons of green jet fuel across plants in Nebraska, Illinois, and Iowa. Although production is expected to commence after a few years.

Even traditional fossil fuel refinery companies like Phillips 66 and Valero Energy are joining the efforts to create clean jet fuel options.

While airplane flights contribute to around 2% of greenhouse gas emissions, finding viable solutions in this industry has proven challenging. Electric jets are not expected to become widely adopted for many years. In the meantime, sustainable aviation fuel offers a practical solution to decarbonize travel. It shares similar chemical properties with conventional jet fuel and can be seamlessly blended into existing supplies.

Despite its potential, the usage of sustainable aviation fuel remains relatively low. In the United States, only 15.8 million gallons were produced last year, which accounted for less than 0.1% of the total jet fuel consumption, according to government data.

Biden Administration Sets Ambitious Target for Clean Jet Fuel Production

The Biden administration has recently announced an ambitious target of producing three billion gallons of clean jet fuel by 2030. To achieve this goal, the administration is relying on private companies to develop the market. In order to incentivize these companies, the Inflation Reduction Act includes tax subsidies. While some details of the tax credits are still being worked out and expected to be finalized in the next three months, the Treasury Department’s model for these credits is considered to be less environmentally stringent compared to methods used in Europe.

Under the Treasury Department’s tax credit system, a wide range of plant sources is expected to qualify for large credits. This is something that agricultural companies have lobbied for. However, environmental groups have raised concerns about the potential consequences of using less-stringent guidelines. They worry that this may encourage producers to grow crops in ways that perpetuate climate change or lead to deforestation as more land is dedicated to fuel production.

Mark Brownstein, a senior vice president at the Environmental Defense Fund, expressed concern about the potential use of unsustainable plant sources for these tax credits. He believes that relying on fuels made from sugar cane, soybean, and rapeseed would not align with Congress’ intent of promoting sustainability.

While clean jet fuel is currently more expensive than conventional jet fuel, Europe has mandated the use of clean fuel by airlines, leading to the rapid growth of its clean jet fuel industry. However, this has come at a cost to consumers who now pay surcharges for clean fuel on some European flights.

In the United States, the government has not announced any mandates for clean jet fuel usage, and U.S. airlines have been slower to transition to cleaner fuels. A senior Biden administration official stated that while they do not expect to impose mandates, the idea is not completely off the table. They believe that as the clean jet fuel industry scales up, the price will decrease and become more cost-competitive.

Overall, the Biden administration’s target for clean jet fuel production is an ambitious one. By relying on private companies and offering tax subsidies, they hope to incentivize the development of the market. However, the potential environmental implications and the economic viability of clean jet fuel remain important factors to consider in this transition.