The potential of sustainable aviation fuel in US agriculture
Sustainable aviation fuel (SAF) presents a significant opportunity for growth in the U.S. biofuels sector, particularly for agricultural feedstocks. The potential success of SAF will rely heavily on appropriate market and regulatory incentives that encourage farmers' participation.
A report from CoBank’s Knowledge Exchange highlights that the guidance for the 45Z tax credit, part of the Inflation Reduction Act, will be a crucial factor in determining agriculture's role in SAF production. The 45Z tax credit, effective January 1, 2025, aims to incentivize the domestic production of clean transportation fuels and replaces the less effective 40B tax credit.
Jacqui Fatka, a farm supply and biofuels economist with CoBank, remarked, “The 40B tax credit guidance for SAF fell short in effectively incentivizing farmers to adopt the prescribed set of on-farm conservation practices required to be eligible for the credit.” Farmers are hopeful that the new guidance will allow for more adaptable practices relevant to their operations.
The introduction of low-carbon biofuels has opened new avenues for U.S. agriculture, with ethanol, biodiesel, and renewable diesel leading the way. While SAF may not provide an immediate solution for low commodity prices, it could offer long-term benefits for rural economies.
For SAF to realize its potential, both farmers and renewable fuel producers seek long-term policies that create market certainty. The Inflation Reduction Act only offers the 45Z tax credit for three years, which could hinder growth.
The administration's Sustainable Aviation Fuel Grand Challenge aims for substantial SAF production by 2030 and 2050, but success will depend on supportive policies and market flexibility that allow producers to scale their operations.
As of now, the final guidance for the 45Z tax credit is pending, contributing to uncertainty for farmers and biofuel producers. Fatka indicated that “biofuel producers are unlikely to move forward on any expansion plans until the new guidance is published,” which affects farmers' preparations for upcoming planting seasons.