Why do we need SAF?

How is Sustainable Aviation Fuel Made?

Sustainable Aviation Fuel (SAF) is a Renewable Fuel made from diverse non-petroleum feedstocks, encompassing the organic fraction of municipal solid waste, woody biomass, fats, greases, oils, and various other materials. The range of common feedstocks used highlights the flexibility and sustainability of SAF production:

How is Sustainable Aviation Fuel Sold and Transported?

SAF is a drop-in fuel that can be blended up to 50% with conventional jet fuel. The fuel is sold in the form of offtake agreements negotiated between producers and end users such as airlines and private aviation companies. The fuel is typically trucked from the production facility to the airline and then blended on-site. Pipeline operators are increasingly allowing SAF to ship into airports on their lines, reducing transport costs.

While there are standalone facilities producing solely SAF, nearly all US renewable diesel producers set aside some of their production capacity for SAF. A typical breakdown is 90% renewable diesel output and 10% SAF on an annual basis. Some Gulf Coast-based plants are producing as much as 50% renewable diesel and 50% SAF as demand from airlines continues to grow driven by ambitious emissions reduction goals.

Last year, Colonial Pipeline announced it would allow customers to ship SAF along its 5,500-mile pipeline system, including any lines leading to airports. The Colonial Pipeline runs from the US Gulf Coast along the southeast and terminates at Linden, New Jersey, opening many new markets to SAF shippers. As roughly 60% of US renewable diesel and SAF production is in the US Gulf Coast, the Colonial Pipeline will be a central component of SAF logistics.

Is Sustainable Aviation Fuel Expensive to Produce?

SAF is an expensive fuel to produce. Hydrotreaters and pre-treatment units (PTUs) are significant investments. SAF requires more hydrogen to produce and suffers from a yield loss relative to renewable diesel. So how do producers offset costs?

A variety of state and federal credits work to both incentivize the production of SAF and make it affordable to the end user. The chief credit is the Renewable Identification Number (RIN), more specifically the biomass-based diesel D4 credit. RINs are codes used to track renewable fuels throughout the marketplace. Once a renewable fuel is blended with conventional fuel the RIN is separated and can be traded to meet compliance with the EPA’s Renewable Fuel Standard. (Read more on RINs HERE)

Each gallon of SAF earns 1.6 D4 RINs which contribute nearly $2.50/gallon to the cost of SAF. Once blended, the SAF producer earns this RIN value, and it can be discounted from the cost of the fuel.

The Blenders’ Tax Credit (BTC) of $1.00/gallon is also earned by the producer for each gallon of SAF. Like the RIN, the BTC value can be stripped from the cost of the fuel representing a discount to the end user.

As SAF is economically disadvantaged relative to renewable diesel, producers are pushing for a larger SAF BTC. The state of Illinois passed a $1.50/gallon SAF credit in late January eligible for SAF used in the state between June 2023 to June 2033. Unlike the BTC which is captured by producers, this new credit is given to airlines operating domestically.

Under the Inflation Reduction Act, the Clean Fuel Production Credit (CFPC) will replace the BTC and aims to issue a $1.25-$1.75/gallon SAF credit aiming to close the competitive gap between renewable diesel and SAF.

Are SAF Producers Able to Generate Carbon Credits?

Lastly, SAF is eligible for Low Carbon Fuel Standard (LCFS) credits in California, Oregon, and soon Washington state as well as parts of Canada. The California program is long established and draws the bulk of the lowest carbon intensity (CI) fuels in the nation by adding LCFS value to RINs and the BTC. Under the LCFS program, the lower the CI score of the fuel relative to a baseline for the petroleum-derived fuel it replaces the more credits it generates.

Yet structural oversupply in LCFS credits has eroded LCFS value over the past two years, limiting the discount the credit affords airlines. In response, producers are using more affordable feedstocks, thus raising the average CI score for SAF. SAF averaged 42.36gCO2e/MJ during the third quarter of 2022 after starting the year at an average CI score of 22.67gCO2e/MJ, the lowest average score in the program’s history.

SAF is a rapidly growing arena with large investments already in place to meet growing demand as US air travel returns to 2019 levels. The key to supply and trade is ensuring a fair price through an understanding of the key market drivers and negotiating a fair price.