Effects of Changing Policy on U.S. SAF Economics

InsightsArticle
Written By Jamie Bentley

Anurag Mandalika

Assistant Professor
-
Louisiana State Universiry

Clean energy advocates cite the role of policy and incentives as a necessity to advance the current energy transition and the decarbonization of hard-to-abate sectors (such as aviation). The reasoning is straightforward: nascent technologies often require a temporary policy boost to grow and reach economies of scale before they can compete with incumbent technology. Be it solar or wind or EVs or biofuels – all of these technologies have benefited from tax credits and have become more cost-competitive over time so they can stand on their own. While ‘free market proponents’ may sometimes decry this as an unfair support of renewables, fossil fuels are also subsidized by taxpayers in the U.S.[1] – energy (like food and feed) is understood to be a critical societal need and is considered worthy of taxpayer support.

Historically, policy support for biofuels in the United States has come in the form of the Renewable Fuel Standard (RFS), which has led directly to a boom in ethanol production from corn, and an increase in the use of biodiesel and renewable diesel from seed oils. These fuels have become an integral part of the transportation fuel network in the U.S. and have resulted in added co-benefits to the agricultural sector, particularly corn and soybeans. There are also valid criticisms of the impacts of these credits from an environmental and economic perspective, but these credits have allowed the U.S. biofuels industry to mature in the decades since they were introduced.

Along these lines, ambitious policy support was announced as part of the Inflation Reduction Act of 2022 under the Internal Revenue Service (IRS) Section 45Z, Clean Fuel Production Credit (CFPC).[2] This credit incentivized production of sustainable aviation fuel (SAF) by offering a $1.75 per-gallon incentive along with $1 per-gallon for other transportation biofuels (for pathways with carbon intensity was lower than 50 kg CO2e/mmBTU). This was bipartisan legislation that resulted in several large project announcements in the U.S., and a shot in the arm towards meeting the SAF Grand Challenge.[3] In 2024, the U.S. Energy Information Administration (EIA) suggested that SAF production could increase from 2,000 barrels per day (bpd) to 30,000 bpd if all announced capacity additions came online.[4] While SAF volumes are still relatively low in comparison to total jet fuel consumption in the U.S. (less than 2%), strong growth was predicted in the Other Biofuels category within which the EIA includes SAF.[5]

However, passage of the One Big Beautiful Bill Act (OBBBA) in 2025 resulted in decidedly mixed outcomes for biofuels growth in the near future. While credits for other transportation biofuels were retained at $1 per-gallon and the timeline for claiming these credits was extended from 2027 to 2029, the exclusive bonus for SAF was reduced to attain parity with other biofuels, at $1 per-gallon; this represents a 43% reduction in the SAF 45Z credit going from one legislation to the other, over a period of three years between policy, creating understandable uncertainty for project developers.

Our research shows that changes from the IRA to the OBBBA result in a slight reduction in the internal rate of return (IRR, %) for projects that produce SAF (and other biofuels) from agricultural residues and claim the 45Z tax credit. Our analysis considered SAF production using the pyrolysis and Fischer-Tropsch pathways. When feedstock-dependent inputs were held the same, IRA-era IRR was consistently greater than that under the OBBBA. Under the simulation conditions employed in our analysis, the decrease was limited to ~2% points. Though our preliminary research does not conclusively answer questions about SAF profitability under evolving policy scenarios at present, our models can illustrate to policymakers the financial impacts of changes to incentive structures. While SAF tax credits were originally conceived under the 45Z legislation as technology-neutral support to decarbonize aviation, changes to this structure under the OBBBA diminish this effort. This fact is not lost on policymakers—recently, a bipartisan group of policymakers (including Louisiana Rep. Troy Carter) introduced legislation in the U.S. House of Representatives to restore the SAF premium credit, referred to as the ‘Securing American’s Fuels (SAF) Act’.[6] The group cites emissions reduction in the transportation sector, while increasing demand for U.S. agricultural products as the basis for strengthening the American SAF industry.

Considering that our analysis was performed using technoeconomic simulations sourced from the literature, we welcome the opportunity to replicate this research using real-world data from active and announced projects. We also look forward to working with policymakers interested in independent, trusted assessments of potential policy legislation. The LSU Center for Energy Studies (CES) was established by the Louisiana Legislature in 1982 to serve as a resource for policymakers, industry leaders, and community members, to deliver timely insights on energy trends and policies which impact the state.[7] The newly-created LSU Energy Institute unifies and expands several longstanding programs under an integrated platform for applied research and analysis, and brings CES into this fold.[8] We encourage interest parties to get in touch with us.

Jamie Bentley
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