North America. The passage of the IRA in 2022 signaled a dramatic shift for the United States. The act features $370 billion in tax credits for the renewable-energy industry, including a credit of $1.75 a gallon for SAF through 2026 and a production tax credit of $3.00 per kilogram (kg) of hydrogen that has GHG emissions below 0.45 kg CO2 per kg H2 (such as onshore wind or nuclear). By attracting investment, the IRA seeks to scale up SAF production to at least three billion gallons a year by 2030, with the goal of 100 percent blending by 2050. 12 These tax credits could significantly boost manufacturing capacity. However, a high share of projects have yet to clear the financial-investment- decision (FID) stage. Twelve major North American passenger and cargo airlines have made SAF commitments through 2030, but their offtakes are still far from meeting future demand, and few of those offtakes can be considered fully binding. The North American market also has several policies to support the use of sustainable fuels. For example, the US Renewable Fuel Standard (RFS) and the state-level Low Carbon Fuel Standard (LCFS) programs affect pricing and create markets for credits. Aligning market supply and demand The different policies and approaches could lead to supply-and-demand imbalances across regions in the medium term. The market could snap back into balance in multiple ways, including the following:
— If capacity ramps up faster than projected demand, additional voluntary use could result— especially in markets with subsidized supply, such as the United States. — Fuel producers might choose to recalibrate their product slate—for instance, by producing more renewable diesel instead of SAF or more bio-naphtha for the chemicals sector. — Many projects that have yet to clear the FID stage, particularly those with limited access to feedstock or financing, might not launch or could be delayed for several years. Further, few offtakes and credit schemes are contractually binding for the next seven to 15 years, which is often the payback time required to achieve positive returns in the highly capital-intensive advanced-biofuels and e-fuels pathways. — Insufficient demand could cause a significant decline in average use of production capacity, leading to compressed margins and slower capacity growth until the market rebalances through growth in demand. — In the long term, e-fuels or e-crude could become the “new oil,” assuming renewable energy production is not constrained, sustainable-carbon trading develops, or the cost of direct air capture approaches that of carbon capture.
The different policies and approaches could lead to supply-and-demand imbalances across regions in the medium term.
12 Sustainable aviation fuel: Agencies should track progress toward ambitious federal goals , US Government Accountability Office, revised May 17, 2023.
Accelerating the journey to net zero
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