US sustainable aviation fuel (SAF) producer World Energy's vice president Adam Klauber spoke to Argus about the future of the global SAF market.
How could US SAF policy develop under a new administration?
[SAF tax benefits] need to be extended because they're expiring, but the agricultural lobby is quite strong in the US and will have the ear of either administration.
They will be pushing for extension — and potentially expansion — of the tax credit, and for modification to include some more purpose-grown crops, especially because corn-based ethanol needs to go somewhere beyond the road market as EV adoption expands.
[In a Harris administration] maybe what we would see is some type of prioritisation, or rewards, or higher status for lower carbon intensity waste feedstock-based fuels.
With the start of the EU-wide and UK mandates next year, how do you see SAF flows changing?
Some of the SAF will potentially come from the US depending on the value of credits.
It may be more favourable initially to export, and there seems to be some appetite for that within the EU mandates for an interim period. There will be some questions about how much support there will be in North America for SAF use, and this is where the voluntary market comes into play, and that if there are entities in the EU that want to go beyond the mandate they might buy credits from the US to achieve higher levels of ambition.
We're going to start to see volumes out of Brazil. There are a number of different enterprises that are developing there, and in Asia.
Is the difference in sustainability requirements and accepted SAF feedstocks in the US and the EU challenging for producers?
Yes, because there are different classifications — tallow is one of our major feedstocks, and our suppliers will not use the European definition of technical tallow even though they could meet those requirements.
On the flip side, there's a greater ability to track used cooking oil (UCO) in the EU. We hope the US EPA will adopt clear requirements around tracking UCO so that will be able to use that, increase supply, and ensure its sustainability.
Some of our customers are EU-based, and in our contracts they stipulate that when we have available supply for intermediate crops [also called cover crops] such as carinata, they would prefer shifts towards specific feedstocks like carinata or UCO.
Are World Energy projects to grow production in California and to build a new plant in Houston moving forward as planned?
We're lucky that we have generous government incentives, and then we can stack voluntary contributions on top of those, so that enables us to proceed in California and Houston.
Currently we don't expect to address our plans due to the macroeconomic landscape, but we do acknowledge that as a challenge and we are advocates of a hybrid system where there's government support to de-risk investments and cover some of the technological risks, but also provide low interest capital and loans.
Incentives for production are very helpful. They may not cover the full price gap, but that's where the voluntary market may be instrumental because they can then pay a price premium to cover that differential.
Growth in interest from corporate users is maybe the number one demand factor in the US. Airlines in the US, to abide by [emissions measuring model] Corsia, just have to buy carbon offsets, and those are a fraction of the price per ton of carbon abated. Corporations are looking for potentially insets — carbon reduction within the value chain — so SAF competes against carbon removals which are quite costly, upwards of $500/t. And SAF is less than that so we can compete.
Any additional projects in the pipeline?
We are talking with a major infrastructure investor and looking at additional plants.
The investors want de-risked technology, so it may limit us to HEFA production for the foreseeable future. We are looking at green hydrogen and developing a project off Newfoundland that we call GH2, where we could develop electro-fuels or other products for transport.
What regions beyond north America and Europe do you expect will become large SAF demand centres in the next 5-10 years?
Demand may persist in the US and the EU because business travel represents about 20 or 25pc of aviation, and there's going to be significant pressure on those companies to decarbonise, so they're going to be looking for SAF certificates and credits.
Certain parts of Asia, I think Japan and South Korea, will be strong demand centres. But supply may become more global if acceptance of SAF certificates and book and claim increases.
How do you see the development of book and claim?
While policymakers may only view book and claim as having a limited time horizon or an expiration date, for the corporate users that isn't really true.
There are many corporations that want to get to net zero by 2030, so they're going to have to buy credits for a long time, because SAF at best can maybe get to 90pc carbon reduction. And then there are a number of companies, like Microsoft and others, that want to advance new technologies that may not be as cost effective.
So we know that HEFA right now is the most economically competitive, but let's say there is a desire to buy electro-fuels and PTL volumes, a corporation may then pay for those credits what governments and airlines cannot pay because it's too expensive.
All players need to be responsible and think about how we maximize the credibility and the trust in the system, so we make sure we have digital registries that are independent and audited and achieve certain requirements, so there's confidence that we've built something that is robust and worthy of trust.
