Proposed changes to a US clean fuel tax credit may be a boon for farmers, but a future where ethanol is a major ingredient in jet fuel remains far off.
The massive Republican budget bill currently advancing through Congress would extend the "45Z" credit, which offers larger subsidies to fuels as they produce fewer emissions. The proposal too would bar regulators from weighing indirect land use impacts, effectively upping subsidies for crop-based fuels like ethanol, in a win for agribusiness.
Farm groups have hoped that such changes could open the growing sustainable aviation fuel (SAF) market to ethanol producers, otherwise at risk from an increasingly efficient and electric US vehicle fleet. Airlines too are eager for more diverse SAF sources since the main pathway nowadays, processing vegetable oils and animal fats, draws from more limited feedstocks. United Airlines government affairs director Tom Michels said at an OurEnergyPolicy forum earlier this year that the company hopes ethanol-based fuel "could fulfill around a quarter of our future SAF needs."
But incentives in law and under the proposal, which passed the House last month, would do little to boost "alcohol-to-jet" output. While ethanol typically trades at a discount to gasoline, SAF is substantially more expensive than petroleum, making government support essential for uptake.
The Republican caucus has a range of views, with clean energy advocates wary of phasing out subsidies, farm-state representatives intent on boosting biofuels, and conservatives committed to curbing government spending. Republicans plan to use a process called reconciliation that allows them to pass the bill without Democratic support.
How policymakers implement 45Z will be crucial for a wave of alcohol-to-jet startups eyeing production this decade. That includes Gevo, whose plans for an integrated 60mn USG/yr plant in South Dakota are complicated by another company's struggles starting an interstate carbon pipeline. Meanwhile, people familiar with the matter say that LanzaJet's 10mn USG/yr alcohol-to-jet pilot project in Georgia — which opened last year but is not yet fully operational — is not currently producing any SAF.
"The suite of policies we would need to make ethanol-to-jet pencil out just does not exist right now," said Brian Jennings, chief executive of the American Coalition for Ethanol.
RINs wear thin
Ethanol-based SAF would likely still produce too many emissions to claim any 45Z subsidy even if the proposed emissions tracking changes took effect — since the pathway requires more energy-intensive processing to make fuel suitable for jet engines. Carbon capture could make up the difference, though few facilities have that capability.
The lack of subsidy would compound barriers from the Renewable Fuel Standard, which requires oil refiners to blend biofuels or buy credits from those who do. Under the program, blending corn ethanol earns a Renewable Identification Number (RIN) credit, but there is no certified pathway yet to offer RINs for corn-based SAF blending.
Even if there were, advanced biofuel credits have traded recently at only a slight premium, reducing the incentive for ethanol producers to eye new markets. Argus last assessed current year D4 biomass-based diesel credits at 92.25¢/RIN and D6 conventional credits at 86.50¢/RIN, and they traded at parity much of last year.
Meanwhile, the typical US dry mill ethanol producer would likely qualify for some 45Z subsidy if the Republican bill passed, adding to RIN benefits. Those plants would have to forgo both incentives to sell to SAF makers. It is unclear how producers of a more-expensive and less-subsidized SAF could compete on price.
Gevo chief executive Patrick Gruber said that his company's integrated model — producing ethanol and SAF at the same sites — is less risky than buying ethanol from elsewhere. But there are other policy headwinds. A new South Dakota law to restrict eminent domain could derail Summit Carbon's planned multistate carbon pipeline, which dozens of biorefineries, including one Gevo facility, want to join.
Gevo has purchased a North Dakota biorefinery that can already capture carbon on site, a potentially lucrative workaround to pipeline delays, and is eyeing SAF production there too.
There is a RIN pathway for SAF from Brazilian sugarcane ethanol — a model that LanzaJet has pursued — but credit pricing makes economics challenging there too, adding to freight and tariff costs. Even then, the bill to change 45Z would restrict eligibility to North American feedstocks, upending LanzaJet's plans for Brazilian ethanol without making US alternatives more economical.
"45Z as currently drafted creates a disincentive for US ethanol to be used in SAF," said LanzaJet vice president of government and regulatory affairs Angela Foster-Rice. "We are hopeful to get this issue addressed in the Senate bill."
Despite policy uncertainty, airlines have committed to procuring far more SAF and might be willing to pay a premium. But they are more likely to pay up for fuel they can at least use for SAF mandates in the EU and UK, which do not credit fuels from first-generation crops. US federal and state programs subsidize lower-carbon jet fuels but do not mandate usage.
The floor is yours
The Republican bill is still just a proposal, leaving the possibility for changes. The Senate reconvened this week with a goal of passing the bill before 4 July, and members have signaled they might take a different approach to clean energy subsidies than the House.
Some biofuel lobbyists support shifting rules to benefit SAF — potentially by providing a higher "floor" credit for refiners that barely qualify or allowing alcohol-to-jet producers to claim the same benefit as upstream ethanol refiners. Under current rules, fuels may earn just cents per gallon. But such changes could rile trucking groups frustrated with 45Z already offering heftier subsidies to SAF and deficit hawks worried about the bill's mounting costs.
