A worker walks beneath a United Airlines Boeing 737-900ER after it arrived at Los Angeles International Airport (LAX) on June 5, 2019. The flight from Chicago to Los Angeles used aviation biofuel, a critical component of airlines’ goal of reaching a net-zero carbon goal by 2050. (Photo by Mario Tama/Getty Images)

Congress’ passage of President Donald Trump’s spending and tax cuts bill this month could help grow the market for sustainable aviation fuel, a nascent industry that could be a boon for corn-producing states as airline operators are betting on it to decarbonize the sector.

The Republican budget reconciliation law that Trump signed July 4 pared back some of the credits for sustainable energy in the law that congressional Democrats passed and President Joe Biden signed in 2022 — the Inflation Reduction Act.

But the recent law extended one energy tax credit for producing clean fuels, such as sustainable aviation fuel, an alternative to the typical jet fuel planes use. The credit initially went through 2027, but the GOP law extends it through 2029.

Advocates for sustainable aviation fuel had been pushing Congress to extend the tax credit to support production as states across the U.S. have passed or proposed their own tax credits to grow the sector and lure production within their borders. Lawmakers in Iowa, Wisconsin, Michigan and New York have introduced bills enacting tax credits for sustainable aviation fuel.

For airlines, increasing availability of the fuel is essential for the sector to meet its net-zero goal for 2050, with the International Air Transport Association estimating the cleaner fuel could get the industry 65% of the way toward its target.

“We’re not yet at commercial-scale production and you need that longer lead time for these types of projects so I think the extension is really key,” said Chris Bliley, senior vice president of regulatory affairs at Growth Energy, a biofuel industry group.

While the credit’s lifetime was extended, others say the environment for sustainable aviation fuel isn’t as favorable as it was just a few years ago. The new budget reconciliation law also included provisions to lower the credit amount for sustainable aviation fuel specifically and clawed back unobligated grant funding to support the sector.

The amount of sustainable aviation fuel that producers make today is far from how much the airline industry needs to be able to use the alternative fuel regularly. U.S. production capacity over the last couple of years, however, has grown, jumping from less than 5,000 barrels per day at the start of 2024 to more than 30,000 by February of this year, according to a May report from the U.S. Energy Information Administration.

Badger State bill

Wisconsin state Rep. David Steffen, a Republican who sponsored a bill to incentivize sustainable aviation fuel, said he learned about a sustainable aviation fuel production company based in Madison called Virent Inc., now a subsidiary of Marathon Petroleum Corp. Virent’s fuel helped power the first domestic flight powered by 100% sustainable aviation fuel in one of its engines.

“I was intrigued that we had this company in our state and I want them and other companies of similar interest to find Wisconsin as their new home,” Steffen said. “It’s a great opportunity for not only the environmental benefits that come with it but for our farmers, dairies and timber producers to access a brand-new market for their product.”

Steffen’s bill also requires that to receive the tax credit, source materials for the fuel must be domestically sourced.

Wisconsin’s legislative session doesn’t end until next March and Steffen said he’s “very comfortable in saying (the bill) will have a clear path to the finish line.” Should it pass in its current state, the tax credit would go into effect in 2028.

Other states

Iowa, Illinois, Minnesota, Nebraska and Washington state all already have enacted laws to provide tax credits for sustainable aviation fuel.

Lawmakers in New York and Michigan have also proposed legislation to create their own tax credits. The New York bill barely moved in the most recent session, while legislation in Michigan has made it out of one committee and been referred to a second.

New York state Sen. Rachel May, a Democrat, plans to re-introduce the legislation next year. She said she wants to amend her bill to offer a larger tax credit for companies making sustainable aviation fuel specifically by mimicking photosynthesis so it doesn’t incentivize diverting feedstock like corn from being used for food, she said.

Her concern is moving the agriculture industry “away from both food production and maybe what might be the best uses of the land,” she added.

Corn ethanol, a common ingredient in automotive fuel, can be used to make sustainable aviation fuel.

Federal extension

While the extension of the federal clean fuels tax credit could be beneficial to the sustainable aviation fuel industry, the new law also lowers the amount of the tax credit for the fuel. It’s now the equivalent to what other biofuel producers qualify for, giving sustainable aviation fuel production less of a competitive advantage.

One version of the budget reconciliation bill also called for extending the tax credit by four years instead of two, but that got scaled back in the version of the bill ultimately signed into law.

The new law also took away any funding not yet obligated as part of a grant program for sustainable aviation fuel and makes fuels derived from feedstocks that come from outside the U.S., Canada or Mexico ineligible for the tax credit.

Despite any limitations, some analysts expect the law will still boost sustainable aviation fuel.

“The Trump administration has yet to outline its approach to SAF, but we expect the fuel to benefit from the administration’s focus on supporting biofuel-producing states,” analysts for Capstone DC, a firm that advises business clients on policy issues, said in a note in late June.

But changes to the federal tax credit could also make states more interested in adopting their own credit to support sustainable aviation fuel, Capstone added.

‘Not nearly as strong’

Tariffs, meanwhile, could also make U.S. feedstocks for producing the fuel more competitive, Paul Greenough, a vice president on Capstone’s energy team.

But Greenough cautioned that sentiment around sustainable aviation fuel still isn’t as rosy as it used to be.

“Momentum still exists for SAF but it’s not nearly as strong as it was under the Biden administration,” he said.

Some climate groups have also expressed concern over changing the clean fuels tax credit at the federal level. The Clean Air Task Force, ahead of the bill becoming law, said extending the credit will largely service other fuels that aren’t sustainable aviation fuel, which will in turn be costlier for the government.

“This purported attempt to incentivize ‘clean fuels’ is little more than a giveaway to the conventional biofuels industry,” the organization said in a post on its website.

This post was originally authored and published by Allison Prang from Washington State Standard via RSS Feed. Join today to get your news feed on Nationwide Report®.