SAF: Are we there yet? Not yet!

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Student syndrome (planned procrastination) is a phenomenon where people delay doing things until right before the deadline. Stress can be a great motivator. Many deadlines are approaching for the SAF industry as we enter into the last quarter of 2024.

With just three months left before January 2025, the US is yet to issue guidance for tax credits. EU members also need to decide on penalties to support European ReFuelEU Aviation mandate and the UK has to pass the SAF mandate into law.

Last week, a US Treasury Department spokesperson said that it is prioritising the release of final guidance for several clean energy tax credits included in the Inflation Reduction Act. However, the guidance for credits for low-carbon aviation fuels will likely be delayed.

This means that the final rules for qualifying for the 45Z tax credit, which offers up to $1.75 per gallon for low-carbon aviation fuels, will be determined by the outcome of the 2024 presidential election.

Although the spokesperson said the Treasury Department is still actively working on the guidance for the 45Z credit, he did not provide any timeline for proposing or finalising it. They have also not indicated whether they will offer any safe harbour assurances either before the final guidance is released.

While the US is working on incentives to encourage SAF production, the EU members need to come up with penalties to ensure compliance with its mandate which kicks in from January 2025. Under the Article 12 of the ReFuel Aviation, penalties, in case of non-compliance with the SAF mandate, need to be at least twice the price difference between SAF and fossil kerosene.

With e-SAF not commercially available yet in the EU, the penalties will have to be determined based on a price differential between HEFA-SAF and fossil kerosene. Taking 2023 average per tonne SAF price of €2,700 and €800 of fossil kerosene, the penalties for non-compliance would likely come at around €4,000 per tonne.

In addition, the ReFuel EU mandate ensures that while jet fuel suppliers who fail to meet the EU mandate, will have to pay these penalties, they will not be exempt from meeting these quotas. Those will be carried over to the subsequent years.

Delays in working out and approving penalties is a major problem for EU-based project developers to attract the much-needed capital to set up plants.

The UK’s hybrid approach of both stick and carrot needs fine tuning as well. The UK is introducing a SAF mandate from January 2025 to ensure demand while developing a revenue certainty mechanism to incentivise supply.

Both these measures still have been approved by parliament. The Renewable Transport Fuel Obligations (SAF) Order 2024 sailed through the House of Commons in July but needs to be approved by the House of Lords before it becomes a law.

The UK government is working on four options for supporting SAF production. The Guaranteed Strike Price would offer a fixed price per litre of SAF produced, regardless of market fluctuations. The Buyer of Last Resort would guarantee a minimum price for SAF certificates, ensuring that producers are not left with unsold certificates. The Mandate Auto-Ratchet would adjust the mandate to balance supply and demand, stabilising prices. Finally, the Mandate Floor Price would set a minimum price for SAF certificates.

With the end of 2024 fast approaching, let’s hope lawmakers can pull a few all-nighters.

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