US SAF producers prepare for policy shifts

opinion

by Fayaz Hussain

November 18, 2024

The US sustainable aviation fuel (SAF) industry is bracing for potential regulatory changes as policy implementation timelines stretch into the next administration but producers are adapting.

Key attention will be on the GREET (Greenhouse gases, Regulated Emissions and Energy use in Transportation) model, which will guide the 45Z credit calculation.

Analysts expect the model’s final form to be significantly influenced by new cabinet appointments, potentially shifting incentives toward crop-based feedstocks. The delay in implementing final guidance for the 45Z credit has created a period of strategic positioning for producers.

“The cabinet members appointed by the next president [Donald Trump] will determine the ultimate form of the GREET model adopted to guide the 45Z credit,” Zander Capozzola, vice president renewable fuels at Aegis Hedging tells SAF Investor.

“Under a Trump second term, we see the potential for tariffs on foreign feedstock to even the playing field with US crop-based feedstocks. This may be augmented with favourable changes to the GREET model for crop-based feedstocks,” Capozzola adds.

Against this backdrop, Montana Renewables shows how producers are adapting. The company has demonstrated remarkable production growth, scaling from an initial 30m gallon annual target to achieving a 50m gallon run rate by September, while positioning itself for various policy scenarios.

“We’re not running any international feedstocks for this purpose,” said Bruce Fleming, CEO of Montana Renewables, highlighting the company’s strategic alignment with potential domestic-focused policies. “The detailed implementation rules come when they come. We can then file for the tax credit.”

Montana’s approach – qualifying as a producer now while remaining flexible on tax credit applications – represents a broader industry strategy of maintaining operational momentum amid policy uncertainty.

“The whole industry is focused on this expectation that we may have delayed compliance rules. But we’re a producer. We’re qualified. And we’re going to begin booking that receivable from January 1st,” Fleming adds.

The impending transition from the current blenders’ tax credit to the new production tax credit system has already begun reshaping operational strategies across SAF producers. Montana Renewables initiated a planned turnaround for catalyst changes at their facility in late October.

“The switchover from blenders to producers’ tax credit, particularly on SAF, means that you literally can’t comply with either rule at the end of the calendar year,” Fleming explains. Montana Renewables isn’t alone in this strategic pause, as several biofuel producers have signalled similar temporary production stops to manage the transition.

While federal policy uncertainty looms, state-level initiatives offer some stability. California’s ambitious mandate for 20% SAF usage by 2030 represents a significant market opportunity, with the state’s 4bn gallon annual jet fuel consumption creating sustained demand. Additional state programmes in Washington, Illinois, Nebraska and Minnesota provide multiple markets for producers.

For Montana Renewables and other producers, the challenge lies in maintaining growth momentum while preparing for various policy scenarios.

“The road to recalibration will prove volatile, with abundant opportunities to derisk,” adds Capozzola.