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.

Environmental and community advocates in Massachusetts argue that making too much room for biofuels in a pending state plan to decarbonize heating systems would slow the transition from fossil fuels and cause more pollution than a plan that prioritizes electric heat pumps.

As the state works on the creation of a Clean Heat Standard, a report released last month by Greater Boston Physicians for Social Responsibility raises questions about the effects using biodiesel in fuel-oil heating systems could have on air quality and public health, saying there is not enough information available about the pollutants released in the process. 

Advocates say there is no such uncertainty about electric heat pumps, which create no direct emissions and should therefore be heavily favored in the new state policy. 

“We absolutely think the thumb should be on the scale of electrification,” said Larry Chretien, executive director of the Green Energy Consumers Alliance. “If they give credit to biofuels, it ought to be conditional.”

Oil heating is much more prevalent in the Northeast than in the rest of the country. In Massachusetts, 22% of households are heated with oil, as compared to less than 5% nationwide. Moving homes and businesses off oil heat, therefore, is an important element of the state’s plan to achieve net-zero emissions by 2050, which sets a target of reducing emissions from heating by 93% from 1990 levels in that timeframe. 

The process of developing a Clean Heat Standard began when then-Gov. Charlie Baker convened the Commission on Clean Heat in 2021. In 2022, the board recommended the creation of the standard, which was also included in the state’s Clean Energy and Climate Plan for 2050, released later that year. A stakeholder process began in 2023, and in the fall of that year the state released a draft framework for the standard that included the expectation of issuing credits for some biofuel use. 

Open questions about public health

The program is expected to require gas utilities and importers of heating oil and propane to provide an increasing proportion of clean heating services like home heat pumps, networked geothermal, and other options, or buy credits from other parties that have implemented these solutions. 

Whether the other options that qualify as clean heat will include biofuels — fuels derived from renewable, organic sources — has been a matter of contention since the idea for the system was first raised.

Climate advocates have tended to oppose the inclusion of much, if any, biofuel in the standard. Though biodiesel creates lower lifetime greenhouse gas emissions than its conventional counterpart, the recent Greater Boston Physicians for Social Responsibility report contends that there are many unanswered questions about how burning biodiesel impacts public health. 

“Given the sheer amount of doubt, there’s more research that should clearly be done before these fuels are subsidized by the state government,” said report author Carrie Katan, who also works as a Massachusetts policy advocate for the Green Energy Consumers Alliance, but compiled the report as an independent contractor for the physicians group. 

The physicians’ report notes a study by Trinity Consulting Group that found significant health benefits to switching from fossil diesel to biodiesel for building heating. The physicians’ report, however, questions the methodology used in that study, claiming it cherrypicks data and fails to cite sources. 

Katan’s report also notes that the health impacts of biofuels can vary widely depending on the organic matter used to create them, and points out that most of the research on burning biofuels is focused on the transportation sector. 

Climate advocates also argue that embracing biofuels in a Clean Heat Standard would unnecessarily prolong the transition to electric heat pumps while encouraging the continued burning of fossil heating oil. Typically, a heating oil customer using biodiesel receives a blend that is no more than 20% biofuel. Providing credit for that fraction of biofuel would therefore improve the economics of the entire heating oil system, contrary to the overall emissions reduction goals of the policy, Chretien said.

“We’re trying to create a system that is rewarding steps towards greenhouse gas reduction,” he said. 

Making the case for biofuel

Advocates of biofuels, however, say they are confident that existing science makes a solid case for the health and environmental benefits of biodiesel. 

“There’s a decades-long body of work showing the overall benefits to public health of biofuels, specifically biodiesel,” said Floyd Vergara, a consultant for Clean Fuels Alliance America, a national trade association representing the biodiesel, renewable diesel and sustainable aviation fuel industries.

Vergara, who was involved in the Trinity Consulting study, called out in the physicians’ report, also defended the methodologies and sourcing of that paper. 

Further, he said, though biodiesel is typically limited to 20% in current blends, it is quite possible to run a heating system entirely on biofuel, with just a few tweaks to the equipment. These conversions could yield immediate reductions in emissions, he said, rather than waiting for the slower process of replacing thousands of heating oil systems with electric heat pumps.

The difference could be particularly acute in low-income or other traditionally disadvantaged neighborhoods, where many residents can not afford to make the switch to heat pumps, he said. 

“You’re getting those benefits immediately, and you’re getting them while the states are pursuing zero-emissions technologies,” he said.

State environmental regulators expect to release a full draft of the clean heat standard for public comment sometime this winter.

Physicians group warns against propping up biodiesel as part of Massachusetts’ clean heat transition  is an article from Energy News Network, a nonprofit news service covering the clean energy transition. If you would like to support us please make a donation.