Sustainable aviation fuel (SAF) represents a significant growth opportunity for the U.S. biofuels sector, particularly for agricultural feedstocks. The potential of sustainable aviation fuel in US agriculture is very high. The success of SAF will largely depend on effective market and regulatory incentives that encourage farmer participation.
A report from CoBank’s Knowledge Exchange emphasizes that the forthcoming guidance for the 45Z tax credit, part of the Inflation Reduction Act, will be crucial in shaping agriculture’s involvement in SAF production. Set to take effect on January 1, 2025, the 45Z tax credit aims to incentivize domestic production of clean transportation fuels, replacing the less effective 40B tax credit.
Jacqui Fatka, a biofuels and farm supply economist at CoBank, noted that the previous 40B tax credit did not sufficiently motivate farmers to adopt the required on-farm conservation practices. She expressed hope that the new guidance will allow for more flexible practices that better align with farmers’ operations.
The introduction of low-carbon biofuels is creating new opportunities for U.S. agriculture, with ethanol, biodiesel, and renewable diesel leading the charge. While SAF may not offer an immediate solution to low commodity prices, it holds potential long-term benefits for rural economies.
For SAF to reach its full potential, both farmers and renewable fuel producers are advocating for long-term policies that ensure market stability. However, the 45Z tax credit will only be available for three years, raising concerns about its ability to sustain growth.
The administration’s Sustainable Aviation Fuel Grand Challenge targets significant SAF production by 2030 and 2050, but achieving this goal will require supportive policies and market flexibility to allow producers to scale operations effectively.
Currently, the final guidance for the 45Z tax credit is still pending, leaving both farmers and biofuel producers uncertain. Fatka indicated that “biofuel producers are unlikely to pursue expansion plans until the new guidance is released,” which could impact farmers’ preparations for upcoming planting seasons.
