Advanced BioFuels USA

by Mike Newman (Parhelion Underwriting/Biofuels Digest) A transition to carbon-neutral flying is possible and sustainable aviation fuels are the most promising decarbonization pathway in the near term. — … Looking ahead, the airline industry is facing even more stringent regulations as the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) will become mandatory globally in 2027. There are now 82 countries which will take part in the first, voluntary, phase of CORSIA and it is anticipated that about 80% of the growth in international aviation CO2 will be covered by the program from the end of this year.

SAF is a drop-in replacement for conventional jet fuel (CJF) that can significantly reduce GHG emissions from jet aircraft engines. These fuels don’t have sulfur, and particulates are significantly less.

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n common with renewable fuels generally, SAF is at the center of four dynamics: technology, market forces, government support and finance.

Technology
The technology is modern day alchemy, but instead of converting base metals into gold, this technology can convert waste into synthetic fuel. Technology like Haldor Topsoe and Fischer Tropsch process a collection of chemical reactions that convert a mixture of carbon monoxide and hydrogen into liquid hydrocarbons., thereby creating clean transportation fuels.

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Market Forces
In the marketplace, SAF is currently more costly than traditional fossil jet fuel. It costs at least twice as much to produce SAF compared to conventional aviation fuel and SAF has carried a strong price premium over conventional jet fuel, as demand for the fuel has outstripped supply.

SAF is often co-produced with renewable diesel in the same refining process, which forces renewable fuel companies to make a decision about which fuel to produce. To date, the economics in the US have largely favored renewable diesel, prompting a number of west coast refiners to announce plans to expand production.

Government Support
Governmental support is crucial to sustainable aviation fuels achieving the aviation industry’s climate goals. Initiatives such as opportunity zones and tax reductions on the use of green and clean aviation fuels will drive the growth of sustainable aviation fuel over the long term. Indeed, the early adoption of SAF accelerated in 2019, when SAF became eligible as a credit-generating fuel under California’s landmark Low Carbon Fuel Standard (LCFS) program, soon followed by Oregon. States across the US, including Washington and New York, are exploring LCFS programs,

Although, unlike a number of European countries, the US does not put a volumetric mandate on SAF, the Biden Tax Plan is proposing to provide a BTC tax credit for SAF which should enable “the decarbonization of a key portion of the U.S. transportation sector”, the Treasury said. Canada’s proposed clean fuel standard, scheduled to begin at the end of 2022, includes SAF as an eligible credit generator.

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Finance
LCFS and RIN credits form a significant share of the projected income of these projects – in fact, the credits are often more valuable than the fuel itself. Many projects would not get financing without the revenues from the credits.

The capital market, and the debt market in particular, worries that a change of law or regulation might eliminate the market, so renewable fuels projects find that lenders want to protect their debt service in the event that the market is wiped out because a law is repealed, amended or terminated.

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And since, regulatory risk is key to many project finance transactions, Parhelion created a fund of insurance capital that underwrites the continued life of the markets.  READ MORE