The Future of the SAF Market: Insights from the Infocast Summit

The RNG and SAF Capital Markets Summit, presented by Infocast and held on June 19, 2024, featured a distinguished panel of heavy hitters in the world of SAF (“sustainable aviation fuel”), moderated by Linklaters tax partner Michael Rodgers, who focuses on structuring, planning and negotiating infrastructure and renewable energy transactions. The panel highlighted the current state and future of the SAF market with a sense of where the market currently is, where it needs to go and what needs to happen in order to get there. The panel included Max Jallad of Neste US, Inc., Christopher Efird of NXTClean Fuels, Inc., Eric Frey of Gevo and Gary Grimes of World Energy.

Here are the key insights from the session:

1. Importance of SAF to Meeting Climate Goals: Notwithstanding impressive technological strides made by the SAF industry, jet fuel remains notoriously difficult to decarbonize. Taken in conjunction with projections showing that worldwide demand for air travel will more than double by 2050, commercial aviation is almost certain to account for an ever-increasing percentage of global CO2 emissions over the course of the next several decades, underscoring the outsized role SAF will need to play in order to meet worldwide climate goals. 

2. Logistical Issues: SAF development faces both logistical and technological issues. While it is clear how important SAF solutions are in order to mitigate climate change, SAF remains roughly 3 times as expensive as its fossil fuel counterparts and is used in less than 1% of all commercial flights today. Moreover, the industry is small. While it is projected that production of 450 billion liters of SAF is needed by 2050, Neste, the world’s largest producer, currently makes only 125 million liters on an annual basis. There is simply a long way to go and other logistical issues have surfaced as well. For example, SAF production has in certain instances attracted pushback from environmental groups over land use and deforestation concerns, which the panelists emphasized underscores the need for proper SAF messaging. 

3. Technological Issues: Ideally, all commercial flights could run on nothing but pure 100% SAF. However, in order to accommodate fuel comprised of 100% SAF, significant technical modifications are needed to current air fleets, with the majority of aircraft being merely capable of running on blends that utilize a maximum of less than 50% SAF. The technology is improving, but the panel noted that we are a long way off from seeing widespread commercial flights utilizing 100% SAF become a reality. 

4. Looking Ahead: While income tax credits under sections 40B and 45Z of the Internal Revenue Code, as well as RINs and LCFS credits, which generally incentivize the production of SAF, are a step in the right direction, these incentives fall short of what will be needed to allow investors in the space to reach a fever pitch. That said, these credits and particularly new instruments introduced by the panelists as “virtual SAF credits,” should introduce substantial liquidity and transferability into the market and could prove to be a game changer. 

A recurring theme of the discussion was that while the specifically enumerated goals for SAF may be daunting and in some cases even over-ambitious, any progress is better than none. Linklaters, as a market leader at the forefront of the worldwide green energy market, remains dedicated to offering strategic guidance to our clients regarding investment in and financing of SAF projects, as well as other critical carbon reduction technologies.