Current US SAF tax credits do not incentivize production, says Aemetis CEO

Current tax credits for sustainable aviation fuel (SAF) in the US fall short of incentivizing production and can be completely undermined by fluctuations in the price of Low Carbon Fuel Standard (LCFS) credits, Aemetis chief executive officer Eric McAfee said during the company’s quarterly earnings presentation on Thursday May 9.

Speaking on section 45Z – the tax credit program for SAF producers in the Inflation Reduction Act (IRA) for 2025-2027 – McAfee said it “doesn’t really have an incentive for SAF,” adding that “you have to extend [section] 40B… to be able to incentivize SAF production.”

Section 40B of the IRA is the SAF producer’s tax credit program for 2023-2024 and for which the Argonne National Laboratory’s Greenhouse Gases, Regulated Emissions and Energy Use in Transportation (GREET) life-cycle impact model was recently updated.

The updated GREET model allows SAF made from corn-starch ethanol or soybean oil feedstock to potentially be eligible for the 40B tax credit if the corn or soybeans were grown according to specific “climate-smart agriculture” practices.

Renewable diesel producer switches to petrol

Speaking on Vertex, a renewable diesel (RD) producer that announced one of their production plants will switch back to petroleum-based fuel, McAfee said: “They are a great example of what happens when the low carbon fuel standard [credit price] trends downward by 30% in a matter of a few months.”

“There are probably other producers that will be considering the same kind of move,” the CEO added, emphasizing how the incentives to produce biofuels are heavily influenced by tradable credit prices.

LCFS credit prices have fallen sharply from a peak of near $200 per tonne in 2020 due to rapidly increasing production of RD and other renewables. The number of credits has nearly tripled since then, leading to a surplus and causing the price to plunge. The most recent LCFS credit price was just below $50 per tonne.

Aemetis has received the final permits needed to move forward with its SAF plant project in Riverbank, California, and it is now focused on financing the project, the company said.

The Riverbank facility will have a capacity of approximately 78 million gallons per year of SAF production when it is optimized to produce only SAF, McAfee said, or up to 90 million gallons per year if producing a combination of SAF and RD.

The company has invested $30 million in Topsoe’s HydroFlex technology to allow them to shift from 100% SAF production to 100% RD or anywhere in between. That investment will never pay off if the Riverbank facility is always run as a SAF production plant, McAfee said, but “we think that flexibility is important because of the uncertainties in the [IRA] and, frankly, in the low-carbon fuel standard.”

Aemetis seeks new pricing structures

Aemetis is negotiating with investors on “innovative pricing structures” to finance the Riverbank project, McAfee said.

“It becomes more of a partnership between the supplier and the airline at which the airline is taking more of the risks around incentives and feedstock and energy costs,” McAfee said. “In exchange, the producer gets a more known amount of cash flow from the operations, which enables long-term debt financing at lower cost.”

McAfee referred to an article he wrote in April, in which he suggested that airlines should agree to purchase SAF on a “cost plus” basis – the cost of production plus a set profit margin – to help incentivize more production. McAfee also previously said that airlines are in a better position than startup biofuel producers to influence government environmental policy and should be doing so.

Aemetis has signed offtake agreements worth $3.8 billion with ten airlines, the company previously said in a separate investor presentation. The largest officially announced agreements were with Delta Airlines (100 million gallons of SAF over 10 years), JetBlue (50 million gallons over 10 years) and the Oneworld Alliance group (more than 74 million gallons over seven years).

The Riverbank facility is currently scheduled to come online in 2027.

Aemetis operated at a net loss during the first quarter but expected to start earning significant income from the IRA’s 45Z tax credit due to renewable natural gas production starting from the first quarter of 2025, the company said.

View our SAF production and credit price data