Nebraska’s SAF Credit

The transition away from fossil fuel to electric vehicles makes the long-term outlook for ethanol murky. However, sustainable aviation fuel (SAF) might be the next big ethanol demand driver to clear the murkiness. SAF is a drop-in alternative to petroleum jet fuel produced from renewable feedstocks. Ethanol and oils from corn and soybean processing can serve as low-carbon feedstocks for its production. If ethanol and other agriculture feedstocks can meet the carbon intensity requirements, SAF could be a boost for Nebraska's ethanol producers and agriculture.

The growing interest in SAF is attributable to two developments according to a Cornhusker Economics article from the University of Nebraska Department of Agricultural Economics (https://agecon.unl.edu/will-saf-turbocharge-corn-ethanol-market). First, airlines have set a goal of reaching carbon neutrality by 2050 and SAF can help achieve this goal. Many airlines are already testing or using SAF including Alaska Airlines, United Airlines, British Airways, and Delta Air Lines among others as a means to achieve their goal. Second, the Inflation Reduction Act passed in 2021 established an income tax credit for SAF which reduces GHG emissions by at least 50% compared to petroleum-based fuel. Without the credit, SAF is not price competitive.

The potential use of ethanol and other agriculture feedstocks in the production of SAF led the Nebraska Legislature to pass legislation incenting its production. Originally introduced as LB 1072 by Sen. Dungan of Lincoln, the SAF provisions were amended into LB 937 and passed earlier this year. The measure provides income tax credits to producers beginning January 1, 2027, equal to 75 cents per gallon for SAF which reduces GHG emissions 50%. Plus, the legislation provides a supplementary credit equal to 1 cent for each percentage point the GHG emissions reduction exceeds 50%, capped at 50 cents. The total credit is limited to $500,000 per fiscal year and the credit sunsets on Jan. 1, 2035. Eligible producers can claim the credit for five years.

The credit is the first of its kind in the Midwest and could help SAF production get started in Nebraska. Dawn Caldwell with Renewable Fuels Nebraska said in supportive testimony on the measure that airlines bought more than $756 million of SAF in 2023, and the number is expected to grow exponentially. Global fuel consumption by commercial airlines has ranged between 95-100 billion gallons in recent years. But Nebraska faces competition not only within the U.S. but globally as well. Bloomberg's Dayanne Sousa and Clarice Couto reported that "Brazil is becoming a magnet for investment as countries race to grab a share of what promises to be a fast-growing market." Brazil is the second-largest ethanol producer and its ethanol, produced from sugar cane, has a lower carbon intensity compared to U.S. ethanol. Sousa and Couto wrote, "That means Brazilian-produced SAF would likely be more efficient in helping airlines reach targets to reduce their carbon emissions."

SAF will likely fuel air travel in the future. Whether ethanol and other agriculture feedstocks can play a role in SAF production is still uncertain. If renewable fuel producers in Nebraska can capture part of the SAF market, it can help secure a sustainable future for ethanol producers and agriculture in Nebraska.