Minnesota’s Sustainable Aviation Fuel Opportunity: Policy Incentives

The push to accelerate sustainable aviation fuel (SAF) production presents an opportunity to boost Minnesota’s bioeconomy. New markets for greenhouse gas-reducing feedstocks could speed up the development of oil-bearing winter cover crops and support forest management and wood product businesses. And, for first-generation biofuel producers, it offers potential new markets, especially if they invest in carbon intensity reduction.

In this three-part series, we’ll first look at the effort to expand SAF production exponentially and the related policy incentives. The second part will discuss the conversion technology platforms and take a closer look at how the state’s forestry sector could benefit from them. In the third installment, we’ll look at the potential impact on Minnesota’s agriculture sector.

Background on the growing support for sustainable aviation fuel

The push for SAF is coming from both the aviation industry and federal initiatives. Multiple airlines have pledged major greenhouse gas reductions, backed by offtake agreements and investments in emerging SAF suppliers. Delta Airlines, for example, signed an offtake agreement with Gevo, Inc. for 75 million gallons of SAF annually for seven years, starting in 2026. Delta plans to fuel 10 percent of its operation with SAF by 2030, which will require about 400 million gallons annually. Ultimately, the company aims to reach net zero carbon emissions.

Federal policies aimed at jumpstarting SAF production include the Biden Administration’s Sustainable Aviation Fuel Grand Challenge, which calls for 3 billion gallons of annual production by 2030. For SAF to comprise all of the nation’s aviation fuel by 2050, roughly 35 billion gallons will need to be produced annually. With just 4.5 million gallons of SAF produced nationally in 2020, the growth curve needs to be exponential.

To help incentivize that growth, the Inflation Reduction Act (IRA) includes grant funds to help speed the deployment of next-generation SAF technologies. The IRA also establishes tax incentives for SAF starting at $1.25 per gallon, increasing with each point of improved reductions above the qualifying threshold of 50 percent compared to conventional jet fuel, up to a maximum of $1.75 per gallon.

That incentive is on top of the value of credits for advanced biofuels under the federal Renewable Fuel Standard and any carbon credits earned in states with low-carbon fuel standards. The credits and incentives are critical in reducing the cost of SAF, which is estimated to be two to five times higher than conventional jet fuel.

Opportunities for sustainable aviation fuel growth in Minnesota

“The state has productive agriculture, plentiful crop residues, and abundant, sustainable forest biomass,” points out Megan Lennon, Minnesota Department of Agriculture’s energy and environment section supervisor. The department hosted a stakeholder gathering last summer to discuss the SAF opportunity.

“We wanted to figure out a way to make Minnesota be competitive with other states as a place where companies want to put down their roots and start producing sustainable aviation fuel,” Lennon says.

The stakeholder group developed several recommendations, including the following:

• Establish a suite of Minnesota policies supporting SAF production that complements the federal blenders tax credit.
• Pass a Minnesota low carbon fuel standard, also known as a clean transportation standard or clean fuel standard, to provide market incentives for SAF production and use in Minnesota and make the state’s industry more competitive.
• Establish a Minnesota SAF goal, giving investors confidence in the governor and Minnesota Department of Agriculture’s interests and commitments to SAF.
• Develop state-level novel financing strategies to attract investment in Minnesota: SAF tax incentives and abatements, grants, SAF production incentives, biomass subsidies, venture capital programs, etc.
• Fully fund the existing Advanced Biofuel Production Incentive Program and extend the sunset date beyond 2025.
• Establish a customized pathway to streamline and expedite permitting for SAF projects.

“I’m really excited about this,” Lennon says. “I see a lot of great potential, although there are challenges.” Beyond having feedstock availability, as described above, she also points out Minnesota’s existing biorefineries and demand from the Minneapolis-Saint Paul International Airport.

“When you look at a map, it’s obvious Minnesota has opportunities, and we get selector site hits [from biofuel companies looking for locations to site new or expanded operations],” says Pete Aube, chair of the Minnesota Forest Resources Council.

He points out that the state has about 2 million acres of forests that could be made healthier with biomass utilization while addressing fire hazards.

“Companies come in, and they see the opportunity, but they lack the economic incentive to  [site] here,” he says.

Aube adds that a state-wide low-carbon fuel standard, similar to California’s, would provide an incentive for investors and mitigate the disadvantage Minnesota forests have in the Renewable Fuel Standard. The definition of feedstocks in the Renewable Fuel Standard prohibits the use of wood from national forests and prescribes eligibility requirements that favor southern private plantations.

“A clean fuel standard in Minnesota would remove those handcuffs for Minnesota forests,” Aube says.

“One of the best things the state could do is some version of a clean fuels standard or low carbon fuel standard,” concurs Nancy Young, chief sustainability officer for Alder Fuels, which expects to announce its first commercial biomass processing facility this spring in the Southeast US.

The company combines established fast pyrolysis processes with its biocrude upgrading technology to produce a biocrude that is compatible with existing refineries. Alder’s technology is compatible with a wide variety of feedstocks, including woody biomass, agriculture residues, and energy grasses.

Young says that an advantage to Alder’s system is that the pyrolysis and upgrading systems can be located close to the source of the biomass, densifying the biomass into a biocrude for shipping to a refinery.

She adds that companies like hers need to send the resulting fuel to states like California, Oregon, or Washington, where their products can earn additional carbon credits. Those credits, plus earning advanced biofuel credits through the Renewable Fuel Standard, are critical to defraying the cost of the biofuel.

“The opportunity is very much there for Minnesota to optimize the agricultural and woody residue it has,” Young says. “If Minnesota wants to keep and attract more business to use that biomass and keep the full benefits of jobs and the environmental savings in the state, having a clean fuel policy that provides an equivalent or partial equivalent of the type of credit in California, Oregon, or Washington would be pretty critical.”

“When you look at California, they have a number of other policies in place to encourage GHG [greenhouse gas] reductions,” she says, “but the real driver is to have SAF in their program.”

Young cites several other actions that would support development. Good agricultural policies to encourage residue collection would be helpful, especially those that help collaboration among smaller producers.

“Also, take a look at programs you already have and make sure SAF qualifies,” she says.

Because SAF is so new, a lot of programs do not specifically name the fuel, so the interpretation often is that it does not qualify.

While Minnesota evaluates policy needs, Illinois is moving forward with its own incentives, with immediate results. In February, Illinois Gov. JB Pritzker signed the Invest in Illinois Act, which among other measures, creates a $1.50 per gallon SAF purchase tax credit to support the supply and use of SAF within the state.

A month later, in its quarterly investor call, Gevo said it had begun engineering on its Net-Zero 2 project, which will be three times the size of its plant under construction in Lake Preston, South Dakota.

While not announcing a location, the company said a commercially advantaged site will be chosen “to supply Chicago O’Hare International Airport with sustainable aviation fuel.”

About the author: Susanne Retka Schill, Langdon, North Dakota, is a semi-retired freelance writer who has covered agriculture and renewable fuels throughout her career.