For SAF Producers in US, Protectionist Policies Lead to Short Term Gains, Long Term Complexity

WASHINGTON, D.C., July 17, 2025 - Globally, airlines are increasingly committing to the use of Sustainable Aviation Fuel (SAF) to cut down emissions.

On the policy level too, governments have been announcing measures that could contribute toward the ambitious target of airlines to achieve net-zero emissions by 2050.

However, protectionist policies in the US have seen some SAF producers derive short-term gains, while the long-term impact is seen to be complex.

The recent modifications in the climate policies from the Inflation Reduction Act created a new tax credit for clean fuel producers known as “45Z.”

Deviating from the current law and shifting away from the House version of the legislation, the US Senate’s tax-writing committee had earlier proposed altering a key tax credit aimed at promoting low-carbon fuels.

The changes would reduce the extra subsidy that was being provided to low-carbon jet fuels compared to road fuels.

This marks a major adjustment to the incentive’s structure.

Less Subsidy for Low-Carbon Jet Fuel

The Senate proposal included less-restrictive limits on the use of foreign biofuel feedstocks, significantly broadening the scope of eligible materials.

The House passed its version of the bill last month, preserving the general framework of the incentive, which increases subsidies as emissions decrease, and extending the tax credit for an additional four years, through 2031.

The credit, designed to encourage the use of cleaner fuels, officially took effect earlier this year.

These varying approaches between the House and Senate versions have created a situation for potential negotiations as lawmakers work to reconcile differences and finalize the legislation.

Supporting and Opposing Voices

In a letter released last week, US industry groups urged SAF subsidy restoration under the 45Z tax credit.

Biofuels and fuel associations, airlines, and other industry stakeholders have requested that SAF credits be restored to $1.75/gallon under the 45Z Clean Fuel Production Credit.

However, freight and biofuel industry groups welcomed the US Senate's updates to a tax bill that would reduce the extra subsidy for SAF.

While scientific advancement and the sustainability factors of SAF have been receiving a boost, the political and economic policies have not always been supportive.

Despite the flip side, Sustainable Aviation Fuel (SAF) Coalition Executive Director Alison Graab says the ‘Big, Beautiful Bill’ extends the Clean Fuel Production Credit (45Z) through 2031.

“This legislation provides the long-term certainty SAF producers need to scale operations, drive private sector investment, and benefit American farmers and rural economies. Sustainable aviation fuel is a vital solution for advancing US energy dominance, driving rural economic growth, and establishing the US as a global frontrunner in SAF production.”

Impact Based on Supply Chain

During the US-China trade war, producers of SAF saw contrasting outcomes, depending mainly on their supply chain strategies.

The SAF firms that primarily depended on imported feedstocks were hit hard by rising costs and regulatory uncertainty, making operations more difficult and less predictable.

In contrast, companies with vertically integrated domestic supply chains gained short-term advantages.

US biofuel refiners that source materials locally enjoyed a temporary pricing advantage, as tariffs made imported alternatives less competitive.

This allowed these domestic firms to capitalize on favorable market conditions.

The longer-term effects of protectionist policies proved more complex.

Initially, domestic SAF producers benefited from reduced competition, but they also faced limitations in accessing advanced international technologies and forming global partnerships.

Retaliatory tariffs from affected trading partners further compounded the challenge, making it more difficult for US SAF firms to export their products or license their innovations abroad, ultimately narrowing their global market opportunities.

US industry groups have urged SAF subsidy restoration under 45Z tax credit. Biofuels and fuel associations, airlines have requested SAF credits be restored to $1.75/gallon.

Inputs from Saqib Malik

Editing by David Ryder