How the Pentagon’s Adoption of SAF Could Drive Aviation Sector Transformation
CONTRIBUTOR | By Brian Hall, former naval aviator and FAA certified commercial pilot – Friday, October 13, 2023
Reducing emissions from the aviation sector has become a priority for the United States to meet its climate targets, and deployment of clean aviation technology must be rapidly accelerated at a large scale to do so. According to the Intergovernmental Panel on Climate Change, sustainable aviation fuel (SAF) is the most near-term technology solution for aircraft, but scale-up of production continues to be expensive until there is a large enough demand for it. Our military could help address this gap as an early adopter of clean fuels.
The Department of Defense (DoD), a major consumer of fossil fuels, has an opportunity to be a major user of reliable, readily-available, cleaner aviation fuels without sacrifices in readiness, price, or performance–and it can do so without major legislation. A significant portion of the jet fuel used by the DoD are produced with imported petroleum products, often from countries we are not allied with or in geopolitically fraught areas. Replacing a portion of the DoD’s 73 million barrels of liquid petroleum fuel purchases with domestically produced SAF would be an achievable major climate and national security win.
The DoD burns billions of gallons of fossil-based jet fuels each year despite efforts to explore the use of renewable fuels. The U.S. Navy’s Great Green Fleet initiative in 2016 sought to fuel their ships with 50-50 blends of conventional and biofuels by 2020. Unfortunately, that initiative was dropped due to the cost of the biofuels, lack of funding, and an austere policy environment. Today, the Navy and the DoD are still burning 100% fossil fuels for operational uses. However, due to maturing production technology and a favorable policy environment, biofuels can help the DoD reduce carbon emissions in the near-term.
The DoD procures an enormous amount of fuel through a bulk contract bidding process, and those bulk purchases highlight some staggering figures for the military’s impact on carbon emissions. Based on the DoD’s annual energy report in fiscal year (FY) 2022, the military purchased 73 million barrels of fuel, of which a whopping 48% came from outside the U.S. They spent $14.5 billion on energy. Of that figure, 68% was used for operational energy, meaning that the fuel was used in tanks, helicopters, planes, and ships in support of training and sustaining military operations. In other words, over three billion gallons of fuel were burned by the DoD in a single year, resulting in 27 million metric tons of carbon dioxide being released into the atmosphere in a single year.
There are two key takeaways from the DoD’s energy usage. First, the DoD burns massive amounts of fuel with correspondingly colossal greenhouse gas (GHG) emissions. These same emissions contribute to the climate crisis, which is a destabilizing force and places DoD installations at greater risk from storms, flooding, and degraded personnel and equipment performance. Second, a staggering amount of fuel for DoD operations is purchased outside of the U.S. In FY2022, nearly half, or 35 million barrels of fuel were purchased from foreign nations. Relying on foreign-sourced fuel is antithetical to U.S. strategic security interests, especially since SAF is produced domestically.
CONVENTIONAL JET FUELS VS. SAF
Conventional jet fuels are highly refined hydrocarbons in the form of kerosene, which is hard to replace as a power source because the fuel is relatively inexpensive, energy-dense, able to be transported, and benefits from decades of infrastructure development. No replacement technologies for liquid fuels can currently support long-haul flights and the dynamic flight environments required by military missions. Nevertheless, advancements have been made in producing jet fuel with low-carbon feedstocks, resulting in a chemically identical alternative with significantly lower lifecycle carbon intensity. Some of these low-carbon feedstocks are derived from the 1 billion dry tonnes of biomass collected sustainability in the US each year, such as corn grain, algae, forestry residues, and dedicated energy crops.
Current kerosene-based jet fuels are used to produce variants used for several aviation applications. Commercial airlines run on Jet-A, the most common fuel in the world. The DoD most commonly uses JP-8 (jet propellant-8) and JP-5. JP-8 is the standard fuel used by the military; it is the same as Jet-A, but with anti-corrosive and icing-inhibitor additives. JP-5 has safer flashpoint ratings allowing for safer warship storage. Importantly, Jet-A, JP-8, and JP-5 are interchangeable and compatible with a vast array of gas turbine engines, SAF blends are no exception and allow for seamless integration into existing fuel supplies.
A SAF proof of concept is highlighted by commercial carriers, which are early investors in SAF integration. The commercial aviation sector sees the benefits of SAF through consumer relations, predictable pricing, tax incentives, and climate benefits. However, U.S. carriers still consumed over 16.5 billion gallons of jet fuel in 2022 and are on pace to burn more in 2023. The commercial sector sees SAF as a critical component to decarbonizing the aviation industry because it is a fully drop-in ready fuel that allows for minimal changes in aircraft components, airports, and airline infrastructure. The integration of SAF blends into DoD purchases can just as easily integrate low-carbon fuels into existing infrastructure, bulk purchases of SAF is a timely and readily available mechanism to decarbonize the DoD to date.
POLICY AND REGULATORY LANDSCAPE
ASTM is an international standards organization that defines and sets standards for a wide range of systems and services, including for the jet fuel industry. ASTM ensures that SAF is chemically the same as conventional jet fuels, so once the SAF is blended it is redesignated as generic aviation turbine fuel and is certified to be handled, mixed, stored, used, and performs the same way as any conventional fossil-based jet fuel under the ASTM standard. Because quality is guaranteed upstream through the ASTM international certification process, DoD regulations allow the use of SAF blends. However, there are two policies within Title 10 that have limited the adoption of SAF. The first policy in code 10 USC 2922h states that the DoD may not make bulk purchases for operational purposes unless they are cost-competitive with traditional fuels. The same provision does not apply to research, development, testing, certifications, or demonstrations. However, operational needs cover the vast majority of fuel use in the DoD. The second policy also falls under 10 USC 2922, originated from the FY15 National Defense Authorization Act (NDAA), which states that the Secretary of Defense must notify Congress of any intention to purchase SAF drop-in fuels that cost more than 10% over conventional fossil-based fuels.
The Inflation Reduction Act (IRA) includes two tax incentives that support the production and sales of SAF. These incentives are critical to getting SAF to cost parity with fossil fuels. The first incentive is 40B which is active calendar years 2023 and 2024 and incentivizes the production of SAF that reduces GHG emissions by 50%. The base rate is $1.25 per gallon, but can be increased up to $1.75 per gallon for $0.01 per percentage point of GHG reductions. The second incentive is 45Z which will become active during the 2025 and 2027 calendar years to effectively replace 40B for SAF specifically. 45Z incentivizes clean fuels that meet predetermined carbon intensity targets, SAF producers under this plan can qualify for up to $1.75 per gallon. It is imperative for the SAF industry to meet and reach the full extent of these tax credits to scale SAF production processes and outcompete fossil fuels for DoD petroleum bids.
The primary hurdle to the DoD purchasing SAF blends is achieving price parity between SAF and fossil fuels. Reducing the cost of SAF is a substantial goal, but SAF production and feedstock technology have matured considerably in the past decade. The current policy environment and tax incentives support the switch from conventional fuels to SAF. With maturing efficient technology and growing bioenergy economics of scale, SAF is approaching cost-competitiveness with conventional jet fuels, making it a promising candidate for bulk fuel purchase bids by the DoD.
DOING THE MATH
Estimating the cost competitiveness between SAF and conventional fossil fuels poses challenges. SAF production is a growing industry, and the actual cost of SAF remains proprietary, so prices are approximated by taking renewable or biodiesel prices and adding further refining costs. However, this approach is imperfect as it compares commercial renewable or biodiesel prices to fossil fuel commodity prices. Moreover, Title 10 mandates that cost competitiveness be calculated based on the fully burdened cost, which includes the complete logistics overhead, but the lack of clarity on which specific figure Title 10 requires SAF to be within 10% of complicates matters. Given these challenges, estimating SAF’s cost competitiveness involves making imperfect comparisons, assumptions, and rough estimates. Nonetheless, these ballpark figures indicate that SAF sales to the Department of Defense are economically feasible.
Defense Logistics Agency (DLA) Energy is the DoD’s supply center for energy procurement and the efficient functioning of fuel supply chains. DLA Energy sets prices for petroleum products each fiscal year to predict funding and insulate the DoD against fuel marketplace fluctuations. Standard petroleum prices set by DLA Energy and recent bulk petroleum bids were considered to estimate current DoD pricing for jet fuel. The corresponding prices in 2023 are $3.90 for the standard price of JP-8, and $3.39 for a recent bulk contract for Jet A. Title 10 requires that purchases need to be within 10% of conventional fuels, which means SAF would need to be at most $4.29, or $3.72 depending on whether the standard price or the bulk bid benchmark is used.
The cost of SAF can be estimated by considering the costs of renewable and biodiesel along with additional costs required for further refinement and hydrogen. 2023 prices for renewable diesel average at $5.33 per gallon, while Biodiesel (B99-B100) average at $4.95 per gallon. Assuming producers can receive full tax subsidies of 40B or 45Z, prices could be as low as $3.58 for renewable diesel feedstocks and $3.20 dollars for biodiesel feedstocks. Those figures are competitive with fossil fuels, the only variable being additional costs for the final refinement processing to reach SAF standards. The problem at hand is to understand how to ensure the additional refinement does not preclude future bulk competitive bids to the DoD.
POLICY OPPORTUNITIES
The SAF industry is advancing and nearing cost-competitiveness with fossil fuels. Scaling critical infrastructure, streamlining logistical bottlenecks, and maintaining SAF tax incentives will continue the growth of the sector and lower production costs. Easy solutions to enable SAF sales include stakeholder education and bid assurances. If DoD enters into purchase agreements with SAF producers to guarantee offtake, they would be assured they could sell larger amounts of SAF which would aid in scaling production and getting to economies of scale. Furthermore, the DoD should publish the prices it considers cost-competitive so SAF producers have a benchmark to reach and compete to outbid fossil-fuel competitors.
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Brian Hall is a former officer and pilot in the U.S. Navy. He is a graduate student in global environmental policy at American University and a Clean Fuels Fellow at Boundary Stone Partners.