Marketplace - Biden hopes sustainable aviation fuel production could take flight soon

Episode Date: February 22, 2024

Sustainable aviation fuel — an alternative to conventional petroleum — aims to decarbonize a carbon-heavy sector. Right now, it accounts for less than 1% of global jet fuel. Biden’s Inflation Reduction Act incentivizes aviation’s transition to SAF, but manufacturers still face big roadblocks. Plus, not all SAFs are created equal. This episode is part of our series “Breaking Ground,” where we look at how federal infrastructure spending might change the economy.

On the program today, our series Breaking Ground takes to the air, kinda, from American public media. This is Marketplace. In Los Angeles, I'm Kai Risdell. It is Thursday today, the 22nd of February. Good as always to have you along, everybody. We are going to start the program today with two pieces of audio. Once it's really rocking and rolling, you don't need as much government intervention,

but you do in the early going. That's one. His name is Gene Gaboulis. We're going to get back to him later. This, from a conversation I had with New Deal historian Price Fishback, is number two. So as a guy who studies this stuff and now is, you know, your area of academic expertise now was 90 years ago. Do you think in 90 years we're going to be talking about Biden and what he was trying to do with all this spending he's doing now? No, I think this is a drop in the bucket relative to what's going on.

Our series Breaking Ground is the show today. What the give or take two and a half trillion dollars from the Inflation Reduction Act, the infrastructure law and the CHIPS Act are going to mean for this economy and the way the government is in it. We started last month with the New Deal, the best example of how federal dollars can change the way government is in this economy. What the Biden administration is doing is not repeat not another new deal. But in complicated and invisible and sometimes contradictory ways, this could be a similar turning point. And that gets us to those two pieces of audio. Today on the program,

a single product and the government helping to create a market for it. It is absolutely a drop in the bucket. You are talking about 0.1% approximately. and the government helping to create a market for it. It is absolutely a drop in the bucket. You're talking about 0.1% approximately. So something less than a relative drop in the bucket, right? Correct. I mean, it is very, very low. The bucket, or buckets, actually, that we're talking about here, are the fuel tanks of the roughly 100,000 commercial airplanes

that take off and land on this planet every single day. The drop is something called sustainable aviation fuel, SAF for short. So it's not many interviews I have to climb in a van for. Where are we going? There's $245 million from the Inflation Reduction Act earmarked to help SAF producers make more of it and a tax credit to make SAF cheaper for their customers to buy. That doesn't sound like a whole lot of money in a $23 trillion economy, but government dollars can do things that private dollars just can't. First stop is going to be at the rail cars, and we'll talk more about it, you know, when we reach there.

Paramount, California, about 15 miles east of Los Angeles International Airport, is home to the first commercial-scale SAF plant in the world, owned by a company called World Energy. Okay, we're going to go through a different gate and enter, you know, the plant. The plant's director of operations, Sumir Sukhtankar, gave me a tour in the aforementioned van. I guess the point is this is a big place. This is a big place, yes. The plant covers about 65 acres. People use bicycles to get around. We just got to be careful whenever we are outside to be careful about, you know, golf carts, you know, forklifts, careful about, you know, golf carts, you know, forklifts, some of the heavy equipment. The global economy uses around 90 billion gallons of jet fuel every year, which explains how aviation accounts for somewhere between two and three percent of global emissions. SAF goes into

airplanes just like conventional jet fuel. The big difference is the source material, which is why Samir Sukhtankar and I started on the railroad tracks leading into the plan. You know, we receive our feedstock through rails. When you say feedstock, what are you talking about? So it could be, you know, vegetable oils. But right now what's on the track is, you know, non-edible or waste tallow. Waste tallow, like from beef tallow and that kind of tallow? That is right. Really?

Yes. So this is, sorry, I'm just looking at the capacity. This is 25,901 gallons of beef tallow? Yes, that's roughly counted in like barrels, roughly 550 to 600 barrels of beef tallow. Okay. Yeah. So it comes in here and there are one, two, three, four, as far as the eye can see, tanker cars, 600 barrels apiece. Then what? Okay, so once the

feedstock comes in, and here in this case, we are working with tallow. Normally, tallow has the consistency of, you know, Crisco. I don't know but okay yeah it's like really buttery okay right so before we can unload it yeah you know we have to melt it and to melt it we use steam is that what i hear going through there that's right that sound you hear is the steam that we are currently you know melting the tallow so it becomes liquid and then we are able to pump it. That's amazing, but also ew. That melted tallow gets pumped into a processing unit to remove impurities. Then it gets split into biodiesel and SAF and some other stuff.

I would like to take you to the lab or laboratory where we charge. Back in the van we go to a building a couple of hundred yards away. Hey, how are you? I'm Kai. For a look at the finished product. This was made like, what, was this made today? Yes. 6.45 this morning, look at that.

Yes, yes. Jet A. That's the sample from the unit just came in. Vinay Panwar, the quality manager, hands me a glass bottle with a clear liquid inside. If you open that bottle, you're going to... Can I actually open it? Yes. You can open it and you can smell it.

Just don't taste it. And then he put it side by side with conventional jet fuel for a burn test. What am I looking for now? You will see it right now. Once I'm going to set it on fire, you're going to see the smoke. No pressure here. Vinay, man, you blow us up.

We're done. No, no. We make sure we're safe. Oh, that's wild. Look at that. Okay. So a petroleum jet is burning dirty with smoke and gross stuff, and the renewable is nice and clean.

So that thing you were saying before about what comes out of the tailpipe actually is different, right? It matters. It's different, yes. You know, you can see there's a lot of particulate emission from the conventional jet, but you can see almost nil from a renewable jet. So that's the scene, as we say in radio. one kind of fuel, standard petroleum jet A burning with a bunch of black soot and smoke coming off the top and another sustainable aviation fuel burning visibly cleaner. Here, then, is the context. Do you know off the top of your head, you probably do, how much SAF contributes to the overall jet fuel supply right now in American aviation or globally, if you know it? You're talking about 0.1 percent approximately. I'm sorry, 0.1 percent. Correct. So something less than a relative drop in the bucket, right? Correct. I mean, it is very, very low. Bhupendra Khandelwal is associate professor of mechanical engineering at the University of Alabama.

And from last about 12 odd years, the only thing which I'm doing is how do these different types of SAFs and alternative fuels behave in aircraft. You might have seen headlines last year about the first transatlantic flights using 100 percent SAF. Richard Branson was on board one of them. The Biden administration has a goal of getting to 3 billion gallons of SAF production by 2030, which is, wait for it, a 19,000% jump from what we produced in 2022. Drop in the bucket. As I said a minute ago, the feds have set aside $245 million in the Inflation Reduction Act and a per gallon SAF tax credit to make that happen. That is the government in the economy in a way that only Washington can do at scale as it tries to create a market for sustainable aviation fuel.

And just to give you the rough numbers, like there are a handful of SAF plants in the U.S. And to produce enough SAF within the U.S., you need hundreds of plants. Each plant costs upwards of $300-, $400 million, $500 million, trained workforce, and all the materials to build it. It's not going to happen overnight. I mean, we're talking about decades to reach those sorts of levels. I'm obliged to point out here that if these plants cost three or four hundred million dollars apiece and the Biden administration has, I think, 250 ish million dollars to spend on SAF production, we're not getting there even maybe in a decade. It's going to be several decades. I absolutely agree with you. Creating a market for a new technology like SAF, which involves heavy industrial processes, takes time.

Way longer than a single presidential administration. So here's your required reminder that we are in an election year. So there is no guarantee that any of this investment is going to last. Of course, private industries can play a role in it. is going to last. Of course, private industries can play a role in it, but the biggest challenge is the cost of SAF, because this is the first time in aviation history, at least, where a new technology is being brought in, which goes negative on your account books. Unlike increases in aircraft efficiency, better engines, or higher tech materials. Using SAF makes flying more expensive, not less. It can cost up to 10 times as compared to jet fuel. Well, so since

aviation is actually a business, Professor, that doesn't seem very sustainable. That is the whole point. That is the whole point. SAF is a nascent industry. It's a new technology trying to get a foothold. But without government investment and interest and push, this is not going to happen. What role the federal government should play in scaling up industries like this one has been debated for decades. And with SAF, what we're really talking about here are the strategies that government ought to use to fight climate change. Tell me exactly who you are and what you do. My name is Candelaria Vergero, and I'm a PhD candidate in the program of Earth System Science at the University of California, Irvine. The topic of my dissertation

focuses around net zero emission targets. Other than the fact that you might actually be the one to save humanity and the planet, what was it that made you want to get into this? I really wish so. But it would take a lot of effort, the people doing a lot more than I'm trying to do. I was, I don't know, I was passionate about the environment. And then aviation is super interesting. It's considered one of these hard to decarbonize sectors. There are other industries where the path to decarbonization is clear. Cars, for example, are on the road to electrification.

It is a long and difficult road with economic and logistical and political hazards along the way. And governments have been trying to incentivize EVs for decades. Airplanes, though, are a different story. There's nothing electric or hydrogen powered on the market that can replace the big passenger jets flying today. And it struck to me personally, because there are a lot of movements shaming people on flying, and I don't really think that's the solution. I mean, I'm personally, I come from Argentina,

my family's part of it is in the East Coast, part of it is in Lebanon, another part is in Colombia, in Argentina. So it's very hard for me to just not fly. So if we could find a way to do this without harming the planet, I think it would be very beneficial. How much does it matter what sustainable aviation fuel is made out of, if that makes any sense at all?

Yeah, that's crucial. And when we say sustainable aviation fuels, we kind of imply that they're all the same, but they're not. So you want to be very careful that you're not creating other problems by making aviation be net zero, right? Like we are all in the same planet. So if you're deforesting a very pristine place to create your feedstock for aviation, sure, aviation will get all the gold medals for being net zero. But then in the atmosphere,

you'll be releasing all of this carbon from deforesting this pristine forest. Think about that plant I visited with the tanks of beef tallow getting turned into SAF. The biggest carbon saving you get from sustainable aviation fuel comes from replacing petroleum, a fossil fuel, right, with renewables like beef tallow.

But beef production is a significant contributor to greenhouse gas emissions, even before factoring in the land use costs. This is probably outside the subject of your research, or maybe not. I don't know. You get to decide. But it does seem like it's almost a – there's no way to win here, you know? to be very careful with the steps you take and have a more holistic understanding. You should try to look around whatever topic you want, in this case, aviation, to see that while you're fixing aviation, you're not creating another problem. That is the complicated and sometimes contradictory part of what the Biden administration is trying to do. So coming up, why this complicated problem needs federal investment at all. This is Marketplace. I'm Kai Risdahl. Our series Breaking Ground is all about what happens when the federal government decides to change how deeply involved it is in this economy.

Today, that means one industry, the Biden administration, is trying to jumpstart with the Inflation Reduction Act. Right now, the United States produces about 16 million gallons of sustainable aviation fuel, SAF, every year. The Biden administration wants that to be 3 billion gallons by 2030, and it created grants and tax incentives to help producers ramp up. Hey, so it's Kai Risdahl in Los Angeles. How are you? Hello, Kai. Thank you for taking time to go into the studio today. I understand the weather's kind of nasty in Boston.

It is frigid. That's what I hear. You know, it's frigid here, too. It's like 57 degrees and we're all dying. Oh, come on. Don't do that. Sorry, sorry, sorry. Gene Gaboulis is the founder and CEO of World Energy, one of the biggest SAF producers in the country. It owns the plant that I visited.

World Energy has been making biofuels for cars and trucks since the 1990s. World Energy has been making biofuels for cars and trucks since the 1990s. Now, though, the company is investing $5 billion into scaling up production of sustainable aviation fuel. And if that expansion goes to plan, they're hoping to supply a billion gallons a year by 2030. There are dollars on the line here, both for you and for your customers. So when you and, I don't know, Ed Bastian, the CEO of Delta, get on the phone, does that ever say to you, look, I really, really like your product, Gene, but it's just too damn expensive? Yeah, all the time. So, yeah, that's all right. But you've absolutely, look, the airline industry is extremely operating cost sensitive. They operate on very thin margins. They've got a high exposure and high sensitivity to fuel costs. And if all we were doing was saying, hey, we can move your airplanes from where they are to where they need to be just as good as the other stuff does, then there's no need for our product. But the other thing that airlines do is service a customer.

And they service different customers in different ways. We all know the different parts of the airplane. And there are some people sitting in the front of the plane and some people sitting on the back of the plane. Their highest value customers are asking for decarbonization. Last year, Microsoft, yes, that Microsoft, committed to buying 44 million gallons of SAF from World Energy over the next decade.

So bear with me for a minute here as I explain why a big technology company is buying sustainable aviation fuel. When we produce sustainable aviation fuel, we push it through a pipe to LAX, but we only sell it as jet fuel. Whatever airline ends up using that SAF out at LAX just pays the cost of conventional jet fuel. Microsoft effectively pays the difference. Microsoft effectively pays the difference. And in return, Microsoft gets a decarbonization credit.

We deposit into Microsoft's account a metric ton of decarbonization. So as its employees take flights or the company ships cargo via air, they can offset the carbon that creates with a decarbonization credit in their accounts. with a decarbonization credit in their accounts. They retire that decarbonization, and they need to buy more to do more decarbonized flight. Microsoft isn't doing that, of course, out of the goodness of its corporate heart. It promises to be carbon negative by 2030, removing more carbon from the atmosphere than they put in.

The Inflation Reduction Act makes SAF cheaper to incentivize more companies like Microsoft to buy more of it. That is the government in the economy, helping to create a market the way only the federal government can. It creates demand. Demand creates investment. Investment creates supply, and then you get into a virtuous cycle. So moving goods, I get, right? You physically have to get actual stuff from point A to point B, but isn't a better answer to the consulting firm or Microsoft or anybody else or world energy staffers, right? Who I'm sure, you know, go to meetings and clients and all this jazz. Get on a Zoom, man. Don't burn fossil fuels and get in a plane. and plants and all this jazz.

Get on a Zoom, man. Don't burn fossil fuels and get in a plane. Yeah, look, that's a great answer. Some of the time. But you jump on airplanes, and you'll continue to jump on airplanes. I jump on airplanes. Listen, during COVID, I learned that I could be so much more impactful

sitting and looking into a 2D screen. But then when we emerged out of that, we realized that that's not going to solve everything. We often need to fly. And when we do, we should do it in a more responsible way, in a more sustainable way. What is the government's role in this industry in getting us there? Well, the government's critical.

And it's neither just the government or just the private sector. It's the government and private sector working in concert that is going to enable us to decarbonize aviation. There is a limit to how much the federal government's going to be able to spend in sustainable aviation fuels because there are many demands on taxpayer money. I guess my question is, how badly do you as a guy running World Energy need the government to help you out in doing what you want to do? are much like the early investments that the government makes in all kinds of things, from the health sector to computer science to defense. So many of the list goes on and on and on,

where the government money stimulates private money, which stimulates innovation, which stimulates more and more demand, which gets the whole thing going. So the idea here is not that the government forever subsidizes an activity. The idea is that the government stand up an activity that we tap into the demand for. Once it gets going, once it's really rocking and rolling, you don't need as much government intervention, but you do in the early going. I'm going to say this again, that right now, sustainable aviation fuel accounts for less than 1% of total jet fuel consumption. For all the hard work that your folks out at the Paramount plant are doing,

it's kind of a drop in the bucket, right? It is. It is absolutely a drop in the bucket. And so there are two ways to look at the drop in the bucket. One is to say, gee, it's so small and so insufficient. We ought not do it. And I hear that all the time. And there's a real temptation to just say, look, if you can't do everything, ought not do it. And I hear that all the time. And there's a real temptation to just say,

look, if you can't do everything, don't do anything. I don't buy into that. That's not how innovation happens. Innovation happens when you do what you can do today and keep doing it. We have got to transition how we do energy. And there will be trillions of dollars spent to do it. And the countries that invest early and build capacity early will be the beneficiaries of that transition. And those that decide to be the last ones in won't.

Last thing and then I'll let you go. You strike me as a guy who has a sense of urgency about what he does and that, in fact, you consider this a crusade in the secular sense. Is there a way to make this go faster? Is there a way to make it go faster? Yeah, well, I think based on your question is the answer. We cannot wait. The way this is going to go faster is to build the market. Supply will chase demand. And in combination with, and it's not one or the other,

the government investments in terms of tax credits and the private sector investment in terms of long-term contracts, that combination is what accelerates this progress. Like I said, the federal government putting its thumb on the scale of industry is not new. What is new are the industries the federal government is investing in and the scope of the problems it's trying to solve. This industry, sustainable aviation fuel, didn't even exist 20 years ago. And if it's able to scale up without causing other problems, it could help us solve an existential threat to the planet. But that is not going to happen without the government in this economy. This final note on the way out today, an observation of sorts. Less than a mile from Marketplace World headquarters here in downtown Los Angeles,

a new billboard has gone up from Delta Airlines. It reads, destination, more sustainable travel. We're accelerating our push, the billboard says, to source sustainable aviation fuel. The company says they have signed agreements for more than 200 million gallons of SAF. Thing is, Delta uses more than 3 billion gallons of jet fuel every single year. As I believe I said a time or two in the last half hour, drop in the bucket. John Buckley, John Gordon, Rick Carr, Diantha Parker, Amanda Peacher, and Stephanie Seek are the Marketplace editing staff. Amir Bibawi is the managing editor.

I'm Kyle Risdell. We will see you tomorrow, everybody. This is APM. All over the country. We need to improve reading in Wisconsin. Schools are changing the way they teach reading. I'm calling for a renewed focus on literacy. We have gotten this wrong in New York and all across the nation.

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