Potential Impacts of the 2024 U.S. Presidential Election on SAF
Brought to you by King & Spalding
Nikesh Jindal
Partner
-
Washington D.C.
Jack Lucas
Summer Associate
-
Washington D.C.
The upcoming 2024 U.S. presidential election has the green energy world worried. In particular, developers of low-carbon clean and renewable energy projects are concerned about regulatory and legislative changes that may be adopted under a potential Trump Administration. After all, on the campaign stump, former President Trump routinely questions the value of EV credits (as well as regulatory mandates for EVs coming from the EPA) and offshore wind projects, sometimes broadly attacking President Biden’s signature legislative accomplishment in passing the Inflation Reduction Act (IRA).
As beneficiaries of tax credits and other financial incentives under the IRA, sustainable aviation fuel (SAF) producers would be adversely affected by a broad repeal of the IRA’s full panoply of clean energy related provisions. Even though it’s unclear how this fall’s elections will turn out, and what legislative changes to the IRA that a potential Trump Administration would pursue, SAF projects enjoy some advantages that make them perhaps less susceptible to shifting political winds. Alternatively, a successive Democratic administration would probably continue to support the program, helping these projects overcome outstanding obstacles to broad-scale commercialization.
Under the IRA, SAF producers receive sizable tax credits intended to spur the development of these projects in the United States. The Act requires SAFs to achieve lifecycle greenhouse gas emissions at least 50 percent lower than petroleum-based jet fuel, and for projects that meet this qualifying threshold, developers receive tax credits ranging between $1.25 and $1.75 per gallon depending on the amount of the emissions reductions. This SAF-specific tax credit expires at the end of 2024 and is then replaced by the Clean Fuel Production Credit (Section 45Z), which similarly credits SAF projects going forward that reduce lifecycle greenhouse emissions by 50 percent or more.
To help with implementation of these tax credits, the Treasury Department has issued guidance specifying how projects may measure their lifecycle emissions and comply with the specified emissions reductions. Some agricultural interests, while supportive of SAF credits in general, have been critical that Treasury’s guidance may make it harder for projects relying on ethanol or soybeans as feedstocks to qualify for the tax credits.
To date, former President Trump has not commented specifically on SAF related credits. Notwithstanding calls from some corners to repeal the whole IRA, officials associated with the Trump campaign have not commented directly on the sustainable fuel credits.
There may be several reasons why a new Trump Administration would eschew full-scale repeal of the SAF credits. For one thing, there are many congressional Republicans whose districts benefit from the IRA, including the SAF-related credits. SAF credits overwhelmingly help farmers, potentially uniting rural congressional representatives to help protect them. In fact, when congressional Republicans earlier attempted to repeal the IRA, several members tied their votes to the preservation of biofuel credits. This biofuel-loyal contingent may continue to play an important and outsized role on IRA-related policy in future Congresses.
Similar political interests and forces may also limit the appetite for drastic regulatory changes under a new Trump Administration to eliminate or reduce the benefits of SAF credits. Former President Trump has for years championed the revival of middle-American manufacturing and agriculture interests. SAF credits and the projects they support could help benefit these stakeholders. Indeed, farmers and blue-collar workers, who comprise an important part of the former President’s base, stand to benefit significantly from these credits, particularly if implemented in a sensible manner. The IRA is not inherently an all-or-nothing proposition––indeed, it gives a potential new Trump Administration the opportunity to prioritize and reshape policies to align with the former President’s agenda to reinvigorate American manufacturing and agricultural interests.
In this sense, the SAF credits could find a comfortable home amongst “America First” policies. America imports large quantities of kerosene-type jet fuel from China, India, and South Korea. Properly implemented SAF credits, by contrast, could build reliance on American-made products and enhance domestic supply chains.
Perhaps for these reasons, former President Trump has a history of supporting biofuels. His administration promulgated rules to expand ethanol sales, even when the rules hurt traditional oil interests. During the 2024 Republican primary, he extensively attacked Ron DeSantis’s opposition to ethanol subsidies. These pro-farmer tendencies will likely persist. In his speech to the United Autoworkers pledging to gut parts of the IRA, Trump boasted that he “got $28 billion for our great farmers.”
Zooming-out, history teaches another lesson: entitlements and tax credits, whether good policy or not, often form one-way-ratchets: the government only decides whether to hand out more money, not whether to take money away. For example, Republicans blasted the Affordable Care Act (ACA) for years, promising to “repeal and replace” the law. But when the time came, with Republicans in control of the House, Senate, and the Oval Office, they could not coalesce around legislation to repeal (or replace) the ACA. Over time, significant reliance interests slowly shifted public opinion towards a more positive view of the ACA. Similarly, parts of the IRA have already spurred investment within the United States. No matter the merits of the credits, pulling the rug out entirely from politically popular efforts like ethanol and soybean based SAF projects could prove politically challenging.
Forecasting SAF-related policy under a potential Harris Administration, by contrast, requires less nuance. With the Biden-Harris team touting the IRA as a landmark accomplishment, continued SAF support seems like a near certainty. To help SAF projects really penetrate the market in a more fulsome manner, the White House will need to address several potential challenges, including how to reduce permitting delays. These obstacles currently threaten SAF production timelines. On the demand-side, uncertainties surrounding offtake and market demand may require additional government funding to incentivize demand. A Harris Administration would probably double-down on its clean energy vision by investing money and time to overcome these obstacles that, if unaddressed, could undermine the continued development of SAF projects.
Of course, sitting a few months away from the upcoming elections, it is impossible to predict which side will prevail and what the results will portend for the future of the IRA. Even if some parts of the IRA may be vulnerable to change, or even repeal, certain areas such as funding support for SAFs may be politically safe no matter who is in charge come January 2025. In fact, a Republican win may actually lead to more relaxed standards, helping more ethanol and soybean-based projects to qualify for the tax credit support, but that result is certainly not preordained. Agricultural interests and developers of SAF credits (as well as other stakeholders that benefit from SAF projects) should ensure they are actively engaged in the legislative and regulatory processes and undertaking efforts to educate both sides of the aisle on the important role these projects play in strengthening America’s agricultural, manufacturing, and energy independence related interests.
King & Spalding is a global law firm that helps leading companies advance complex business interests in more than 160 countries. Working across a highly integrated platform of more than 1,300 lawyers in 23 offices globally, we deliver tailored commercial solutions through world-class offerings and an uncompromising approach to quality and service. Our Environmental, Health and Safety team consists of former Environmental Protection Agency lawyers along with lawyers who have scientific degrees and industry experience who handle the most complex investigations, litigation and regulatory matters arising under environmental, health and safety laws worldwide.