Aviation is one of the hardest parts of the economy to decarbonize. New planes that run on hydrogen or batteries are being tested, but technical hurdles and slow fleet turnover mean these solutions are years away.

The only near-term option is to replace a slice of today’s petroleum-based jet fuel with sustainable aviation fuel (SAF), a cleaner drop-in product that planes can already use. SAF is made mostly from biological sources (like waste vegetable oils, tallow, or crops). Over its lifecycle, it reduces emissions – unlike burning a fossil fuel, which releases carbon that had been locked underground for millions of years.

A new paper circulated on October 6 by the National Bureau of Economic Research (NBER) uses, for the first time, a detailed economic model of the U.S. road- and jet-fuel markets to test real policy choices. The authors, led by a team at Harvard, calculate how overlapping state and federal incentives stack up. They lay out the trade-offs in designing SAF policy, consider interactions with markets for the biofuels used in surface transportation, and offer clear guidance for policymakers trying to cut aviation emissions.

The challenge is immense. The Department of Energy has set a goal of 3 billion gallons of SAF by 2030. As of early 2024, domestic SAF production capacity was roughly 31 million gallons – about 1% of the target and just 0.1% of the U.S. jet-fuel market.

The paper finds that the U.S. target is attainable with current technology, but not with current policy. Under today’s mix of policies (the Renewable Fuel Standard, state low-carbon fuel standards, the new Clean Fuel Production Tax Credit (45Z), and state SAF tax credits), the economists’ model projects only a small bump in SAF production by 2030.

Because most SAF comes from the same feedstocks as the biofuels used in ground transportation, the two compete for both raw materials and policy subsidies. Under current policy, surface fuel wins most of the incentives and the limited supply of oils and fats. For example, an increasing share of feedstock that could be used for SAF is converted instead to less-expensive renewable diesel to satisfy California’s low-carbon fuel standards.

The question is whether those surface uses can pivot towards jets. The paper argues yes: It would cost more, but not a lot more. It would require policy changes, but there are multiple ways to achieve the pivot.

Pathways to the 2030 target

Different rules move different levers, shifting the bill among motorists, taxpayers, and air passengers. Because these levers change fuel prices, fuel choices, and government spending in different ways, the money flows add up differently. So does the average cost per ton of CO₂ abated.

• One path the authors model is to update the federal Renewable Fuel Standard, a Congressional mandate that biofuels be blended into road fuels sold throughout the country, so jet fuel has its own target and isn’t just competing with surface biofuels.
• A second option is a national “clean aviation” standard that steadily lowers the carbon intensity of jet fuel, making jet fuel suppliers meet a target. The European Union is going down this path this as part of its net-zero goals.

These paths cost about the same as current policy but yield a 40-46% increase in emissions reductions.

• A third option – creating a new federal SAF tax credit on top of current rules – also boosts SAF by stimulating supply, but is more expensive. This cuts emissions about 22% more than current policy, but at about 25% higher average cost per ton of CO₂ avoided.

Aiming higher

Emissions cuts would be about 110% larger than under today’s policy mix, at about the same cost, if policymakers did two things at once: Create a SAF-only category within the Renewable Fuel Standard and expand the Standard so the country must use more low-carbon fuel in total, not just reshuffle it from trucks to planes. But this would raise pressure on limited agricultural land and drive up crop prices, and thus food prices nationally and globally.

The analysis does not count future innovations that could make SAF cheaper over time. Whether bio-based SAF or e-fuels (“power-to-liquids”) become cheaper is still an open question.

Yet under all scenarios, the analysis shows that if policymakers align incentives so aviation and trucking are not competing for the same fuels, the U.S. can scale SAF much faster and cut more emissions this decade, at a cost not much higher than the country is paying for its current biofuels.