Rep. Brad Schneider (D-Ill.) led the push for the tax credits with support from airlines, environmental groups and companies that make both clean jet fuel and renewable diesel. He said the proposal is a key part of the broader effort to combat global warming.

“SAF represents the only currently viable solution to reduce emissions from aviation, whereas other transportation sectors have multiple pathways,” Schneider said in a statement. “From the beginning, our goal has been to ensure market success, to avoid supply chain disruptions, and most importantly to achieve our climate goals.”

Build Back Better would authorize a $1.25-per-gallon tax credit for SAF that reduces emissions by at least 50 percent compared with conventional jet fuel. For every additional percentage point in reduced emissions, the tax break would increase by 1 cent up to a maximum of $1.75. The subsidy would take effect in 2023.

The sweetener is larger than the $1-per-gallon tax credit for bio-based diesel, which Build Back Better would extend for another five years.

The tax break is being proposed as the Biden administration aims to slash U.S. emissions in half by 2030. Achieving that goal requires targeting the transportation sector, which is the largest contributor to the problem. Aircraft contribute about 10 percent of the industry’s emissions, while medium- and heavy-duty trucking, rail and shipping combined contribute about 28 percent, according to the EPA.

Investors are closely watching whether there will be enough feedstock available as the production of bio-based diesel and SAF expands, and there is a lot of uncertainty right now, said Prashant Rao, director of biofuels equity research at Citigroup.

“The primary concern is pace,” Rao said in an interview. “Can the feedstock market keep pace with the amount of projects that have been announced? As with any large energy project, there is also the risk that some don’t get completed.”

Kim Carnahan, senior director of net zero fuels at ENGIE Impact, a sustainability consulting firm, had another assessment. She said there is a limited amount of feedstock available, but it won’t be saturated until a decade or more.

By then, road transport could be moving toward electrification or other technologies like hydrogen fuel, said Carnahan, who also manages the Sustainable Aviation Buyers Alliance. The group is creating a new carbon accounting system for SAF.

Biodiesel accounts for about 9 percent of the U.S. biofuel market, while renewable diesel accounts for 5 percent, according to the Energy Information Administration. Only a few million gallons of SAF are in production, representing far less than 1 percent of the sector.

Major oil refiners including Chevron, Marathon and Phillips 66 have announced expansions into renewable diesel. Their executives also say they are watching where the SAF tax credit lands and may consider making the fuel if the economics are right. The Biden administration in September set a goal to produce at least 3 billion gallons of SAF annually in the U.S. by 2030, up from just 5 million gallons today.

One of the primary barriers to expanding renewable diesel alone is the availability of fat, oil and grease feedstock, EIA said. Goldman Sachs last year estimated there could be a 13-billion pound feedstock deficit by 2024 as more capacity starts up.

Meanwhile, studies commissioned by lobbying groups have reached conclusions that support their positions.

The Advanced Biofuels Association last week touted a report that found there is more than enough feedstock to meet forecasted demand through 2040. The consulting firm that authored that report, LMC International, prepared a separate study two months earlier for the National Association of Truck Stop Operators that determined a finite supply of waste oils and fats could shift from renewable diesel to SAF if Congress passes extra tax credits for aviation. The group used the study to bolster its opposition to the tax credits.

LMC said their two conclusions don’t conflict. There will be limited supply of waste oils and fats in the short term because it will take time to set up new supply networks, according to Andrea Kavaler, the firm’s executive vice president. Long-term, across all oils and fats more broadly, there will be enough to meet demand for biofuels.

David Fialkov, a lobbyist for NATSO and the Society of Independent Gasoline Marketers of America, said not only is there not enough feedstock to go around, SAF is also a less efficient use of those resources, because it takes more feedstock to make a gallon of it compared with bio-based diesel.

“Without parity between the biodiesel tax credit and sustainable aviation fuel, we are merely shifting carbon emission reductions away from the ground to the air with fewer benefits and a higher cost to taxpayers,” Fialkov said.

SAF is already eligible for similar incentives as bio-based diesel, including the federal Renewable Fuel Standard, said Neville Fernandes, vice president of corporate affairs and development for the Renewable Energy Group. If Congress doesn’t keep them on equal footing, companies like his could be at a disadvantage in the competition for fats, oils and greases, he said.

REG had 11 biodiesel plants, but closed one in Houston in November, and also manages one renewable diesel plant.

“Any incentive mechanism for SAF should be also and equally available for biodiesel and renewable diesel (especially if made from the same feedstock),” Fernandes said.

SAF proponents say that ignores the current market reality, which favors renewable diesel by wide margins. REG’s own president and CEO, Cynthia Warner, acknowledged this during a November earnings call, as did executives at oil refiners Phillips 66 and Marathon.

Warner said the company will continue to “optimize” for renewable diesel production given the current market conditions and customer demand. If the economics change for SAF, the company would reassess and “take action to capture the upside.”

Gene Gebolys, president and CEO of World Energy, said he expects a lot of renewable on-road fuel production for the foreseeable future even if Congress passes the extra incentives for SAF.

“We need to start now on the aviation side now,” Gebolys said. “It’s one of the hardest sectors [to decarbonize].”

He added that the SAF industry will be built on fats, oils and greases, and that he expects production can reach between 10 billion and 20 billion gallons globally with existing feedstocks.

“We also have to go to new feedstocks,” he said. “Clearly, if the end goal is to displace every drop of aviation fuel in the world — and it is — then we’re going to have to go well beyond existing feedstocks. That is a generational effort.”

Other SAF makers, including LanzaJet, say the new tax credits will help scale other technologies that don’t rely on fats, oil and greases. LanzaJet is shooting for 1 billion gallons by 2030 using alcohol-to-jet technology, the White House said in September. Velocys plans to produce 300 million gallons using woody biomass and municipal solid waste.

Analyses by the global consultant firm ICF and the Department of Energy found that while almost all SAF production today uses oils and fats, that would shift in the coming decades as other technologies scale.

“We can accomplish both — maintaining the vitality of the biodiesel industry while doing the necessary and hard work to build a new industry that is required to decarbonize aviation and maintain global economic growth,” LanzaJet CEO Jimmy Samartzis said in an emailed statement.