High prices hamper success of alternative jet fuel — GAO

Source: Amanda Peterka, E&E reporter • Posted: Thursday, May 8, 2014

High development costs and uncertain federal policies stand in the way of creating a viable market for alternative jet fuels, according to a new report from the government’s watchdog agency.

Those challenges have helped keep alternative jet fuels priced higher than their petroleum counterparts, hindering their ability to compete against traditional fuels, according to the Government Accountability Office.The government has several means to reduce the price of alternative fuels, including funding research, providing more regulatory certainty and giving the industry direct financial support. But market factors will ultimately determine the industry’s long-term success, GAO said.

“Achieving price competitiveness for alternative jet fuels is the overarching challenge to developing a viable market,” GAO said. “No alternative jet fuels are currently commercially available at prices competitive with conventional fuels.”

Alternative jet fuels refer to fuels produced from renewable biomass, such as algae oils, or from some nonrenewable sources such as natural gas. They are drop-in fuels that can be used without modifying existing fueling infrastructure and airlines. Two alternative jet fuel processes have so far been approved, and seven other processes are being analyzed for use in military and commercial airplanes by ASTM International, the global standard-setting institution.

Several government agencies have launched alternative jet fuel initiatives with the goal of building up commercial-scale biorefineries. Much of the push to reach commercial development has come from the Navy, which is aiming to use 50 percent renewable energy by 2020. The departments of Defense, Energy and Agriculture signed a memorandum in 2011 to work with industry to fast-track the development of advanced drop-in biofuels and have recently begun awarding contracts to fuel companies.

Commercial airlines are seeking alternatives to cope with volatile and rising petroleum jet fuel costs, as well as to reduce their carbon footprints.

Despite progress on both the military and commercial sides, the high price of alternative jet fuel remains a big impediment, GAO said.

“Fuel purchasers are either unwilling to pay a premium for alternative jet fuels as compared to conventional jet fuel, or in the case of DOD, are precluded by law and department policy from doing so,” the watchdog said.

The Government Accountability Office interviewed officials from the Federal Aviation Administration; U.S. EPA; and the Agriculture, Energy and Defense departments. GAO said it also interviewed 23 stakeholders in alternative fuels and reviewed relevant federal and industry documents. GAO conducted the audit from February 2013 to May 2014.

According to the interviews, feedstock costs have played a big role in keeping development costs high. In some cases, the cost of merely obtaining the inputs needed to make alternative fuel exceeds the cost of conventional jet fuel, according to GAO. For example, between 1990 and 2012, the price per gallon of soybean oil, a potential input, exceeded the price per gallon of gasoline almost every year.

High costs are also associated with feedstock logistics, scaling up technologies to commercial production and obtaining approval for use in airplanes. Uncertainty over the future of the federal renewable fuel standard and tax credits for biofuel makers have also turned away potential investors, GAO said.

“Government mandates, such as the RFS, and tax subsidies, as well as their duration, are key factors in making the production of alternative jet fuels profitable,” GAO said.

ASTM approval of more processes could help expand the future supply of alternative jet fuel, GAO said. The federal government could also help the industry by better targeting its research and development efforts toward feedstocks and providing direct financial support to alternative jet fuel producers.

GAO cautioned that government support may only go so far. Market factors such as favorable economics for end products and co-products, commodity markets and petroleum jet fuel costs will likely play a bigger role in the industry’s success in the long term, the agency said.

“Even if the cost to produce alternative jet fuels is reduced, market factors may still determine the long-term success of the industry,” GAO said.