California’s Proposed Sustainable Aviation Fuel Tax Credit Will Raise Gas and Diesel Prices and Deliver Meager Carbon Reductions

“Governor Gavin Newsom is advancing a plan that could funnel hundreds of millions in road dollars to a struggling oil refinery — pitching it as a cleaner jet fuel initiative. The credit, drawn from funds voters designated for highways and local streets, could also raise gas prices for most drivers,” the AP reported in April.

California’s proposed tax credit is a sustainable aviation fuel (SAF) incentive, included in Gov. Newsom’s budget proposal, that would primarily benefit Phillips 66’s Rodeo Renewable Energy Complex in Contra Costa County.

According to the UC Berkeley Energy Institute researchers, “the proposed tax credit would reduce road funding, raise gasoline and diesel prices, and deliver small and expensive carbon emissions reductions.”

Critics of the tax credit include the Legislative Analyst’s Office, which has urged rejection of the proposal because of impacts on transportation funding and potential for higher-than-expected costs, including incentives for out-of-state firms to acquire California entities with diesel tax liability. Those analyses project limited net carbon reductions (because SAF would largely divert biofuels from surface transport like renewable diesel), higher gasoline prices estimates in the 11–14 cents gallon range, higher diesel prices, and high costs per ton of emissions reduced.

One analysis noted that without the credit, more waste-oil and fats feedstocks might flow to renewable diesel, benefiting facilities like Phillips 66’s that already emphasize those, while the SAF credit would shift production toward aviation fuel with smaller overall climate gains relative to the fiscal and price impacts,” according to UC Berkeley.

A source told the Globe that Phillips also produces renewable diesel but if they get the credit, they will be the only one with the credit, disadvantaging all others.

The proposal drives up the cost at the pump for diesel because they are made from the same feed stocks, but when you give sustainable aviation fuel a $1-2 per gallon credit, they will be buying more of the feedstocks and driving up the price that renewable diesel refiners have to pay, according to the UC Berkeley Energy Institute.

California’s proposed sustainable aviation fuel tax credit really will raise gas and diesel prices while delivering meager carbon reductions.

AP confirms this:

The state estimates that Newsom’s proposal could cost between $165 million and $300 million, but California’s nonpartisan legislative analyst warns that figure could be far higher. That’s because the tax credit is so high that it could incentivize companies outside California to acquire California companies with diesel tax liabilities, said Helen Kerstein, who evaluates climate programs for the Legislative Analyst’s Office. A major California refiner like Chevron could also buy a renewable fuel company elsewhere and ship the fuel here, she said.

According to OPIS, a Dow Jones Company, this is how the credit works:

The trailer budget proposal from the governor proposed that monthly tax returns filed by SAF producers with diesel excise tax liability in the state after Nov. 1, 2027, and before Jan. 1, 2036, will be eligible for a $1 gal base tax credit under the Diesel Fuel Tax Law.

“Only two companies currently produce state-certified jet biofuel and also owe diesel excise tax in California — the conditions required to claim the credit, said Andrew March, a Department of Finance budget analyst,” the AP reports. “Of those, only Phillips 66 has publicly confirmed it would qualify for the credit. The company spent $1.25 billion converting its Rodeo refinery in Contra Costa County from traditional petroleum refining to biofuels.”

Notably, the formula for credits isn’t flat — the cleaner the fuel, the bigger the credit, ranging from $1 to $2 per gallon.

It’s all being driven by dishonest climate policies.