Is the US government’s plan to provide additional support to boost SAF production to meet NetZero mandates a sign that the 2050 initiative is stalling?
Why is this important: We have long argued that the net zero initiative for 2050 might have not gotten off the ground without massive amounts of global government support and backing from special interest groups. Many stakeholders, including governments, are now realizing that the push for NetZero within the aviation industry by 2050 is more cost-prohibitive than they initially expected. Therefore, governments globally have been announcing further initiatives, to help boost sustainable aviation fuel (SAF) production to help achieve NetZero. Recently, the US government announced a special tax credit. What are some implications of these added initiatives?
- Tax credits on biofuel feedstock to boost production of SAF could further exacerbate food insecurity.
- Increasing the cost of the NetZero by 2050 initiative to taxpayers.
- Send a signal to the free market and the traveling public that the initiative might not be viable at this time.
Get Involved: Do you believe that this new initiative to provide additional tax incentives to use corn to produce SAF is a good thing? Why or why not? Please share your thoughts in the comments below.
Exacerbating food insecurity.
- With food insecurity around the globe rising, and is being compounded by the use of farmland and farm produce, such as corn as feedstock for biofuel, an initiative that will further encourage further farmland and food as feedstock for SAF can be concerning to many. This would undoubtedly further exacerbate the conflict between arable land that is available for producing food that will be converted into producing feedstock for SAF.
- The quality of corn and other feedstock that can be produced and used for biofuel and SAF is of a lower grade than that of those that are used to produce food. Therefore, a greater incentive is introduced for farmers to produce corn for feedstock rather than for food. The reason for this is simply that with a lower quality requirement and a higher demand, there is a greater chance for profit by producing feedstock, which further increases the likelihood of exacerbating current food insecurities.
On Aviation™ Note: All entrepreneurs – including farmers – are always seeking to maximize the amount of value for the goods and services that they produce. With this new initiative, if farmers can make more money per acre of land producing feedstock for biofuel and SAF as opposed to food, one should expect that they will do so.
Passing the costs off to taxpayers.
- Okay. Here is the rub. Governments do not make money. Any money that the government spends or tax breaks/incentives given to any group must be taken out from another group either by increasing taxes on them or cutting programs and/or entitlements.
- Therefore, any initiative brought on by the government that is run and paid for by the government will ultimately be paid by the taxpayers. The question the taxpayers need to ask themselves is: What are the overall benefits to all of us of having this initiative and can this be done in another way that will not cost us more money ultimately?
- If we take the time to survey the above question as it relates to SAF, we might just realize that this initiative is not as beneficial as we might have initially thought when compared to the overall cost of the initiative. Therefore, the taxpayers might begin to realize that it might be best to wait until the private sector and the free market come up with the right solution that does not cost the taxpayer money, while at the same time adding value and saving the general public money.
On Aviation™ Note: We are well aware of the global warming – now euphemistically called climate change – debate. That being said, we believe that the climate is always changing, and whether or not our aircraft is the cause of this change along with other things is still heavily debated. What we are concerned with here is the cost-benefit analysis of taking on any initiative.
A signal that NetZero by 2050 might not be viable.
- It is becoming even clearer that the NetZero initiative is more cost-prohibitive than governments, and stakeholders believed initially. It is probably because of this that there has been so much modification and additional support given to the initiative by governments globally.
- While many around the world who are in favor of NetZero welcome additional support from governments, this inevitably sends a signal to the free market and the traveling public that this initiative might not be viable at this time.
- If the free market believes that the initiative is not viable because it needs to be constantly supported by governments then they will be even more reluctant to invest in the initiative without a massive amount of incentives from governments to do so. Obviously at the cost of taxpayers.
- Therefore, moving forward, what we might expect to happen is that as governments continue to prop up the initiative to keep it alive more private investors may back out. On the other hand, there are players within the industry who will take advantage of the massive amount of incentives being pumped into the initiative. This is the case with any government program.
On Aviation™ Note: We are aware that there are always profits to be made on any government initiative by individual players within the industry. However, what is most important is not that some key players can benefit from the initiative, but that the initiative is beneficial to the entire industry.
We have long argued that any technological advancement in the aviation industry should be developed and brought to fruition by the free market. We are not opposed to special interest groups and governments introducing new initiatives. However, to prove their viability, value to the flying public, and the least cost to the taxpayer, we believe that the private sector is the best one to do this. What we are ultimately concerned about is initiatives that are introduced by governments in special interest groups that the free market is aware of and is unwilling to take on because of its belief that they will not satisfy the conditions laid out above. This ultimately drives up the cost for taxpayers, while benefiting only certain interest groups while at the same time becoming a disbenefit to the flying public. The following statement attributed to an advisor to Ronald Reagan as it relates to government and free market entities is very instructive:
“If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”
Thank you for reading this week’s On Aviation™ full article. Do you believe that this new initiative to provide additional tax incentives to use corn to produce SAF is a good thing? Why or why not? Please share your thoughts in the comments below. Remember to check out our On Aviation™ Podcast and continue the conversation on our Twitter and Instagram.
Orlando – On Aviation™