Velocys (VLS ) shares jumped 10% today in London after the company released a statement celebrating the passing of the Inflation Reduction Act of 2022 by the US Congress.
US tax credits and incentives
Velocys is a British/American sustainable fuels technology company that will significantly benefit from the introduction of sustainable aviation fuel (SAF) tax credits in the US bill, expected to be signed by President Biden shortly. The Inflation Reduction Act is mostly a climate bill by another name that barely passed the US Senate on 7 August, with Vice President Kamala Harris having to act as tie-breaker after all senators voted strictly along party lines.
The bill is arguably the most significant piece of environmental legislation ever passed in the US. It allocates US$369 billion to reducing greenhouse emissions and incentivises expanded production and use of domestic green energy. The bill is projected to cut the the US' carbon emissions by 40% by 2030.
As a developer of sustainable aviation fuels, Velocys will see large incentives from the bill for its US projects in the form of SAF tax credits and other mechanisms meant to accelerate development of advanced fuel technologies. The bill also includes credits for carbon capture, which is one way fuels can be categorised as net zero, by capturing carbon dioxide (CO2) in the production process.
The company's US reference project in Bayou, Mississippi aims to produce carbon negative fuel through the use of biogenic feedstock, renewable power, and the aforementioned carbon sequestration. The biorefinery will convert 3,000 tons of woody biomass forestry residues a day into 36 million gallons of carbon negative renewable fuels a year.
Additionally, the biofuels produced will earn extra incentives as adherent to existing US Renewable Fuel Standard and Low Carbon Fuels Standard.
Velocys has already secured long-term arrangements for 100% of SAF output from Bayou Fuels with Southwest Airlines (a 15-year agreement) and IAG/British Airways (MOU for a 10-year agreement) that will prevent 8.8m tons of CO2 emissions. The new climate legislation will allow finalisation of the MOU to a full agreement.
The UK's Jet Zero strategy
The move by the US follows the UK's own Jet Zero plan which aims to achieve net zero aviation by 2050. The UK intends to have five commercial-scale SAF plants under construction by 2025, and a mandate for at least 10% SAF to be blended into conventional jet fuel by 2030.
Velocys and British Airways are developing the Altalto project, which aims to build a full-scale plant in Immingham, UK, to make SAF from commercial and residential residual waste. This is in anticipation of UK policy incentives competitive with those announced by the US.
The UK mandate is to be expressed in terms of greenhouse gas reductions, rather than simple volume, which will benefit Altalto due to its ultra-low carbon intensity, Velocys said.
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Henrik Wareborn, CEO, commented on today's news:
"The legislation passed in the US is of historic significance, putting the United States on a path to lower its emissions significantly by 2030, and beyond. We believe this landmark legislation represents a compelling model which other governments will seek to follow, in particular in its focus on total amount of avoided carbon instead of volume of sustainable fuel supplied, thus prioritising those technologies which offer routes to negative carbon intensity fuels.
This development, coupled with the UK's launch of its Jet Zero strategy, represents a major endorsement of Sustainable Aviation Fuel, and Velocys' proprietary technology to produce it."
Velocys says SAF is the only current commercially scalable decarbonisation route for the aviation sector. The company believes multiple pathways to SAF production are needed to satisfy the aviation industry's decarbonisation targets, hence the diversity of technologies employed at Bayou. Given today's news and Velocy's impressive list of partnerships, the company is certainly one to given the growing investment in biofuels and net zero projects.