Gov. Gavin Newsom is pushing a budget move that would let producers of state‑certified sustainable aviation fuel, or SAF, offset their diesel excise tax bills. In plain English, money that usually goes to fix roads could instead help underwrite green jet fuel. Fans of the idea say it will keep refinery jobs in California. Critics argue it will blow a hole in street and highway funding and is a very pricey way to cut carbon. The fight has split labor, environmental groups and local officials as the Legislature hammers out the budget.
How the credit would work
Under a draft trailer bill, companies that both produce state‑certified SAF and sell diesel in California could claim a per‑gallon credit that starts at $1. The credit would rise by $0.02 for every percentage point of carbon‑intensity reduction above 50 percent, topping out at $2 per gallon, with CARB in charge of certifying the fuel pathways, according to the Department of Finance. The Newsom administration pitches the offset as a way to spark in‑state SAF production. The nonpartisan Legislative Analyst's Office, however, warns the move would cut diesel excise revenues and has urged lawmakers to turn it down.
Analysts warn of big fiscal and price effects
A working paper from the Energy Institute at Haas models the proposal and finds SAF use could jump while diesel excise receipts fall by roughly 20 percent to as much as 75 percent. That shift could nudge retail gasoline and diesel prices up about 10 to 15 cents per gallon, the paper finds, with emissions reductions coming in at an estimated public cost of about $1,000 to $2,700 per ton. The authors say much of the SAF would likely be produced by redirecting the same limited feedstocks now used for renewable diesel, so the net greenhouse‑gas benefits would be modest compared with the size of the subsidy.
Who stands to gain
Supporters argue the credit is about paychecks as much as pollution, pointing to facilities like Phillips 66’s Rodeo Renewable Energy Complex, which the company says it converted to produce renewable fuels at a cost of about $1.25 billion. The proposal took shape after heavy industry lobbying and has won backing from some lawmakers and union leaders who say the subsidy could keep Bay Area plants open and workers on the job, according to reporting by the Long Beach Post.
Roads, voters and legal questions
The Legislative Analyst's Office estimates that the administration’s near‑term projection, roughly $165 million to $300 million in lost diesel excise revenue, would mean about $70 million less for Caltrans highway maintenance, $49 million less for local streets and roads and $46 million less for competitive freight grants. The LAO also cautions that the policy "deviates from the spirit" of voter‑approved rules that steer fuel taxes to transportation, a legal and political talking point opponents are leaning on hard.
What happens next
The trailer bill is headed into legislative hearings this week, where supporters and critics are expected to crowd committee rooms as budget talks heat up, according to the Long Beach Post. Lawmakers now have to thread a tricky needle: protect refinery jobs, nurture a homegrown SAF industry and still keep enough cash flowing to fill potholes and fund freight projects. How they juggle those goals will decide whether California shifts a sizable slice of its road money into an aviation subsidy.
The choice in Sacramento is stark and politically touchy. Spend limited fuel‑tax revenue to jump‑start greener jet fuel, or keep those dollars firmly planted on the ground for pavement, transit and freight. Expect heavy lobbying, sharp talking points and some late‑night negotiations before anyone knows where the money will actually land.
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