Sustainable aviation fuel, commonly called SAF, has so far been expensive to produce, but new startups are now creating clean fuels out of carbon at a much cheaper cost. Now, new tax credits for clean fuel production from the recently signed Inflation Reduction Act could propel these companies further faster.

Most SAF is made out of organic vegetable oils, but Twelve, a chemical technology company based in Berkeley, California, is making fuel out of carbon. It just announced a collaboration with Alaska Airlines and Microsoft to advance production and use of Twelve’s E-jet, a lower-carbon jet fuel.

“Our process takes CO2, water and electricity as inputs. We use the electricity to break apart CO2 and water, and then we have catalysts that recombine the elements to make new products. And one of the things that we can make is the building blocks for jet fuel,” said co-founder and CEO Nicholas Flanders.

The process, according to Flanders, is far cheaper than existing SAF production.

“The cost of renewable electricity has been falling over the last decade, so has the cost of CO2 capture, and so has the cost of electrolyzers, which is the technology that we use to transform CO2 and water into the building blocks for jet fuel,” he said.

Flanders says aircraft would not need to be changed in any way to accommodate the new fuel, which he said has 90% lower emissions than conventional jet fuel. That’s huge for airlines trying to reach aggressive emissions goals.

“We have a goal of reaching net zero by 2040. We’ve got five steps to get there,” said Diana Birkett, senior vice president of public affairs and sustainability at Alaska Airlines. “But sustainable aviation fuel offers the biggest opportunity of all of those steps to take a meaningful leap into that 2040 goal.”

At scale, the technology should be cost-competitive with traditional jet fuel, Flanders says. 

Twelve is backed by DCVC, Capricorn Investment Group, Carbon Direct, Chan Zuckerberg Initiative, Microsoft Climate Innovation Fund, Breakout Ventures, Munich Ree and Elementum Ventures. It has raised $200 million to date.