Can sustainable aviation fuel get off the ground?

White & Case has partnered with the Financial Times on the publication of three articles, which explore key energy transition issues. This article has been reproduced with permission from the Financial Times.

Sustainable aviation fuel is rising up the industry's agenda. But can governments and industry overcome the commercial drawbacks?

"A complete momentum shift" is how Ryan Gawrych, Local Partner at law firm White & Case, describes what is happening in the sustainable aviation fuel (SAF) market. Between 2022 and 2030, global production of SAF is expected to grow by 30 times to 18.2 billion litres¹ because of demand for the aviation industry to reduce its emissions.

The forces behind the rise of SAF

As governments pursue net zero targets, some are regulating aviation in ways that favour SAF. In Europe, for instance, ReFuelEU² promotes greater use of SAF at EU airports as part of efforts to reduce CO2 emissions by 55 per cent by 2030. Similar rules have come into force in South Korea, where the government mandates that international flights departing from the country in 2027 will have to use fuel with a 1 per cent SAF blend, rising to 3–5 per cent in 2030 and 7–10 per cent in 2035.³

Meanwhile some governments are taxing jet fuel, which has historically been exempted from many taxes. In the UK, campaigners estimate that taxing jet fuel could raise £6bn.⁴ Phasing out these tax exemptions is also improving the case for SAF, according to Gawrych. "A heavy price is being placed on the carbon output of jet fuel in Europe," he says. "This is driving a lot of the airlines, fuel traders and producers to look at developing and creating more SAF for the market."

Closing the gap to commercial viability

There is an appetite to shift towards SAF, but it has to be commercially viable. That is not yet the case, for a number of reasons.

"There is an obvious cost gap issue," says Gawrych. "Conventional jet fuel is currently about €700 a tonne; HEFA, which is the most available SAF product in the market right now, is about €2,500."

This creates significant extra costs for airlines. The European Regions Airline Association warns that ReFuelEU risks penalising regional airlines and cutting off remote communities. Some airlines, it says, could be bankrupted by the regulation.⁵

Getting investors on board to fund the switch to SAF is also difficult. "Airlines don't have the best credit rating, and they also have a very unique procurement cycle for their jet fuel," says Gawrych. "They don't sign up for 10–15-year contracts for the procurement of their fuel, which would ordinarily be necessary to underpin financing for the development of a SAF facility. So over the past couple of years a lot of the SAF producers have been trying to structure projects around airline offtake, and those projects have not really been able to get to FID."

Another barrier to SAF's mainstream adoption is producing it at consistent and reliable levels. Waste cooking oils and feedstock are used as the raw materials for HEFA-SAF, but because these inputs are inconsistent and finite, supply chains cannot yet guarantee steady or scalable output. "There is only so much you can produce," says Gawrych.

The road ahead for SAF

Despite these challenges, momentum behind SAF is growing. And it will only increase as more countries create SAF mandates and regulations.

"The reality is that more and more countries are starting to deploy SAF mandates," concludes Gawrych. "And if China introduces blending mandates in the next year or so, then it will be transformational."

If policy, investment and innovation start to align, SAF could become a viable option for airlines. However, governments will need to pay close attention to the unintended consequences of the rise of SAF, such as the impact on smaller airlines and communities.

_{1 www.greenairnews.com/?p=4210
2 transport.ec.europa.eu/transport-modes/air/environment/refueleu-aviation_en
3 www.esgtoday.com/south-korea-mandates-use-of-sustainable-aviation-fuel-on-flights-beginning-2027
4 www.theguardian.com/business/2024/sep/16/jet-fuel-tax-could-raise-6bn-a-year-in-the-uk-says-thinktank
5 www.laranews.net/era-warns-that-saf-mandates-could-bankrupt-regional-operators}

This article was first published in Financial Times.