UK Moving in “Right Direction” on SAF
The Revenue Support Mechanism Bill and a 2% mandate on sustainable fuels could propel the country into a leading position.
Industry experts have welcomed the ambition displayed by the UK government with the introduction of measures to support and accelerate the production of sustainable aviation fuel (SAF).
Last month, the new Labour government unveiled two pieces of legislation. The first was the SAF Revenue Support Mechanism Bill, unveiled as part of the King’s Speech. This was swiftly followed by the news that a SAF mandate would be implemented as of 1 January 2025, aiming to encourage the innovation of advanced fuels that can generate greater emission reductions and the diversification of feedstocks to reduce dependencies on scarce resources.
The government has described sustainable fuels as a key part of its plan to decarbonise air travel, saying they emit 70% less greenhouse gas (GHG) on average than fossil jet fuel throughout their lifecycle.
Globally the aviation sector contributes 2.5% of carbon emissions and 3.5% of all GHG emissions that contribute to climate change. Those emissions are expected to rapidly rise in the coming decades, driven by increased demand. By 2050, the industry could contribute as much as 16% of global CO2 emissions.
“These are steps in the right direction to further encourage airlines to embrace SAF as part of their fuel mix,” James Watson, Head of Decarbonisation and ESG at Osborne Clarke, told ESG Investor. “While many will want the government to go further, this is a very solid starting point. Investors should be taking note because it indicates [a] wish for the first time in the UK to provide a structured subsidy regime to properly incentivise the production of SAF.”
The SAF mandate will start in 2025 at 2% of total UK jet fuel demand, and subsequently increase on a linear basis to 10% in 2030 and 22% in 2040. From then on, the obligation will remain at 22% until there is greater certainty on SAF supply.
According to the government, SAF production could add an estimated £1.8 billion (US$2.3 billion) to the economy and create 10,000 jobs across the country while supporting decarbonisation. The UK is currently supporting 13 SAF projects nationally.
Meanwhile, the Revenue Certainty Mechanism Bill will aim to support global SAF producers looking to invest in new UK plants, with the new sector offering job creation and growth opportunities, and enhancing energy security.
“The SAF mandate and revenue support mechanism represent significant milestones in the UK aviation’s journey to net zero,” said Duncan McCourt, Chief Executive at Sustainable Aviation. “A revenue support mechanism will turbocharge private investment in the country’s emerging SAF industry, helping to produce the hundreds of thousands of tonnes of fuel needed each year to meet its mandate.”
While these are ambitious goals, they are achievable with the right policy support in place, McCourt added.
Leading by example
Since 2016, more than 450,000 commercial flights have used some amount of SAF. Sustainable fuels are expected to account for up to 65% of the total carbon mitigation needed to achieve net-zero emissions in air transportation by 2050.
However, the UK’s 2% mandate for 2025 will require approximately 230,000 tonnes of the fuel– far above the 64,000 tonnes produced last year. The 10% mandate for 2030 is also more ambitious than the EU’s 6% mandate.
Under the ReFuelEU Aviation Regulation, in force since 2023, fuel uplift at EU airports must now contain at least 2% of SAFs, with the percentage gradually increasing each year. The EU mandates are 6% by 2030, 20% by 2035, 34% by 2040, and eventually 70% by 2050.
Norway was the first nation to introduced a SAF mandate of 0.5% in 2020, which has since risen to 1%. India, Japan and Sweden are among the other countries to have taken similar measures.
As well as providing a home-grown stable energy supply and reducing susceptibility to global market volatility, a strong SAF industry in the UK would help establish the country as a global leader in the sector, McCourt argued.
“The regulatory and policy foundation to encourage the increased rollout of SAF production is a positive development,” agreed Watson. “[It’s] ambitious for the UK to have started on this road, as it is capable of being a leading producer of SAF globally.”
While the US Inflation Reduction Act includes hundreds of billions of dollars in incentives for low-carbon technologies, including SAF and hydrogen production, the EU has agreed to distribute billions of euros in carbon allowances to help subsidise the higher cost of sustainable fuels for its airlines.
However, industry experts argue there is still an opportunity for the UK to establish itself as an industry leader.
“The UK is competing in a global race to capture the private investment that will drive the development of technologies to power net zero and create the jobs of the future,” said McCourt. “It is essential that [it] finds its own path with the right policy mix to help make SAFs available at the required volumes, and at as-low-a-cost as possible.”
Staying the course
Going forward policymakers should also consider other policy options – such as the introduction of tax incentives, grants, and public-private partnerships to support the scale-up of SAF production, lower costs, and facilitate commercial deployment, the International Air Transport Association told ESG Investor.
It also underscored the importance of supporting further progress in future technologies – such as hydrogen and electric – by implementing push-policies that support research and development.
Archie Brown, ESG Analyst at IBA, also stressed the importance of active collaboration with industry players by the government to ensure it understands their needs and does not isolate itself.
“The global SAF market is projected to grow significantly in the coming years, driven by government mandates, corporate sustainability goals, and increasing consumer awareness,” he added. “Policy support is evident in the UK and EU, indicating a favourable policy environment for investments in this sector.”
But SAFs have long been linked to issues of greenwashing, with fresh backlash having emerged in recent months. Last week, the UK’s Advertising Standards Authority (ASA) banned a Virgin Atlantic ad about what the airline had described as the “first transatlantic flight to be powered entirely by SAFs”. The ASA said Virgin Atlantic had broken its code by making misleading claims on the environmental impact of sustainable aviation fuels.
Various regulatory bodies have been ramping up their crackdown on airlines to combat greenwashing. At the end of April, the European Commission and EU consumer authorities sent letters to 20 airlines, identifying several types of potentially spurious green claims. Those included using the term SAF’ without a clear justification of their environmental impact, as well as terms like ‘green’, ‘sustainable’ or ‘responsible’ in an arbitrary manner.
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