UK Plans Levy on Jet Fuel Producers to Fund Sustainable Aviation Fuel “Revenue Certainty Mechanism”
The UK Government’s Department for Transport announced the launch of a new consultation on an initiative aimed at supporting producers of sustainable aviation fuel (SAF) through the establishment of a “revenue certainty mechanism” (RCM) to be funded by jet-fuel suppliers.
Fuel accounts for the vast majority of the aviation sector’s emissions. Generally produced from sustainable resources, like waste oils and agricultural residues, SAF is seen as one of the key tools to help decarbonize the aviation industry in the near- to medium-term. SAF producers estimate the fuels can result in lifecycle GHG emissions reductions of as much as 85% relative to conventional fuels.
The new consultation follows the launch in January by the government of the SAF Mandate, requiring the introduction of sustainable aviation fuel (SAF) in the UK’s jet fuel mix, starting at 2% in 2025, and ramping up to 22% by 2040.
Efforts to meaningfully increase the use of SAF by airlines face significant challenges, including the low supply currently available on the market, and prices well above those of conventional fossil-based fuels.
Among the key barriers to ramping up SAF production is the high start-up cost, with the government estimating investments of £600 million to £2 billion for new commercial plants to reach economies of scale, with new plants struggling to secure investments due to risks such as revenue uncertainty and fluctuating fuel prices.
According to the Department for Transport, the new RCM plan will help to reduce risk by introducing an industry funded price guarantee to ensure steady income flow for producers, even if SAF prices fluctuate, and giving investors confidence to invest in SAF plants in the UK.
The consultation outlines the government’s position that the RCM should be funded by industry, with a preferred approach to introduce a variable levy on suppliers of jet fuel. The proposal follows the “polluter pays principle” for hard to abate sectors, and is consistent with existing schemes for renewable electricity and hydrogen. The government stated that the mechanism allows the cost to be spread across the supply chain, ensuring that it is borne by those benefiting from the supply of fossil aviation fuel.
Aviation Minister, Mike Kane, said:
“We are committed to building the technology and fuel supply that will see greener flying become a reality in a way that protects consumers.
“As part of our Plan for Change, these proposals will power up SAF production in the UK, support thousands of green jobs and bolster expansion plans.”
The consultation will run until the end of March, with plans for a Sustainable Aviation Fuel (Revenue Support Mechanism) Bill to be brought to Parliament in the Spring. Click here to access the consultation.