Policy impacts on SAF pricing, supply, and global adoption
By Myfanwy Fleming-Jones
For the past few decades, Climate Policies have increasingly taken priority on governments’ agendas and have been gradually implemented across the world.
We are now seeing the enforcement in Sustainable Aviation Fuel (SAF) mandates and production, demonstrating the growth of this essential industry. These SAF policies aim to incentivise and regulate the production and use of bio-based or synthetic fuels to reduce carbon emissions within the aviation industry. The policy structures for SAF vary across the world, with some regions being more advanced than others.
Europe is leading the charge with the EU and UK mandate policies being implemented. This early implementation should allow the European market to develop and stimulate local SAF manufacturing.
The United Kingdom’s advancements with sustainable aviation fuel
The UK is increasingly implementing policies to drive domestic growth of SAF. The UK SAF mandate, effective from January 1, 2025, requires all jet fuel suppliers to achieve a 2% SAF blend with conventional jet fuel by 2025, a 10% blend by 2030, a 22% blend by 2040 and 80% by 2050. This mandate also caps the use of HEFA fuels and incentivises power-to-liquid SAF, helping the UK make essential steps toward decarbonising the aviation industry.
Additionally, the mandate sets a maximum price for SAF, ensuring passengers do not overpay for sustainable flights while establishing a market price to guarantee revenue for SAF producers.
A buy-out mechanism as part of the mandate requires suppliers to pay a fee of £4.70 per litre if they cannot meet the mandate, further ensuring compliance and encouraging an increase in SAF supply. However, EU and UK markets must be vigilant about imports of low-cost SAF from overseas flooding the European market and therefore stagnating the growth of domestic markets and production capacity. The UK also plans to implement a revenue certainty mechanism that guarantees the sales revenue from SAF suppliers to attract investment into the sector for local development of industrial production facilities.
The mandate approach along with the revenue gurantee is expected to significantly stimulate the local SAF industries while protecting the consumer from high prices. The longer-term growth of the SAF market aims to achieve price parity with fossil kerosene when operating at scale.
US success with sustainable aviation fuel and stimulus policies
Since the 2000s, the US has maintained a focus on climate policies and sustainable aviation fuel (SAF), making it one of the most active countries in SAF production. The U.S. has promoted clean energy development through laws like the Energy Policy Act of 2005, which established numerous long-lasting incentives for clean energy. One outcome of this act was the Renewable Electricity Production Tax Credit (PTC), which provides a per-kilowatt-hour tax credit for electricity generated from wind, solar, geothermal, and biomass. Additionally, the Loan Guarantee Program, which offers federal loan guarantees to support early-stage clean energy projects, has also contributed significantly to America's advancements in SAF development.
The U.S. leads globally in investment in Sustainable Aviation Fuel (SAF), with a total of £6.8 billion as of June 2024.1 This is largely due to initiatives like the Inflation Reduction Act (IRA), introduced by the Biden Administration in 2022. The IRA aims to accelerate the transition to a clean energy economy and emphasises expanding U.S. manufacturing capacity for critical clean energy technologies. This legislation built upon previous acts that introduced tax credits for clean energy projects, including the American Recovery and Reinvestment Act of 2009, which allocated over $90 billion for renewable energy, energy efficiency, electric vehicles, and grid modernisation. This act represents the most significant federal investment in climate and energy policy in US history, with a strong focus on clean energy development and decarbonisation.
A key measure of the IRA’s impact is its projected emission reduction. The IRA aims to cut US greenhouse gas emissions by 40% by 2030 and to drive over $3 trillion in public and private clean energy investments over the next decade. This investment is expected to further strengthen the American economy by creating jobs in renewable energy, construction, manufacturing, and transportation sectors. Since the introduction of the IRA, there has been an increased focus on SAF projects with a focus on advancements in decarbonising the aviation industry as well as boosting the success of the SAF industry.
Sustainable aviation transitions worldwide
Alongside the success of the US and the United Kingdom, there is also a growing number of countries worldwide setting their sights on SAF. According to research into the growth of the industry, 78% of nations now have some form of instrument or policy in place which is either already implementing SAF or is pending approval.2 This demonstrates the worldwide focus on the importance and implementation of SAF and clean energy development.
Southeast Asia is notably making headway with SAF production and predicts that by 2030 they could have as much as 5.1 million tonnes of SAF capacity if all projects proceed as planned, creating 4.2% of the current jet fuel demand. China has the largest amount of SAF capacity either under construction or planned, making up around 43% of total planned capacity in APAC by 2030, whilst Singapore and Japan are a distant second and third, set to hold 18% and 16% of total regional capacity respectively.3
These statistics reflect the global strides being made toward carbon-neutral alternatives and increasing SAF accessibility. The push for SAF worldwide is driven by mandates, financial incentives, blending mandates, and tax credits, helping to offset SAF’s higher production costs compared to conventional jet fuel.
2025 SAF predictions
The price of (HEFA) sustainable aviation fuel during 2024 has consistently been around $2,000 per tonne.
This price has remained well above the price of fossil-based kerosene; however, it is under the £5,750 per tonne buy out fee defined by the UK Department of Transport. As firms in 2025 will be mandated to supply 2% of sustainable aviation fuel, we can expect to see a shift in the market away from voluntary procurement of sustainable fuel and towards the mandatory sale of it. We can estimate that this demand will lead to the price of SAF increasing to 70% of the buyout fee at around £5,000 per tonne. This price will likely increase towards the end of 2025 as companies are required to fill their 2% SAF mandate by the end of the year.
Summary of major policies
Once the UK SAF mandate and other climate policies come into place, we can anticipate a shift in the UK SAF market. This would likely result in a scale up of synthetic kerosene production and a shift away from the heavy reliance on HEFA (used fats and oils) fuels. The policies and initiatives below will orchestrate this vital change towards SAF throughout the UK and worldwide.
- UK Department of Transport £150m Advanced Fuel Fund grants
- UK SAF mandate with buy-out fee at £4.70 per litre
- UK Government Revenue Guarantee scheme to de-risk plant development
- EU ReFuelEU Aviation policy
- US Sustainable Skies Act offering significant tax credits to blending companies
- Norway’s SAF blending mandate of 0.5% SAF
- Sweden’s implementation of a target of 27% SAF by 2030 according to EASA
- Australia offering government support for seed crop-based fuels
- China’s development of a SAF Technical Centre in Chengdu
Within the aviation industry, making the shift towards SAF alternatives is now an immediate concern and priority. These important upcoming regulations and mandates on the adoption of biofuels and synthetic fuels – particularly in Europe – will require a much stricter usage of biofuel blends. The US also is implementing both state and federal mandates that will increase in the coming years, further encouraging the use of SAF. As SAF continues to gain more attention and the aviation industry seeks to decarbonise, it is vital that these alternatives to traditional fuels can meet costing expectations and demand.
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1 https://iuk-business-connect.org.uk/perspectives/investment-driving-global-saf-industry/
2 https://iuk-business-connect.org.uk/perspectives/investment-driving-global-saf-industry/