The aviation sector may account for a relatively small proportion of global carbon emissions (2.5 %), but it remains one of the most challenging sectors to decarbonise. A large part of the solution lies with the scale-up of Sustainable Aviation Fuel (SAF) with the International Air Transport Association expecting SAF to contribute 65% to achieving net-zero in aviation by 2050.
Over recent years Governments across the world have taken steps to meet that challenge outlining ambitious targets for increasing the use of bio-based and synthetic fuels. By 2050 the US Government's SAF Grand Challenge has the goal of producing 35 billion gallons of SAF, while the EU is targeting a 70% share of SAF in EU airports in the same period.
Despite these strong signals the last year saw a spate of delays and cancellations of SAF projects, and the International Energy Agency has the aviation sector marked as “Not on track” with their Net-Zero 2050 scenario. There is a litany of reasons for this, and it is important to note many of these policies were only formulated recently. However, a common theme is investment and regulatory uncertainty.
When comparing the different policies, you cannot help but think of the proverbial donkey who moves only with the promise of a carrot or the threat of a stick. In this regard, the EU and US policies are interesting comparisons, with the former involving all sticks (penalties) and the latter involving all carrots (incentives).
The EU's Refuel Aviation Regulation requires a blend-in of SAF of 2% in 2025, rising to 70% in 2050. To deliver this the Regulation relies on a 'stick' with suppliers who fail to meet their obligations having to pay a fine of at least twice the price difference between SAF and conventional fuel. Further, the supplier's obligation rolls over into the following year, so continuing to miss the target year after year could substantially increase fines.
The US on the other hand relies on 'carrots,' supporting SAF through tax credits. Under the Inflation Reduction Act (IRA) the 45Z Clean Fuel Production Credit provides a base credit of $0.35, rising to up to $1.00 per gallon depending on the level of carbon savings. The approach relies on commitments from airlines, who have set them own stretching targets, to use the fuel.
interestingly in the UK a middle ground is emerging, where the Government is attempting to mix carrots and sticks. The UK SAF Mandate, which officially starts this year, ramping up from SAF representing 2% of total UK jet fuel demand to 22% in 2040. The system is underpinned by a certificate trading scheme. Similar to the EU, there is a 'stick' requiring those without enough certificates at the end of a year to pay a buy-out price of £4.66-£5.00 a litre.
However, the Government has recognized that making the leap from the lab to the runway is difficult for SAF production. Not only is it capital intensive, but, as noted in independent advice to the Government, there are risks related to technology, feedstock availability, construction, and revenue certainty.
As a result, the Government announced a 'Revenue Certainty Mechanism' – financial support for the production of SAF. Confirming in January that they would set to work on designing a Guaranteed Strike Price system that will work in a similar fashion to Contracts-for-Difference in the power sector. Supported by a private law contract, the solution is expected to give the confidence needed to push projects forward.
There are caveats in all the schemes, and a fair amount of regulatory uncertainty. In the EU the member states still need to translate their obligations into national law and develop plans for how they will meet them. In the US, 45Z is short in duration, ending in 2027. It is also less generous and targeted differently from its forerunner (40B), which expired last year. Even in the UK, the finer details of the Revenue Certainty Mechanism still need to be worked out.
Ultimately, governments must create a stable policy environment that balances ambition with feasibility. Without a well-calibrated policy mix SAF deployment may lag behind the net-zero timelines the industry is racing to meet. While each region's approach has its merits, the path to scaling SAF will likely require a blend of both carrots and sticks.
About the author
Andrew Georgiou
Vice President, Global Policy, USIPA
Andrew Georgiou is Vice-President for Global Policy at the US Industrial Pellet Association (USIPA), a wood energy sector trade association representing members operating in all areas of the wood pellet export industry. With almost 15 years of experience working in politics and public policy he leads USIPA's engagement with policymakers across Europe, the US and Asia. He sits on the Board of Bioenergy Europe and takes part in a number of working groups on a broad range of biomass policy issues affecting markets across the globe.
