Flying towards sustainability: The impact of new green fuel targets on the aviation industry

The latest mandate, which is more ambitious than originally proposed, requires 70 percent of total European aviation fuel to be SAF in 2050. There is also a separate mandate for eSAFs – based on power to liquid technology – which will, by 2050, make up almost half of the total SAF mandate.

While European policymakers have signalled ambitious targets on the demand-side, whether this can be matched with sufficient supply over the longer-term remains unclear. Although funding grants have helped accelerate scale-up – such as the Advanced Fuels Fund in the UK, or the Clean Aviation Joint Undertaking in the EU – growing supply at the rate demanded will require several issues to be resolved, including:

• Cost and revenue risks as outstanding policy details, like enforcement penalties, are addressed
• Technological and supply chain risks, particularly those related to feedstock availability
• The total amount and type of investment required. For example, SAF plants can be too big for venture capital, too small for private equity, and too risky for institutional investors.

The news follows other policy announcements in the UK and the US, reflecting the increasingly complex regulatory environment emerging on global SAF.

While the proposed EU legislation will seek to align SAF mandates across the EU27 (France and Sweden have already introduced their own), the current proposals leave enforcement rules and penalties in the hands of individual Member States, risking different degrees of compliance across the bloc.

Similarly, a patchwork of approaches is emerging outside of the EU. The UK is choosing to incentivise the use of SAFs which are more sustainable and less carbon-intensive through tradeable certificates. The UK is also looking to cap HEFA-based SAFs, which are expected to compete with biodiesel. Alternatively, the US is subsidising the production of SAF through ‘blending credits’ rather than mandating its use.

Most of Europe’s neighbours are not actively considering new SAF legislation, raising the threat of ‘carbon leakage’, particularly for long haul flights. It may become significantly cheaper to fly long-haul via a hub airport located just outside of the EU, like Istanbul, rather than directly.

It is widely expected that airlines will need to increase fares as the additional cost of SAF, combined with targeted carbon, and other emissions taxes, will outweigh the efficiency benefits from new generation aircraft. Airlines are likely to be able to mitigate some of these increases through business model and efficiency improvements, but ultimately passengers will end up paying more than in the past.

Supply-side constraints, combined with different approaches to sustainability policy across governments are creating new, complex opportunities, and risks for global aviation businesses. Developed by our aviation and public policy experts, our bespoke Airline Sustainability Cost Model can support understanding and forecasting the complex commercial impacts of these new mandates and carbon charges.