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Key Takeaways
- The UK Government is committed to developing a Sustainable Aviation Fuel (SAF) industry, evidenced by the UK SAF Mandate and proposed revenue certainty mechanisms.
- SAF offers significant greenhouse gas (GHG) emission reductions compared to conventional jet fuel, particularly through life cycle analysis considering feedstock and production processes.
- The UK SAF Mandate requires increasing proportions of SAF in total jet fuel supply, starting in 2025.
- The UK’s approach of mandates contrasts with the US reliance on tax incentives, potentially impacting international competitiveness.
- Lessons from the renewable road transport fuels sector (RTFO) highlight the need for comprehensive policies, including trade remedies, to support domestic SAF production.
The UK’s Sustainable Aviation Fuel (SAF) Push
The UK Government is actively pursuing the development of a robust Sustainable Aviation Fuel (SAF) industry. Following the general election, the new government has reaffirmed its commitment to SAF, signaled by the inclusion of a Sustainable Aviation Fuel (Revenue Support Mechanism) Bill in the King’s Speech. This commitment builds upon the previously published details of the UK SAF Mandate and consultations on revenue certainty mechanisms aimed at attracting private investment.
Sustainability and Life Cycle Analysis of SAF
The primary benefit of SAF lies in its potential for significant greenhouse gas (GHG) emission reductions compared to traditional jet fuel. While the combustion emissions are similar, the major environmental advantages stem from the earlier stages of the SAF life cycle. For example, SAF produced from used cooking oil (UCO) achieves carbon savings through carbon dioxide absorption during vegetable crop growth, offsetting emissions from production, transportation, and combustion. Similarly, SAF derived from municipal solid waste (MSW) benefits from diverting organic waste from landfills, preventing methane release. Combining Fischer-Tropsch (FT) technology with carbon capture and storage can even result in carbon-negative SAF. While life cycle analyses involve numerous variables and potential uncertainties, the general consensus supports SAF’s ability to substantially reduce GHG emissions.
The UK SAF Mandate and Implementation
The UK SAF Mandate sets specific targets for SAF usage, requiring a minimum of 2% SAF in total jet fuel supplied in the UK from 2025, increasing to 10% by 2030 and 22% by 2040. These targets are projected to deliver considerable GHG emission reductions. The mandate will be implemented through a statutory instrument, utilizing powers granted by the Energy Act 2004, with a tradeable certificate scheme to incentivize SAF production and use. Aviation fuel suppliers receive certificates based on GHG emission reductions achieved, which can be used to meet their obligations or sold to other suppliers. To qualify for certificates, SAF must meet technical specifications for jet fuel, be certified for commercial flights, and achieve a minimum of 40% fewer GHG emissions than conventional fossil fuel. A number of SAF production facilities are planned and under development in the UK, often supported by public funding.
EU and US Approaches to SAF
The UK SAF Mandate aligns with the European Union’s approach to decarbonizing aviation through mandates and obligations, as exemplified by the RefuelEU Aviation regulation. This regulation mandates increasing proportions of SAF, reaching 70% by 2050. In contrast, the United States prioritizes tax incentives to support decarbonization, such as federal tax credits for SAF production and sales. These incentives aim to reduce production costs, bridge the price gap between SAF and conventional fuel, and encourage innovation. The International Air Transport Association (IATA) generally prefers tax incentives, highlighting their ability to drive down costs and stimulate R&D. Some critics argue that mandates without sufficient supply can lead to cost increases for airlines and consumers without achieving meaningful environmental benefits.
The Potential for Trade Imbalance
The contrast between US tax incentives and EU/UK mandates raises concerns about potential trade imbalances. The US policies stimulating SAF production, coupled with the EU/UK policies stimulating demand, might favor US producers over their European counterparts. This could undermine the EU’s "Fit for 55" strategy, which aims to strengthen EU industry competitiveness. Furthermore, differences in minimum GHG reduction thresholds between the US (50%), UK (40%), and EU (65-70%) could incentivize imports of US-produced SAF into the UK, especially if the product falls below the EU threshold.
Lessons from the Biofuels Market
The UK’s experience with the Renewable Transport Fuel Obligation (RTFO) offers valuable lessons for the emerging SAF sector. Challenges faced by domestic biofuel producers highlight the importance of comprehensive policy support, including trade remedies, to ensure the industry’s success. Issues such as inward processing relief (IP) for imported biodiesel, the removal of trade defense measures on US renewable diesel, and competition from subsidized Chinese biodiesel have negatively impacted UK biofuel producers. These examples demonstrate that mandates alone are insufficient; additional measures are needed to create a thriving domestic SAF industry.
Other Challenges Facing the SAF Industry
Recent news indicates that major players in the biofuels industry are facing headwinds, including suspension of construction and investment scale backs. UK SAF projects, a large proportion of which use waste-to-SAF technologies, require higher capital expenditures than HEFA facilities and therefore, need to achieve higher carbon intensity in order to compete with the cheaper HEFA SAF. In addition, these projects require access to the carbon capture, usage and storage (CCUS) infrastructure to improve their carbon credentials and become commercially viable. The delay in implementing the UK Government’s SAF Revenue Certainty Mechanism is also creating challenges for projects approaching financial investment decision dates, as banks seek revenue certainty before committing funds. In conclusion, a combination of revenue certainty mechanisms, robust policy decisions, trade remedies, and investments in infrastructure such as CCUS are essential to ensure that the UK’s SAF industry can compete effectively in the global market.
