Partner London
"We examine the key regulatory and financial drivers for the supply of SAF in the UK, the EU and globally, and consider whether now is the time to invest in SAF production."
In our first article, we provided a comparative study between the UK SAF Mandate and ReFuelEU (the “SAF Mandates”) and in our second article, we untangled the applicability of the SAF Mandates alongside the broader ecosystem of carbon reduction regulations for different flight paths into and out of the EU and the UK.
Drawing from our aviation and energy specialists from around the world, in this article, we now examine the key regulatory and financial drivers for the supply of sustainable aviation fuel (“SAF”) in the UK, the EU and globally, and consider whether now is the time to invest in SAF production.
In doing so, the key question we pose is whether the SAF Mandates, the UK Emissions Trading Scheme (“UK ETS”) and the EU Emissions Trading Scheme (“EU ETS”) (together, the “Carbon Reduction Regulations”) applicable to the aviation sector do enough to encourage fuel suppliers to enter into long term SAF contracts, given that these play a key role in determining the viability of investing in SAF production facilities.
The four key drivers promoting demand for SAF supply and production are:
- the SAF Mandate targets – imposing mandatory obligations/targets on fuel suppliers (including other industry stakeholders – see our first article for more);
- the Carbon Reduction Regulations – imposing mandatory greenhouse gas reduction obligations on airline operators;
- grant funding for SAF producers – for example, the Advanced Fuels Fund in the UK, the Innovation Fund, Horizon Europe and Invest EU in the EU; and
- SAF Producer Revenue Support Mechanism – the UK’s innovative initiative designed to provide revenue certainty for SAF producers.
Obligations
SAF targets applicable to fuel suppliers in the EU and UK are:
| Key Milestone Targets¹ | ReFuelEU² | UK SAF Mandate³ |
|---|---|---|
| SAF Targets (SAF percentage of fossil jet fuel) | 2% current 6% from 2030 70% from 2050 | 2% current 10% from 2030 22% from 2040 |
| Power to Liquid/eSAF Targets (fuels produced from low carbon power sources such as renewable energy) | 1.2% from 2030 10% form 2040 35% from 2050 | 0.2% from 2028 0.5% from 2030 3.5% from 2040 |
The penalties for non-compliance of the targets above are calculated by way of a ‘reference price’, which is a realistic average cost of that fuel determined by the European Union Aviation Safety Agency (“EASA”).
According to EASA the reference price for conventional aviation fuel in 2024 was €734/t.
By contrast, the determined reference price for:
- SAF from biofuels, advanced biofuels, and recycled carbon biofuels was: €2,085/t; and
- synthetic aviation fuels (“eSAF”) was €7,695/t.
| Average biofuel SAF price | Synthetic aviation fuels eSAF |
|
|---|---|---|
| Reference Price | €2,085/t | €7,695/t |
| Conventional fuel price differential | €1,351/t (almost 3 x conventional fuel price) | €6,961/t (almost 10 x conventional fuel price) |
| Estimated Penalties for breaching SAF Mandate targets | ReFuelEU ~€2,700/t UK SAF Mandate ~ €6,684/t | ReFuelEU ~ €13,992/t UK SAF Mandate ~ €7,105/t |
Ultimately, a key factor is what price individual suppliers can obtain and how competitive it is compared to the reference price. Currently, the restrictions on shipments through the Strait of Hormuz are creating volatility in the price of conventional fuels.
"A key factor is what price individual suppliers can obtain and how competitive it is compared to the reference price."
The UK SAF Mandate imposes a regulatory limit to gradually reduce the dependency on HEFA-based fuels (derived from oils and fats like used cooking oil) and incentivise alternative advanced SAF (eSAF) pathways; the mandate starts at 2% in 2025 rising toward 10% by 2030.
Current SAF supplies
To date European buyers of SAF and eSAF have had to look outside of Europe for much of the volumes they require. This is particularly the case for eSAF. SAF supplied in the EU was almost entirely made from biofuels, predominantly HEFA from used cooking oil (UCO); approximately 69% of feedstock was imported, mainly from China (approximately 38%) and Malaysia (approximately 12%).
Incentives
In addition to the mandatory SAF Mandates, there are a number of UK and EU incentives and/or initiatives designed to support and facilitate the production of SAF. We provide a handful in the table below. These are a mixture of capital grant type funding, funding facilities and technical support, many of which are short-term in nature and are intended to kick start the industry.
| UK Incentives/Initiatives | EU Incentives/Initiatives |
|---|---|
| Advanced Fuels Fund | ETS funded Innovation Fund, Horizon Europe, Invest EU |
| UK’s Green Industries Growth Accelerator fund | Anti-dumping measures on imports of biofuel from US, China, Indonesia and Argentina |
| Project Skypower | The Renewable and Low-Carbon Fuels Value Chain Industrial Alliance |
| SAF Revenue Certainty Mechanism | Sustainable Transport Investment Plan (STIP) |
| Proposed anti-dumping duty on imports of biodiesel from China. | eSAF Early Movers Coalition pilot project |
A number of EU member states, such as Germany, Sweden and the Netherlands, are developing their own support schemes thereby generating variances between different EU member states.
Of particular note is the UK’s revenue certainty mechanism (“RCM”), which forms part of the Sustainable Aviation Fuel Bill that is currently at the committee stage. It aims to de-risk SAF production by guaranteeing a predictable revenue stream for suppliers over a set period by way of a contract-for-difference model, the government sets a ‘strike price’ for SAF: if the market price falls below this level, the government pays the difference to the producer; if it rises above, the producer must return the excess. This mechanism provides revenue stability, making SAF projects more bankable by ensuring reliable cash flows, which in turn attracts lenders and equity investors, supports debt servicing and enables large-scale plant development that can lower SAF costs over time.
The recently announced EU Sustainable Transport Investment Plan (“STIP”) will also potentially provide contract-for-difference type of funding. STIP is a strategic investment roadmap adopted in November 2025, that aims to accelerate the decarbonisation of aviation and maritime transport across the EU by scaling up renewable and low-carbon fuels. In the short-term, STIP expects to mobilise at least €2.9bn by the end of 2027 to support SAF projects and de-risk investments in SAF. Funding may come through a variety of instruments, including direct investments, grants, loans and the removal of regulatory barriers. Unlike a national RCM, it is designed with a view to encourage continental-scale SAF production and distribution. Further details of the STIP can be found here.
International SAF Incentives/initiatives
"In response, many ICAO member states and international organisations have designed schemes to favour the uptake in SAF, notably through the ACT-SAF programme."
As discussed in more detail in our second article of this series, CORSIA is the International Civil Aviation Organization’s (“ICAO”) global market-based scheme designed to reduce carbon emissions in the aviation sector and is to be implemented in two phases. The initial phase is not mandatory (with 129 ICAO Member States participating in the scheme), but the second phase set to come into effect from 1 January 2027, is mandatory (with limited exceptions) for all ICAO member states. Airline operators with annual emissions greater than 10,000 tonnes of carbon dioxide, must measure and report their carbon dioxide emissions from international flights and buy carbon credits from approved projects to offset the amount of carbon dioxide they have emitted that surpass 85% of the levels they emitted in 2019.
In response, many ICAO member states and international organisations have designed schemes to favour the uptake in SAF, notably through the ACT-SAF programme, which helps stakeholders build the regulatory, technical and supply-chain capacity needed for SAF production and certification. ACT-SAF offers feasibility and business studies, training on sustainability standards and policy implementation, guidance on SAF certification and regulatory frameworks, and fosters partnerships and knowledge sharing among governments, producers, and financiers. Countries supported so far include Namibia, Ethiopia, Chile, Angola, India and Jordan.
In the US a number of state level SAF initiatives have been introduced, such as California’s Low Carbon Fuel Standard, Oregon’s Clean Fuels Program and Washington’s Clean Fuels Standard. Furthermore, the Inflation Reduction Act (“IRA”), which includes a broad set of climate, energy and tax-related measures aimed at reducing greenhouse-gas emissions and stimulating clean energy investment, creates tax incentives and subsidies to support the uptake of SAF. For example, the IRA introduces a SAF tax credit for producers and blenders of SAF-kerosene mixtures: SAF that achieves at least 50% lifecycle greenhouse-gas emissions reduction compared to fossil jet fuel qualifies for a base credit of US$1.25 per gallon, increasing by US$0.01 per percentage point of greenhouse-gas emissions reduction above 50% up to a maximum of US$1.75 per gallon. It should be noted that these incentives may not last long given that the Trump administration has signalled its intent to revoke elements of the IRA.
Several countries in the Far East (including China), as well as India, Australia and New Zealand and also some Middle Eastern and South American countries are also introducing or exploring SAF Mandates. These will be driven in part by the implementation of CORSIA where they are participating members.
Furthermore, in 2021, the EU launched the Global Gateway strategy to strengthen global links in sectors including energy and transport, extending SAF efforts beyond Europe with a focus on Africa. Recent initiatives include a September meeting between the European Commission and the African Civil Aviation Commission to address SAF financing barriers and a November joint statement by the European Investment Bank, EBRD, and African Development Bank committing to support SAF development across Africa. The statement emphasized SAF’s potential to decentralise production and create value chain opportunities, aligning EU and AU objectives. Key priorities include engaging stakeholders to advance SAF projects, leveraging EU-funded programmes, and using cooperation platforms such as ICAO ACT-SAF and FINVEST Hub.
"Naturally the price of SAF will be heavily influenced by both the level of demand for and the level of supply of SAF."
Is now the right time to invest in SAF production?
Naturally the price of SAF will be heavily influenced by both the level of demand for and the level of supply of SAF. The theory is that as more producers enter the market and production levels match or exceed the increased demand for SAF, prices should come down. However, currently there is limited supply and there are a number of factors driving demand for SAF and eSAF.
Under ReFuelEU and the UK SAF mandate the level of the penalties for missing SAF targets should force fuel suppliers to look to buy increasingly large volumes of SAF and eSAF. The EU’s and UK’s respective STIP and Revenue Certainty mechanism should also serve to reassure producers and offtakers of SAF in relation to their concerns about pricing.
With effect from 1 January 2027, CORSIA will become mandatory (with limited exceptions) for all 193 ICAO member participating states, meaning that airline operators subject to CORSIA must buy carbon credits from approved projects to offset their carbon dioxide emissions that surpass 85% of the levels they emitted in 2019.
Underlying all the above, we are seeing an increasing number of airlines pushing and advertising their green credentials, whether at airports or on their websites, being mindful that such credentials may influence investors and passengers.
The above demonstrates that there are many reasons to suggest that now might be a good time to invest in SAF, given the 2030 target step-up (taking into account the associated lead times for permitting and construction of a SAF production facility and the currently available incentives).
Key contacts
Partner London
Partner London
