Introduction

The UK Government finalised its sustainable aviation fuels (SAF) mandate in April 2024, aiming to reduce aviation greenhouse gas (GHG) emissions. The mandate includes sub-targets for power-to-liquid (PtL) fuels, a buy-out price, and specific sustainability criteria. Existing funds support SAF, but further financial assistance is required.

Policy framework

The UK aerospace industry, the world’s second-largest, expects aircraft, engine, and parts manufacturing to be the third-largest export, valued at $24.6 billion in 2024. International and domestic aviation account for around 8% of the UK’s GHG emissions, necessitating stringent policies to meet climate targets. The Jet Zero Strategy, launched in 2022, envisions net-zero aviation by 2050, with the Jet Zero Council overseeing the transition. SAF is identified as a key lever to achieve this goal, with plans for five SAF plants by 2025. By 2050, the UK’s SAF industry could be worth £16.7 billion annually, supporting approximately 130,000 jobs.

SAF mandate

The SAF mandate requires jet fuel suppliers to blend SAF into conventional aviation fuel, starting at 2% by 2025, increasing to 10% by 2030, and 22% by 2040. The mandate also includes a sub-target for PtL fuels, aiming for 0.5% by 2030 and 3.5% by 2040, lower than the EU’s targets. A cap on hydroprocessed esters and fatty acids (HEFA) fuels starts at 2% in 2025, rising to 7.8% by 2040, ensuring space for new SAF technologies. The buy-out price is set at £4.70 per litre for SAF and £5.00 per litre for PtL fuels.

Funding

The UK Government has allocated funds for SAF development, but these are insufficient. The Department for Transport (DfT) estimates the cost of one SAF plant to exceed £1 billion. Funding mechanisms target various stages of development, including:

• Advanced fuels fund: £135 million to March 2025 for commercial and demonstration-scale projects.
• Green fuels, green skies: £15 million to support technologies converting waste into SAF.
• SME programme: Up to £10 million annually for SMEs in aerospace.
• Hydrogen innovation initiative: Up to £50,000 per project for near-term demonstrations.
• Jet zero: £10 million for research on aviation’s non-CO2 impacts.
• Strategic programme: £685 million to 2025 for aerospace research and technology, with industry co-funding.
• Future flight challenge fund: £300 million for developing the aviation ecosystem.

Possible government interventions

The Government is considering several interventions:

• Revenue certainty mechanism: Includes options like Guaranteed Strike Price, Buyer of Last Resort, Mandate Auto-Ratchet, and Mandate Floor Price to provide price support for SAF.
• Changes to the UK Emissions Trading Scheme (ETS): May include lifecycle analysis of SAF types, non-CO2 impacts, and inclusion of long-haul flights.
• Kerosene tax: Levelling the playing field between conventional jet fuel and SAF, potentially generating £6.7 billion annually.
• Safety regulations via CAA: Allowing up to 50% SAF blends without modifications and exploring higher blends.
• Other carbon pricing measures: Implementing an import carbon pricing mechanism from 2027, similar to the EU’s CBAM.

Recommendations

• Financial support: Increase funding to bridge the gap in SAF plant development.
• Policy adjustments: Enhance sub-targets for PtL fuels and support emerging SAF technologies.
• Regulatory framework: Adjust ETS and safety regulations to incentivise SAF use and address long-haul flight emissions.

The UK Government’s evolving policy framework aims to support SAF market growth, but collaboration with the investor community is crucial for success .