Wisdom dictates that it is never too late to acknowledge mistakes and make amends, but can it ever be too early? A new analysis by SAF finance specialists 360 Asset Finance* tackles investor fears that the EU’s flagship SAF policy, ReFuelEU Aviation, could undermine its own demand-driving blending quotas through its revision clause (Article 17).

In an in-depth nine-page analysis, 360AF managing director Peter Smeets and senior analyst Celine Coridass delve into the intricacies of EU review clauses and the wording of Article 17 to unpack those concerns and reassure SAF investors that policy amendments (the earliest of which could arrive in 2027) are unlikely to shift the core objectives of the EU’s SAF mandate.

Why investors fear Article 17

Clauses enabling the review of European legislation are not uncommon, but the scope of what can be revised varies. In the case of ReFuelEU Aviation, Article 17 compels the European Commission – the EU’s main executive branch – to compile and publish a report by January 2027 and every four years thereafter on four key areas of the policy. Those four areas cover most of its scope, including possible adjustments to “the definition of SAF, the permissible fuels, and their minimum percentages as well as the level of fines.”

ReFuelEU Aviation’s purpose is to send a market signal to fuel suppliers and airlines to demand SAF at specific quantities over a specific period, thereby strengthening the SAF investment rationale in the EU. That core objective could be undermined if investors take the view that flexibility to review percentages, SAF definitions and the buy-out cost (i.e. fines) can alter the profitability of future SAF refineries.

Main takeaways of the analysis

• The main concern by investors around Article 17 is that the EU Commission could determine in 2027 (and/or after future reporting intervals) that blending quotas will have to be adjusted, particularly if there is insufficient SAF expansion.
• From a policy direction standpoint, Smeets and Coridass argue that amendments to EU laws do not generally result in the abandonment of policy objectives. With regards to ReFuel EU Aviation, this means that “it can be assumed that the basic intention” of the regulation including the progressing market ramp-up of SAF usage “will remain in place and only the design of the measures will be adjusted.”
• Possible amendments to the regulation (based on the wording of reporting obligations under Article 17) include:
  1. adjustments to reduce cost pressure in the form of innovation aid
  2. support measures for production and refuelling
  3. bridging the price difference between SAF and conventional fuel
  4. increasing CO2 costs
  5. the extension of the minimum blending quotas over time
  6. the reduction of fines
• Smeets and Coridass note that amendments could lead to the regulation becoming “more precise with regard to the avoidance of carbon leakage.”
• Smeets and Coridass warn of a possible “self-fulfilling prophecy” whereby present pessimism around future unattainability of the SAF blending quotas could lead to a reluctance to conclude SAF offtake agreements, in turn impairing SAF project financing.
• The analysis also reflects on a recent legislative experience in Germany, where a power-to-liquid (PtL, also known as e-SAF) national quota was introduced in 2021, but remained subordinated to the EU which then introduced overriding PtL quotas – which became ReFuelEU Aviation’s sub-mandate for synthetic fuels in 2023. However, ReFuelEU Aviation differs from the German PtL quota as the European PtL quota starts later (2031) than that of Germany (2026, as initially planned). The question of primacy of application and factual practicability points to a postponement of the periods of the German PtL Quota or a reduction in the blending percentages.
• Another lesson from Germany’s recent biofuel regulatory endeavours is the country’s shift from a national biofuel percentage-based quota to a greenhouse gas (GHG) reduction quota. German regulators displayed “the greatest possible consistency” between the old and the new system, prioritised climate protection, and did not follow “legislative whims.” The authors note that “direct conclusions cannot be drawn from the handling of the German PtL quota for the handling of the European SAF quota due to the different legislators. However, it is clear that both legislators are aware of the relevance of regulatory consistency for the intended market ramp-up.”
• Smeets and Coridass conclude with a positive and hopeful outlook. If and when competitive disadvantages arise as a result of ReFuelEU Aviation requiring amendments, those disadvantages could be mitigated “much more efficiently and in accordance with the law by providing financial support than by withdrawing climate targets.” Therefore, they conclude, “a lack of belief in the continued existence of the climate targets in the ReFuelEU is understandable, but at the same time, it is no reason for the obligated parties to succumb to the belief that they can escape responsibility for the decarbonisation of aviation.” To prevent gloomy “self-fulfilling prophecies,” Smeets and Coridass call on politicians to “live up to their responsibility” to communicate with investors and make “improvements to the supporting measures” of ReFuelEU Aviation.

Download the full analysis

To download the full nine-page analysis, please click here.

* 360AF (360af.de) is a Management Consulting Firm based in Frankfurt/Germany that advises in the field of corporate & sustainability finance with a focus on aviation

360AF and Ishka are both members of Impact. For more information on Impact (Initiative to Measure and Promote Aviation’s Carbon-free Transition e. V.), please visit: impact-on-sustainable-aviation.org

Tags: EU, Investors, SAF investment, SAF mandate, SAF policy