Tuesday 14 February 2023
Briefing: Status and progress of UK, EU and US SAF policy
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Last year was one of major aviation climate policy action, but the completion of sustainable aviation fuel (SAF) regulation in Europe was pushed into the new calendar year. With 2023 now in full swing, policymakers and key stakeholders are working to finalise or complement key pieces of legislation to boost SAF production and uptake – but what is their status and where are they headed next?
Ishka summarises key takeaways from last week’s Sustainable Aviation Fuel Supply Chain Initiative conference in Leeds. Organised by Innovate UK, a UK government agency, the one-day event brought together SAF policymakers and stakeholders from the UK and beyond to discuss their latest progress.
UK SAF mandate
In 2022, the UK officially launched its Jet Zero strategy document, which sets out priority areas for the UK to decarbonise aviation. Among them is the introduction of a UK SAF mandate that would require at least 10% SAF blend by 2030. A first-stage consultation on this SAF mandate was held and its results (favouring the mandate’s introduction) were published in March 2022.
Separately, SAF production scale-up in the UK has been supported by a new £165 million ($200 million) Advanced Fuels Fund facility. Five projects were announced in December 2022 to receive shares of the funding. The winner of a UK government-supported competition to operate the first-ever 100% transatlantic flight between the UK and US was also announced last December – Virgin Atlantic.
Status and progress:
- UK SAF mandate: The next stage of the UK SAF mandate formulation is a second consultation which will set out full details of what needs to be included in the final legislation, including overall, a cap for HEFA SAF, and sub-targets for other advanced SAFs. “If it’s not in the consultation, it won’t be in the legislation,” Hazel Schofield, Deputy Head of Low Carbon Fuels at the UK’s Department for Transport (DfT) told the conference. Ishka understands the second consultation was initially intended to take place in late 2022 but was deferred to this year, and according to one other speaker it could be launched “in the coming weeks.”
- SAF facility funding: Work has now “started to progress” with the five projects selected last December for the Advanced Fuels Fund facility, Schofield shared. For now, her department is “unable to say” whether there will be a second funding round but it is “working towards it.”
- Transatlantic flight: The Virgin Atlantic 100% SAF Transatlantic flight is likely to take off in November 2023 using a Boeing 787 with Rolls-Royce Trent 1000 engines and HEFA SAF with 12% aromatic content. Sixty tonnes of SAF will be required, of which around 15 tonnes will be for testing ahead of the flight. Emissions from the flight will be offset to achieve net zero flight, and other fuel efficiency and climate impact reduction measures will be trialed. The flight’s research findings will be shared in Q1 2024.
Meanwhile, an independent review document examining the barriers to UK SAF investment is also expected to be published “shortly,” which Ishka understands could be by mid-April. As part of that research, Schofield noted there is “industry consensus on the needs for complimentary support” on top of the SAF market and current funding provisions.
That industry consensus appears to have spilled over into sections of the UK’s governing party, with a recent manifesto by the Conservative Environment Network signed by 24 MPs calling for the use of Contracts for Difference (CfDs) to encourage development of sustainable aviation fuel in the UK. In a CfD scheme SAF producers would compete for fixed-price, long-term contracts for their product when selling to airlines, with the government paying the difference between a volatile wholesale price and a fixed strike price.
Separately, the UK’s DfT is also expected to “very shortly” announce a delivery partner to set up and manage a UK SAF Clearing House, which is expected to be Europe’s first clearing house to support and coordinate testing and approval of new aviation fuels.
EU SAF mandate
In 2022, the EU’s three key lawmaking bodies delivered their respective positions on the ReFuelEU Aviation proposal (a key ‘Fit for 55’ package proposal for aviation introducing an EU SAF mandate) ahead of trilogue discussions between the three bodies that began in Q4 2022. As per the original European Commission proposal in July 2021, the Commission was aiming for SAF related regulation to come into force from 1st January 2023. However, trilogue deliberations in December 2022 could not reach an agreement, postponing negotiations into 2023.
Status and progress:
- A nuclear impasse: Confirming reports by Euractiv in late December, Laurent Donceel, senior policy director at Airlines for Europe (A4E), told the conference that whether to designate SAF produced using nuclear energy as ‘sustainable’ was the main roadblock to finalise ReFuel EU Aviation. “It is one of the biggest political battles taking place in Brussels now – what constitutes synthetic fuels.” French and German positions on this issue are said to be at loggerheads, but sources say a compromise is likely. On a related development favourable to France’s pro-nuclear position, the European Commission on 13th February published two delegated acts which define what constitutes renewable hydrogen and which include nuclear energy as a possible “low-carbon” (rather than “renewable”) source.
- ‘End of spring’ agreement: Despite recent trilogue disagreement, Donceel said a deal is likely by the “end of Spring” allowing for the EU SAF mandate to be finalised this year.
- EU ETS interplay allow ‘price parity’: Donceel was also optimistic about the 20 million free allowances for SAF introduce by the recent EU ETS reform (worth approximately €1.6 billion or $1.69 billion today, but expected to be worth up to €2.5 billion or $2.7 billion between 2025 and 2027). All fuels eligible under RefuelEU, except fuels derived from fossil fuels, will be eligible for these SAF allowances at variable rates depending on their emissions reduction. For renewable fuels of non-biological origin (RFNBOs, or e-fuels with up to 100% lifecycle emission reductions), these free allowances would be equivalent to 95% of their cost, which would create “price parity” with fossil kerosene for airlines using them.
US SAF credits
Much like with other climate-oriented industrial policy, the US took a lead in 2022 in the SAF policy space with major provisions under the Inflation Reduction Act (IRA) – a piece of legislation containing $369 billion in climate investments. Signed into law by President Joe Biden last August, the IRA contains provisions to encourage progress towards a US SAF production target of 3 billion gallons (11 million metric tonnes) per year by 2030.
The main incentives are $300 million in R&D grants until September 2026 and two rounds of SAF tax credits: Until 2025, any “sale or use of a qualified [SAF] mixture” used and produced by a US taxpayer qualifies for tax credits of $1.25 per gallon; and from 2025 until the end of 2027, the $1.25 per gallon credit will also have an applicable supplementary amount based on the lifecycle greenhouse gas (GHG) emissions of up to $0.50 per gallon, for a total of up to $1.75 per gallon – a Clean Fuel Production Credit (CFPC).
Status and progress:
- IRA SAF credits ‘not good enough’: Industry reaction to the IRA tax credits has been a mix of appreciation of its strong market signal and disappointment with its (for now) limited lifespan. Valerie Reed of the US Department for Energy conceded just as much. “I’ll be the first to admit it’s not good enough, it’s only two years […] it doesn’t last long enough to really pull the new technologies into the marketplace,” she told the conference. In reference to new production pathway technologies such as power-to-liquid (PtL) fuels, Reed later added that the US has prioritised these a “little further down the pipe” as the US is prioritising green electricity and green hydrogen for other more immediate needs in the economy.
- Illinois credits signal a new state ‘fight’: The US state of Illinois at the start of this month signed into law the Invest in Illinois Act which includes SAF purchase credits of $1.50 per gallon for SAF used by aircraft in the state until 2033 – this is on top of federal credits included in the IRA. Commenting on this development, Reed said this shows that states with plentiful SAF feedstock (in the case of Illinois, corn) are now “beginning to fight over who is going to get the [SAF production] market.” Reed said the Illinois incentive “will pretty much guarantee that there will be [SAF production] facilities built in that area.”
- Non-CO2 effects also in US picture: The non-CO2 effects of aviation (see Insight: ‘Why the non-CO2 effects of aviation are now under the EU microscope’) are a growing area of policy focus in Europe, especially following the recent reform of the EU ETS rules for aviation (see Insight: ‘ESG Extra: EU agrees ETS reform but SAF rules slip into 2023’). The topic has been less prominent across the Atlantic, but Reed noted that US government agencies are looking at non-CO2 impacts and “the conversation has been turning to using a CO2 equivalent reduction as opposed to CO2 emission reduction as a way of measuring and giving value to that piece.”
Other takeaways
Other notable takeaways from the conference include:
- More countries looking at aviation decarbonisation policy: The UK’s Jet Zero Council has been in talks with industry and government representatives in Australia, Spain, and Ireland on the possible establishment of similar councils in those jurisdictions to advance national aviation decarbonisation policy.
- One to watch: The third ICAO Conference on Aviation Alternative Fuels (CAAF/3) is due to be held in November this year. Organising this conference is one of ICAO’s main priorities for 2023, as boosting SAF is a major pillar of its Net Zero Long-Term Aspirational Goal (LTAG) adopted last year. Alex Philpott, the head of international aviation environment strategy at DfT and the UK’s ICAO representative, said one of the possible outcomes of this conference is to set a “global target for SAF uptake” for 2050 or, more ambitiously, “milestones” along the way. This could be an “aspirational goal” but also something “stronger” like a “mandate.”
The Ishka View
No SAF mandate or incentive policy is yet at the point of providing complete investment landscape certainty for decades to come, but the world’s major Western economies have made significant progress towards that objective in the past 12 months. The year ahead will see the finalisation of key mandates in Europe, and progressively the prioritisation of SAF policy in other regions and globally. Investors looking at SAF opportunities have much to gain from these new policies, but also have an opportunity to shape the investment landscape. In the UK for instance, the Jet Zero Council is currently “particularly interested in private finance organisations” to join its SAF subgroup to better understand the financing requirements of SAF investors.
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