The Executive Summary to the International Air Transport Association’s (IATA) Net Zero Roadmaps[1] acknowledges that aviation is “one of the hardest sectors to decarbonize” but notes that the International Civil Aviation Organization acknowledged “international aviation’s contribution to 14 of the 17 United Nations Sustainable Development Goals (SDGs), including SDG 13: “Take urgent action to combat climate change and its impacts.””  As set forth in The Energy and New Fuels Infrastructure Roadmap, IATA’s central scenario “requires [Sustainable Aviation Fuel (SAF)] to represent 80-90% of aviation fuel use in 2050, reducing aviation emissions by 62%.”

The need to increase SAF production has been the subject of government intervention on both sides of the Atlantic. In September 2021, the U.S. Department of Energy, U.S. Department of Transportation and U.S. Department of Agriculture entered into a Memorandum of Understanding, “Sustainable Aviation Fuel Grand Challenge,” that aims to achieve a minimum of 50 percent reduction in lifecycle greenhouse gases compared to conventional fuel and to meet 100 percent of aviation fuel demands by 2050,[2] which will require billions of gallons of SAF to be produced annually.[3]  The emphasis on lifecycle greenhouse gases means every stage of production matters.

The need to increase production to meet the requirements of mandated levels in Europe is also broadly understood.  However, given that SAF made up less than 0.1 percent of total airline fuel consumed in 2023,[4] strong growth will need to continue. SAF production is projected to double in 2024,[5] and will need to continue growing year-on-year. Recent developments in the United States and Europe, aim to provide SAF producers and airlines incentives and, in Europe mandates, to bolster demand for SAF.

Fuel mandates – the EU and the UK

The U.S. federal government continues its position of incentivizing the development of SAF as its main lever to encourage the scale-up of SAF production, but the incentives are time-limited, for now,[6] as the establishment of a bipartisan sustainable aviation caucus in June of this year has been taken as a positive sign for the longevity of the incentives by some.[7]

In contrast, in the European Union, the ReFuelEU mandates ensure there is a market for SAF,[8] whilst incentives through the EU’s Emissions Trading Scheme provide up to €2bn in financial incentives to adopt SAF.[9]

Following the recent change in government in the United Kingdom, the mandates for aircraft operating out of the United Kingdom were confirmed by the Labour administration on 22 July 2024[11] -- increasing 1.6% year-on-year from 2025 to 2030 and then variably by between 0.75% and 1.4% to 2040.  From 2040 the obligation will remain at 22% until there is more clarity on how the supply of SAF will develop. From 2027, the UK’s mandate also requires innovation in the feedstocks that can be used, imposing a cap on feedstocks derived from hyperprocessed esters and fatty acids (HEFA) and, from 2028, including a separate power-to-liquid (PtL) obligation:

The UK’s mandate provides a buy-out option which permits SAF suppliers who are unable to meet their supply obligations to pay a price per litre of £4.70 for the main SAF mandate and £5.00 for the PtL obligation to the UK government as a means to alleviate concerns over sufficiency of supply and over excessive costs to airlines and their passengers.

The UK government continues to consult on a revenue certainty mechanism for producers of SAF, to encourage investment in new SAF plants in the UK.

U.S. Developments in 2024

The United States has taken to incentivizing production through the IRS and Department of Energy who released tax guidance on April 30, 2024 and clarified the Greenhouse Gases, Regulated Emissions, and Energy Use in Technologies (or GREET) model, used to calculate the production tax credit under Section 40B or 6426(k) (40BSAF-GREET). The model places greater emphasis on farming practices that will lead to SAF and has been hailed as the first such model to recognize such climate-smart agricultural practices: “The USDA and Department of Energy deserve praise for diligently ensuring this first step is being taken with respect to [Climate Smart Agriculture] practices,” said Brian Jennings, CEO of the American Coalition for Ethanol.[12]

The tax guidance provides safe harbors for calculating emissions reduction percentages, which in turn affect the corresponding tax deduction available for a company. In order to qualify for a tax credit of $1.25 per gallon, there must be a lifetime greenhouse gas emissions reduction of at least 50%. Any reduction in lifecycle emissions over 50% percent is valued at US$0.01 per percentage point, providing further incentive to use SAF that produces greater reductions in lifecycle emissions.[13]

40BSAF-GREET also integrates the USDA’s Climate Smart Agriculture Pilot Program, which allows for agricultural practices that can result in lower carbon emissions and carbon sequestration.[14] Chiefly affecting corn and soybean farmers, this safe harbor should help increase domestic production from corn ethanol producers who may otherwise have experienced reduced demand for ethanol in automobile gasoline.[15]

To lift production capacity and gain a deeper understanding of environmental effects, SAF research received continued support in 2024 through the continuation of funding for the Center of Excellence for Alternative Jet Fuels and Environment (ASCENT), a research organization with 16 research universities and 60 private-sector stakeholders conducting 72 active research projects, many covering SAF.[16]  The FAA awarded $27.2 million in March 2024, with matching in-kind by ASCENT partners.[17]

SAF traceability and greenwashing

Operators are learning that it is becoming paramount that they understand where and how their SAF is being produced as traceability is a common thread running through updated models and tax policy, making it necessary to understand the reduction in lifecycle greenhouse gases.

As more fuel products reach the market as “green,” fuel consumers will be asking what that means. Understanding the fuel’s lifecycle greenhouse gas emission reduction percentage helps fend off claims of “greenwashing”, which have affected airlines in Europe.[18] The European Commission has raised concerns about “using the term “sustainable aviation fuels” without clearly justifying the environmental impact of such fuels.”[19]  In the UK, the Advertising Standards Authority (the ASA) upheld a complaint against a Virgin Atlantic radio advertisement that claimed a flight from London to New York used 100% sustainable aviation fuel was misleading – the flight was operated using 100% SAF but the ASA felt consumers would be misled to believing the fuel itself was 100% sustainable when it actually “delivered savings of 64% in greenhouse gas emissions compared to fossil derived aviation fuel over its full lifecycle”.[20]  Accordingly, good traceability on the lifetime emissions reductions can be translated into airline consumer information, helping to fend off such greenwashing accusations – thus highlighting the interplay between a desire to meet emissions reduction, achieving mandates, accessing tax incentives and avoiding claims of greenwashing.