SUMMARY
- The EU has acknowledged the role of sustainable aviation fuels (SAFs) as a significant solution pathway to reaching net zero aviation and is developing a policy framework to support the growth of the SAF market.
- The ReFuelEU Aviation Initiative, finalised in 2023, establishes a regulatory mandate for the supply of SAF whilst prioritising the growth and importance of synthetics (PtL/e-fuels).
- Further actions to support SAF such as via the Net Zero Industry Act and EU Emissions Trading Scheme are underway in 2024, with pressure mounting to employ additional measures in line with individual countries’ policies and broader climate action goals.
Across its member states, direct emissions from aviation make up around 3 per cent of total greenhouse gas emissions from the EU1. Despite measures to curb growth, the European Commission estimates the number of commercial flights in the EU could increase by as much as 42 per cent by 2040 compared to 20172. Amongst the numerous actions that could be taken to address the climate impact of aviation – from operational efficiencies to demand reduction measures – the EU has made sustainable aviation fuel (SAF) a priority and is leading the charge towards establishing a SAF market. The bloc has a unique opportunity to mandate collective action whilst building upon individual member state ambition and is in the process of creating this policy framework.
ReFuelEU
The ‘ReFuelEU Aviation Initiative’, finalised in 2023, mandates that all jet fuel suppliers must blend a certain proportion of SAF into the jet fuel they deliver to EU airports by target dates. The EU distinguishes SAF as drop-in aviation fuels that can be: advanced biofuels or biofuels produced from the feedstock in line with sustainability criteria, recycled carbon fuels or synthetic fuels. Within the proposal and for ease of differentiation, they are further refined into:
- Sustainable aviation fuels meaning fuels of a biological origin, which can include fuels like HEFA (hydroprocessed esters and fatty acid fuels), advanced biofuels and ‘sustainable’ biofuels, or, as a sub-category of SAF;
- Synthetic aviation fuels, meaning fuels of a non-biological origin, which can also be referred to as ‘e-fuels’, ‘e-kerosene’, ‘synthetic fuels’ or ‘power-to-liquids’ (PtL).
The mandate requires 2 per cent of the fuel made available at EU airports to be SAF by 2025, rising to 6 per cent in 2030, 20 per cent in 2035 and gradually up to 70 per cent in 2050. Within the mandate, the proportion of synthetic fuels as a sub-mandate to those targets grows in significance and it will need to make up a larger part of the fuel mix over time.
From 2030, 1.2 per cent of fuel available must be synthetic, rising to 35 per cent by 2050 – half of the total SAF requirement (as shown in Figure 1). It is estimated that 104 to 106 additional SAF plants need to be built in the EU by 2050 to cater for the necessary SAF production capacity3.
Significant action is required now to make this mandate a reality. ICCT estimated that the production cost of e-kerosene (a synthetic fuel) in the EU was 10 times higher than fossil kerosene in 2020, but that gap is set to decrease substantially towards an estimated 2.5 times in 2050 as the market matures, technology improves, and the cost of renewable electricity continues to decline4. But of the circa 45 planned synthetic fuel plants in Europe, none have reached final investment decision (FID)5, so the EU risks falling short of these targets.
Figure 1: SAF mandate percentages under the ReFuelEU Aviation Initiative. Source: Adapted from EU legislation, 2023
The EU’s mandate reflects the current scalability and sustainability of synthetic fuels as compared to bio-based SAF. Synthetic fuels use renewable energy as a feedstock as opposed to waste or conventional biomass, which is limited; the production of crops and by-products for energy uses in the transport sector alone already requires 5 per cent of arable land in the EU-276. Scaling synthetic fuels is therefore an immediate priority to ensure a viable pathway to reaching net zero aviation to avoid further land use issues.
Net Zero Industry Act
In early 2024, the EU deemed SAF a strategic technology and acknowledged that it ‘needs to ensure that the regulatory environment and support framework for producers of sustainable aviation and maritime alternative fuels technologies enables them to increase their production capacities’7. One thing the EU’s Net Zero Industry Act (NZIA) does is facilitate this production through expedited permitting and administrative support amongst other measures that aim to break down barriers to scaling SAF along the fuel value chain8.
EU Emissions Trading Scheme
In 2023, the Commission announced plans to support the uptake of SAF via a revenue certainty mechanism linked to its Emission Trading Scheme (EU ETS). €2 billion of funding will be made available for SAF purchases that are compatible with the Renewable Energy Directive (RED) on a first-come-first-served basis9. This means that airlines and other purchasers of SAF will be able to reclaim the price premium between conventional jet fuel and SAF based on its environmental integrity – the rules and tiers for which will be finalised by the end of 2024.
RED-compliant SAFs are currently attributed as ‘zero emissions’ under the scheme10 which has faced some criticism as SAFs do produce emissions, however the expectation is that via this proposed mechanism, the fuels with the highest environmental integrity – widely considered to be synthetic fuels produced with green hydrogen and captured carbon – will be able to access the largest subsidy.
Funding
The EU has allocated significant, but still insufficient funds to support the growth of the SAF market. The investment needs are in line with the scale of other sector transitions; SAF producers estimate they will need 10.4-10.5 billion Euros11 over the period from 2011 to 2050. EU funding mechanisms target activities across TRLs, from the innovation stage through to demonstration. The table below provides a snapshot of funding available as of January 2024:
| Fund name | Organisation(s) | Description | Total fund |
| Clean Aviation Joint Undertaking | European CommissionEuropean aviation sector | A public-private partnership funding R&D across three themes driving the energy efficiency and the emissions reduction of future aircraft: hybrid electric regional aircraft, ultra-efficient short and short-medium range aircraft, and disruptive technologies to enable hydrogen-powered aircraft. | Budget of €4.1 billion divided into €1.7 billion in EU funding and no less than €2.4 billion in private funding |
| EU Innovation Fund (EUIF) | European Commission European Climate, Infrastructure and Environment Executive Agency | Funding via EU ETS. Innovation Fund projects cover a wide range of innovative technologies in areas such as energy- intensive industries, renewables, energy storage, net-zero mobility and buildings, hydrogen, and carbon capture, use and storage. | €40 billion |
| Horizon Europe | European Commission | Horizon Europe is the EU’s key funding programme for research and innovation. It tackles climate change and boosts the EU’s competitiveness and growth. It provides support to researchers and innovators to drive systemic changes to ensure a green, healthy and resilient EU. | Circa €95.5 billion |
| Clean Hydrogen Joint Undertaking | Clean Hydrogen Partnership | Addresses key priorities within different areas of research and innovation, with direct and quantified impact towards the achievement of the objectives of the Clean Hydrogen JU. Topics include Renewable Hydrogen Production, Hydrogen Storage and Distribution, Transport, and Heat and Power. | €113.5 million |
| EU funds via ACT-SAF | European Commission International Civil Aviation Organisation (ICAO) | Funding will go towards increasing SAF production, feasibility studies and assistance with the certification of these fuels to help partner countries decarbonise in line with the European Green Deal commitment. | €4 million |
| Proceeds of EU ETS | European Commission | Airlines and other SAF purchasers will be able to reclaim the price difference between fossil-based jet fuel and SAF from 2024-2030. | ~€2 billion |
| Multiple | European Investment Bank | Lending arm of the European Union and biggest multilateral financial institution in the world. EIB offer loans, guarantees, equity investments and advisory services | €65.15 billion of financing in 2022 |
Possible EU interventions
There are still several policy areas and interventions that the EU may explore to address the growing inequity and climate impacts of the aviation sector:
- Updates to ReFuelEU: By 1 July 2024, the Commission has agreed to assess developments in the SAF market and identify room for improvements to ReFuelEU. This includes ‘setting up or recognising a system of tradability of SAF to enable fuel supply in the Union’, suggesting that incorporating elements of a book and claim scheme ‘could enable aircraft operators or fuel suppliers, or both, to purchase SAF through contractual arrangements with aviation fuel suppliers and to claim the use of SAF at Union airports’12.
- Kerosene tax: Conventional aviation fuel is not subject to any taxation, which keeps its price artificially low in comparison to SAFs and synthetic fuels. The EU spearheaded conversations on the topic in late 2023 during COP2813, and revisions to the Energy Taxation Directive have created opportunities to address these exemptions but have been faced with significant opposition14. There are ongoing calls for the EU to implement a kerosene tax through EU-wide and bilateral agreements, particularly between the region’s top emitters, due to its emissions reduction, climate equity and potential economic benefits15.
- Further changes to the EU Emissions Trading Scheme (ETS):
- ‘Polluter pays’ principle: The Commission is updating its rules on emissions trading which aims to ‘accelerate the implementation of the polluter pays principle by phasing out free allowances for the aviation sector by 2026’16.
- Expansion: Should the ETS be extended to all departing flights as of 2027 – rather than only flights within the EU/EEA and departing flights to Switzerland and the UK – the total revenue could reach €72 billion by 203017.
- Non-CO2 emissions: Monitoring rules are being put in place to ‘create a new system for airlines to monitor, report and verify non-CO2 emissions and climate effects of aviation’18. Beyond conventional jet fuel, SAFs also produce non-CO2 emissions at varying levels and potential impacts19, which are likely to impact purchase decisions.
- EU Taxonomy: The EU Taxonomy is designed to guide investors, businesses and policymakers towards a ‘verified’ list of sustainable investments, however under current rules, planes powered by fossil fuels with lower CO2 emissions than ICAO limits for new planes are afforded a ‘green’ label20. This has received widespread criticism from NGOs with claims it permits greenwashing, and therefore could be revised.
- Addressing feedstock barriers:
- Renewable energy: Higher renewable electricity prices in the EU compared to places like the US means the average e-kerosene price is about 45 per cent more expensive than conventional jet fuel21. Policies such as REPowerEU aim to address this, but urgent action will reduce this cost gap for the benefit of the SAF market and the EU’s energy transition more broadly.
- Carbon capture: Delegated Acts on renewable liquid and gaseous fuels of non-biological origin (RFNBOs) set a cut-off date of 2036 for using fossil carbon and as such, open a policy opportunity for the EU to create meaningful incentives for more sustainable sources of carbon – such as from direct air capture (DAC) or point-source capture where it is preferable from a lifecycle sustainability perspective – for the production of high-integrity SAF22.
The EU is still building its policy framework to support the growth of the SAF market as part of a blossoming global industry. EU policy has set a trend in the SAF space, with the UK finalising its own mandate and the Inflation Reduction Act incentivising action on SAF in the US. It’s likely in the coming decade that others will follow suit in order to achieve their own national net zero targets and overall ICAO goals, seeing SAFs as a key step on the pathway to net zero aviation. Activities from the public sector alone will not be enough to see this market take off, and we are working closely with the investor community to accelerate action. To find out more, visit our website or get in touch.
Download this policy mapping for your records.
We aim to update this webpage regularly over time. If you’re interested in keeping a copy of this policy mapping in its current form, download the document below.
