SUMMARY
- The UK Government finalised its sustainable aviation fuels (SAF) mandate, which includes a sub-target for power-to-liquid (PtL) fuel, buy-out price and sustainability criteria to be met.
- There are several existing funds that the Government has delivered in support of SAF, but the industry still requires further financial support.
- The policy landscape for SAF will likely evolve in the short term, with the potential for new proposals targeting fuels and net zero aviation more broadly as the UK heads into a General Election period.
The UK Government is in the process of designing and delivering its policy framework for achieving net-zero aviation. The UK aerospace industry is the second largest in the world1 and aircraft, engine and parts manufacturing is expected to be the country’s third biggest export in 2024, totalling $24.6 billion2. The Government views the sector as a vital part of the UK’s economy, alongside being an influential player in the global market. However, with international and domestic aviation accounting for around 8 per cent of the UK’s greenhouse gas (GHG) emissions3, there is an urgent need to implement policies that will ensure the sector aligns with climate targets.
The Jet Zero Strategy, launched in 2022, outlines the Government’s strategic vision and plan for reaching net-zero aviation by 2050. The Jet Zero Council, formed of senior industry representatives and policy-makers, provides strategic oversight of the Government’s plans as key stakeholders in the sector’s transition. Within these current plans, sustainable aviation fuel – or SAF – is noted as ‘one of the key levers available to government and industry to accelerate the transition to net-zero aviation’4, and they are aiming for 5 plants to be under construction in 2025. The UK’s SAF industry could be worth £16.7 billion per year in exports by 2050, supporting approximately 130,000 highly paid jobs5, and it is our view that the Government has a leading role in delivering this huge opportunity by establishing a sustainable, high-integrity SAF market for the UK and beyond.
SAF mandate
The UK Government finalised its SAF mandate in April 2024, which once enforced will require jet fuel suppliers to blend SAF into conventional aviation fuel at increasing concentrations, much like the European Union’s ReFuelEU SAF mandate. These blend quantities increase from 2 per cent SAF as a percentage of total jet fuel demand by 2025, to 10 per cent by 2030 and 22 per cent by 2040. They also launched a ‘SAF Clearing House’, to provide technical support and funding towards the development, testing and qualification of SAFs6.
Similarly to ReFuelEU, the policy has included a sub-mandate on ‘power-to-liquid’ (PtL) fuels – referred to as synthetic aviation fuels in the EU mandate – due to their ‘high GHG emissions savings potential and low land use change risk’7. The Government has noted that this type of high-integrity SAF will require more support to get to market and help in bringing costs down for their inputs such as green hydrogen and renewable energy, therefore it was expected that the sub-target would be ambitious. However, the PtL target has fallen short of expectations and is lower than the counterpart target within ReFuelEU, requiring only 0.5 per cent PtL by 2030 and reaching a significantly lower target of 3.5 per cent PtL by 2040 as compared to the EU’s 10 per cent target for the same year.
The Government has included a cap to hydroprocessed esters and fatty acid (or ‘HEFA’ fuels) which, though cheap and abundant, don’t align with their commitment to only use waste residues for fuels and to leave space in the market for newer SAF technologies to become competitive. The HEFA cap starts at 2 per cent in 2025 and rises to 7.8 per cent by 2040. The mandate also includes a buy-out price whereby jet fuel providers have a cost penalty should they not supply enough SAF. The buy-out mechanism for the main SAF obligation is £4.70 per litre and the PtL obligation is £5.00 per litre. The Government has also said it would change key parameters within the mandate to block higher price rises in case of SAF shortages to reduce the risk of impacts on consumers. Figure 1 compares the mandate targets within the UK’s SAF mandate to those of ReFuelEU.
Funding
The UK Government has allocated significant but insufficient funds to support the growth of the SAF market. The Department for Transport (DfT) estimate the costs for one SAF plant could exceed £1 billion, therefore there is a significant gap in plans sufficient to meet the ambition of ‘having 5 commercial SAF plants under construction in the UK by 2025’8 and ‘no clarity on who will fund them’9. These funding mechanisms target activities across the TRLs, from the innovation stage through to demonstration. This mapping provides a snapshot of funding available as of May 2024:
| Fund name | Organisation(s) | Description | Total fund |
| Currently closed | |||
| Advanced Fuels Fund | – Department for Transport (DfT) – RicardoE4Tech | Grant funding to first-of-a-kind commercial and demonstration-scale projects in the UK at all development stages up to construction starting. | £135 million to March 2025. The application window closed in 2023. |
| Green Fuels, Green Skies | – DfT – Ricardo | Competition to support UK companies that pioneer new technologies to convert household rubbish, waste wood and excess electricity into SAF. | £15 million. |
| SME Programme | – ATI – DBT – Innovate UK | A funding programme tailored to the needs of SMEs to strengthen and further encourage technology innovation within the supply chain and civil aerospace sector. | Grants totalling up to £10 million a year. |
| Hydrogen Innovation Initiative Demonstration | – Connected Places Catapult – Hydrogen Innovation Initiative (HII) | Connected Places Catapult, acting as a partner of the HII, is looking to procure results from near-term demonstrations. | A budget of up to £50,000 per project to contribute to the costs of the demonstration activities. |
| Jet zero: aviation’s non-CO2 impacts on the climate | – DBT – DfT – Natural Environment Research Council (NERC) | Collaborative research which focuses on the underpinning science of aviation’s non-carbon dioxide (CO2) impacts – including from SAFs – and how they interact with climate over time with the view to identifying benefits, mitigation options, informing industry and government policy decisions. | £10 million. |
| Live | |||
| Strategic Programme | – Aerospace Technology Institute (ATI) – Department for Business and Trade (DBT) – Innovate UK | Targeting innovators, this programme provides funding for research and technology development in the UK to maintain and grow the UK’s competitive position in civil aerospace | £685 million to 2025, with industry co-funding taking the total to >£1 billion. |
| Future Flight Challenge Fund | – DBT – UK Research and Innovation (UKRI) – Innovate UK | This fund builds the aviation ecosystem needed to speed up the introduction of electric sub-regional aircraft, advanced air mobility vehicles and drones into the UK. | £300 million co-invested by government and industry. |
| Accelerating research outcomes to deliver a prosperous net zero | – Engineering and Physical Sciences Research Council (EPSRC) | Provides follow-on funding to research outputs that are ready to move beyond fundamental research and need additional resource to be taken up as a solution by users. | £7,500,000. |
| UKRI SME innovation loans | – UKRI | Funds businesses to develop innovative products, processes or services that can maximise return on investment to the UK’s economy and society. | Not specified. |
| Tomorrow’s Engineering Research Challenges | – EPSRC | Funding opportunity supporting diverse teams from across disciplines to forge new research capabilities. | £7,000,000. |
| Emerging Energy Technologies Fund (EETF) | – Scottish Government | Funding to accelerate low carbon infrastructure projects that will be essential to deliver net-zero. | £180 million. |
Possible government interventions
- Revenue certainty mechanism: Following the publication of the mandate, the Department for Transport (DfT) have launched an eight-week consultation on the design of a scheme, which will ‘provide an incentive for the production of SAF via price support from tradable certificates with a monetary value’10. The consultation outlines four options including:
- A Guaranteed Strike Price (GSP): similar to a Contracts for Difference (CfD) model, an agreed price is paid per litre of fuel produced to SAF producers who choose to apply to the scheme.
- Buyer of Last Resort (BOLR): a counterparty steps in to purchase SAF certificates when the market price falls below an agreed level. This would thereby agree a minimum price for the producer’s SAF certificates redeemed through the SAF Mandate.
- Mandate Auto-Ratchet (MAR): the mandate would adjust when there is an oversupply in the market, to bring the price of SAF back closer to the buy-out price.
- Mandate Floor Price (MFP): includes a minimum price for certificates which is universally applied through the mandate itself (in addition to the buy-out price).
- Changes to the UK Emissions Trading Scheme (ETS):
- Emission reduction assumptions for using SAF under the UK ETS may shift to consider a lifecycle analysis of the type of fuel used; currently, using any SAF assumes a 100 per cent emission reduction11. In this instance, PtL fuels would perform more favourably than biofuels.
- The non-CO2 impacts of SAFs may also be introduced, which vary vastly between different fuels but with research ongoing12.
- Long-haul flights which account for most of the UK’s aviation carbon emissions aren’t yet included in the ETS, only domestic and those departing to the European Economic Area13.
- Kerosene tax: At present, aviation is the only transport sector that doesn’t have to pay a duty on its fuel. Implementing a kerosene tax would help to level the playing field between the cost of conventional jet fuel and SAFs, and particularly PtL fuels. Many advocates for this policy also see it as necessary from an equity and just transition perspective, arguing that airlines should not be spared fuel tax when truckers and motorists are not. By some estimates, the revenues generated could be around £6.7 billion per year14.
- Safety regulations via Civil Aviation Authority (CAA): SAF can currently be used in jet engines to a maximum blend of 50 per cent with traditional kerosene without the need for any modifications. In late 2023, the CAA granted a permit to Virgin Atlantic to fly on 100 per cent SAF between the UK and US15, which took place without incident. Safety is paramount within the aviation industry and therefore shouldn’t be compromised, yet there are still regulatory barriers that need to be overcome for SAF to be used in higher percentage blends and eventually at 100 per cent.
- Other carbon pricing measures: The UK is planning to implement a new import carbon pricing mechanism from 202716, similar to the EU’s ‘CBAM’, on carbon-intensive products including steel and hydrogen, which will have an impact on aviation value chains.
The UK Government is still building its policy framework to support the growth of the SAF market as part of an evolving global industry. 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.
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