- Production and Pricing Trends:
- As of 2022, SAF was priced at approximately 2400 USD per tonne, approximately 2.5x the price of conventional jet fuel. This disparity is largely attributed to SAF’s small production runs.
- The cost of waste-based SAF sources hovers around twice that of traditional jet fuel, while synthetic fuels created through carbon capture can be up to 6-10 times more costly.
- Despite these figures, the aviation sector has committed to six billion litres of SAF in forward purchase agreements, indicating a strong move towards this sustainable alternative.
- Cost Projections and Market Dynamics:
- Analysts predict that the expense associated with SAF will decrease over time, especially as production facilities expand and the volume of forward purchase agreements by airlines rises.
- The anticipated reduction in SAF costs contrasts with the yearly increase in the price of traditional jet fuel envisioned long-term.
- By 2040, with supportive policies in place, the price of SAF could align with that of jet fuel and the associated costs of CO2 emissions.
Regulatory and Market Incentives for SAF Adoption
In aviation, adopting sustainable aviation fuel (SAF) is not merely a matter of environmental stewardship but also of regulatory compliance and market adaptation. Both the U.S. and the European Union (EU) are spearheading efforts to encourage SAF uptake, albeit through differing strategies:
- U.S. Incentives:
- The U.S. government has implemented a carrot approach, offering volumetric tax credits to producers of SAF mixtures that achieve at least a 50% reduction in life cycle greenhouse gas (GHG) emissions, as outlined in the Inflation Reduction Act (P.L. 117-169).
- These incentives are designed to stimulate the low-carbon aviation fuel market by making SAF production more economically viable.
- Producers and importers of SAF must be registered with the IRS under Sec. 4101 to qualify for these benefits, ensuring a regulated and accountable market growth.
- EU Legislation:
- In contrast, the EU favours a stick approach, as seen in initiatives like ReFuelEU Aviation, which mandates the production and usage of SAF and imposes penalties for non-compliance.
- This legislation clearly indicates that for air transporters, incorporating SAF is becoming a prerequisite for their “license to fly,” especially as aviation CO2 emissions account for a significant portion of global emissions.
- Economic Considerations:
- Despite the higher costs of SAF compared to fossil kerosene, subsidies and legislative measures can make SAF competitive. However, the price premium for SAF, influenced by feedstock supply limitations and less cost-efficient pathways, can potentially affect airfare and profitability.
- In the EU, the cost of CO2 emissions is often passed on to the consumer, with air travellers bearing the financial burden through increased airfares.
- The challenge remains balancing mandates and incentives to avoid stifling business growth while not providing excessive advantages that could lead to cost inefficiency.
The divergent approaches of the U.S. and EU reflect the complexity of fostering an environment conducive to SAF adoption. While the U.S. tax credits aim to kick-start the market, the EU’s legislative mandates ensure a baseline level of SAF integration. Both strategies underscore the global urgency to transition to sustainable aviation fuels, with North America and Europe leading the charge. As the industry evolves, these regulatory and market incentives will be pivotal in shaping the future trajectory of SAF affordability and its role in achieving a more sustainable aviation sector.
