The UK has officially taken steps towards a lower carbon future for aviation by signing the sustainable aviation fuel (SAF) mandate last week. But what is SAF and who will it impact? 

What is SAF?

Sustainable aviation fuel (SAF) is a jet fuel which can be produced through various renewable technology processes including:

  • Gasification: which uses organic wastes such as wood or household waste;
  • HEFA: which refines vegetable oils, waste oils, or fats into SAF through hydrotreating and hydroprocessing;  
  • Alcohol to Jet (AtJ) which converts alcohols into SAF by removing the oxygen and linking the molecules together; and
  • Power to Liquid (PtL): which uses green hydrogen, capturing carbon dioxide, and using renewable electricity to create synthetic fuels. 

SAF is blended (up to 50%) with traditional jet fuel to be certified jet fuel (Jet-A/A1) and used by airlines without any changes in the fuelling infrastructure or aircraft. It emits on average 70% fewer greenhouse gas emissions than using fossil jet fuel on a life cycle basis.

What does the SAF Mandate do and who is required to comply?

The mandate requires aviation fuel suppliers to ensure that, from January 1 2025, 2% of all jet fuel demand in the UK consists of SAF. The level required will increase each year to 10% in 2030 and then to 22% in 2040, remaining at this 22% level until, according to the mandate, ‘there is greater certainty regarding SAF supply’.

The majority of SAF is currently delivered through HEFA technology but, as future demand will require range of technologies and feedstocks, the UK SAF mandate also imposes:

  • a cap on the amount of SAF which can be derived from HEFA starting at 100% of SAF demand in 2025 and 2026 but decreasing to 71% in 2030 and 35% in 2040; and
  • an obligation for at least 0.2% of total jet fuel demand to be from PtL derived SAF from 2028, reaching 3.5% of total jet fuel demand in 2040.

SAF suppliers will earn certificates for SAF in proportion to its GHG emissions reductions. These certificates can then be applied to discharge the supplier’s obligation and, as the certificates are tradeable, can also be sold to other suppliers who have not sold the required amount.

If a supplier has not supplied sufficient SAF (and therefore does not have enough certificates to discharge its obligation) then the SAF mandate also imposes a buy-out mechanism for both the main and power to liquid obligations of £4.70 and £5.00 per litre of fuel below the mandated level, respectively. 

It is worth noting that whilst the UK SAF mandate is binding on aviation fuel suppliers rather than the airlines themselves, if airlines use eligible SAF, they can reduce the number of UK ETS allowances they need to surrender meaning that they have incentive to purchase this in conjunction with regular Jet A1 fuel.

What’s Next?

Whilst the imposition of the SAF mandate is a positive step forward in providing investor confidence in UK SAF production, there is still much to do before “take off” and there remain concerns and uncertainty in the investor, supplier and producer markets.

One concern relates to the issue of “tankering”. This is where an airline takes on additional fuel for inbound legs to destinations where refuelling would be more expensive so that it is not necessary to refuel for the outbound leg. Currently, the mandate does not impose a minimum fuel requirement for airlines departing from UK airports (unlike in the EU where the yearly quantity of jet fuel uplifted by that airline at a given EU airport must be at least 90% of the yearly jet fuel required). The Government has said that it will keep this position under review, it will be interesting to see what impact this contrasting position has. For example, the need to meet the minimum fuel requirement could mean that the demand for SAF is stronger in the EU than the UK, resulting in EU projects receiving greater investment. 

However, perhaps the biggest barrier to investment, is the direction (and implementation of) the revenue certainty mechanism. The mechanism would aim to reduce the risks of uncertain revenues for new SAF plants but, whilst the mandate will come into force in 2025, the proposed revenue certainty mechanism is only due to be introduced by the end of 2026. 

The consultation on the mechanism outlined four options which the UK government was considering, namely:

  • a guaranteed strike price for SAF;
  • a buyer of last resort for SAF certificates  when the market price falls below an agreed level;
  • a mandate auto ratchet which automatically adjusts the SAF Mandate levels where targets are being exceeded by a certain level to ensure a balanced supply/demand of SAF and help maintain the price; and
  • a mandate floor price which introduces a minimum price at which the certificates can be sold. 

Consultation on the mechanism closed in June this year. The Government has not provided a timescale for responding on the revenue certainty mechanism consultation and the industry eagerly awaits the outcome. 

If you would like any further information, or advice related to any of the information in this article, please contact Nick Churchward, Greg Fearn or your usual Burges Salmon contact.