The emerging sustainable aviation fuel (SAF) industry is struggling with a patchwork of disparate geographical markets, government policies and production methods—a level of fragmentation that will need to be resolved before investment and demand can scale up, according to aviation and SAF industry executives.
SAF is seen as a credible route for decarbonising airline emissions in the short and medium term, as more technologically ambitious alternatives, such as hydrogen and batteries, remain years if not decades away. But SAF makes up less than 1% of the 100b gal of jet fuel consumed by global aviation annually, with North America the biggest market.
SAF initially started as a biofuel produced from renewable feedstocks, including waste oils and fats, woody biomass and agricultural and municipal waste. More recently, momentum has been building in power-to-liquid (PTL) solutions that combine green hydrogen with carbon dioxide to produce a synthetic variety known as eSAF.
Spoilt for choice
Eleven pathways for producing SAF have received recognition from technical standards organisation ASTM International, underlining the level of fragmentation confronting the fledgling sector. “We are at infancy. We are at ground zero in starting to define and scale this marketplace. It is just a highly fragmented market, which investors do not like,” Lauren Riley, chief sustainability officer at United Airlines, told the recent BloombergNEF Summit in San Francisco.
“Those 11 different pathways have different feedstocks, most of them have different technologies. The different technologies require different capital to invest in infrastructure so you can actually produce the SAF. It is a hugely complex approach to creating fuel,” Riley added.
Early leaders in SAF production have mainly pursued agricultural and waste feedstocks. Finland-headquartered Neste, the world’s biggest producer, produces its fuel from waste and raw materials, while Montana Renewables, the largest supplier in the US, also uses non-edible natural seed oils such as camelina oil and distillers’ corn oil.
Newer entrants in the industry, such as Air Company and Twelve, are following the PTL route. Last autumn, Air Company raised $69m in Series B funding from investors including JetBlue and Alaska Airlines, while the latter also participated in Twelve’s $200m Series C round.
The availability of local resources plays a major role in determining where and which type of SAF can be produced. “What you can get in Texas is going to be different than what you can get in the Midwest, where there is a ton of ethanol. It is not just one-size-fits-all, you have to have regional sensitivities on where can I get my feedstock because, if you are carting the feedstock all over the world, you are going to drive up prices and emissions,” said Riley.
Regulatory disparity
A patchwork of regulations between the US, Europe and Asia to spur the use of SAF are also adding complexity. Airlines face a steady increase in the cost of complying with environmental rules—ranging from the Carbon Offsetting and Reduction Scheme for International Aviation and ReFuelEU, to the UK’s SAF Mandate and Singapore’s upcoming SAF levy.
The US and Europe are leading the way in regulation, although their frameworks differ considerably. Washington under the Biden administration attempted a market approach to generate demand by driving down SAF costs through generous federal tax credits for producers under the Inflation Reduction Act. The Trump administration’s approach remains unclear. The EU and UK, on the other hand, have opted for hard requirements that a minimum percentage of jet fuel comprises SAF.
While US airline representatives were enthused by the “carrot” approach of the US government, they were less sanguine about the “stick” wielded by regulators on the other side of the Atlantic.
“Mandates and regulations before scale are very difficult. If we cannot comply, then you have got these penalty levels. There is no transparency and so I think there are definitely better ways that we can improve how the mandates are implemented,” said Charlotte Lollar, director of SAF at Delta Air Lines.
“The granularity behind some of them is not ideal. There is a broad SAF mandate, but then in this particular market there is a PTL mandate. So now we are even limiting further what can go into the market. All of those elements are a little premature in my opinion,” she added.
Mismatched markets
While the British and European mandates have helped underpin demand certainty for the SAF market, they have also driven up prices for the fuel in the region “to almost a laughable degree”, according to Riley.
The contrasting regulatory approaches in the US and Europe/UK risk creating a mismatch in which new US production capacity built on the back of tax credits ends up meeting European and British demand. But Europe is also building out its own SAF capacity, with bio-based production expected to more than triple from 1mt/yr in 2023 to 3.2mt/yr by the end of this decade, according to a report from the European Union Aviation Safety Agency in December.
This would exacerbate overcapacity in the European SAF market, which leading producer Neste blamed for weaker earnings in the July-September quarter of 2024.
“If all of the [US] investment is for production that is going to go to Europe to meet a mandate, then that does not really solve the problem,” said Lollar. “The reality is the European producers—Neste, especially—could probably fill the European mandate currently with all of their production. The European mandates alone are not going to actually drive the demand that is required for all of these projects.”
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