Will New UK Legislation Unlock Sustainable Aviation Fuel Investment?

The UK Sustainable Aviation Fuel Bill is currently undergoing Report stage legislation in the House of Lords. Members are closely examining provisions for a revenue certainty mechanism (RCM). This mechanism is viewed as vital for boosting domestic SAF production and securing long-term investment.

The Revenue Certainty Mechanism

The RCM is designed to de-risk significant capital investment. It will take the form of a Guaranteed Strike Price (GSP). This GSP is modeled after established Contracts for Difference schemes.

Under the mechanism, a government-owned counterparty will enter contracts with SAF producers. If the market price for Sustainable Aviation Fuel (SAF) falls below the GSP, the counterparty pays the difference. Conversely, producers pay the difference if the price exceeds the GSP. This structure provides a long-term investment framework for new SAF plants. The goal is to have the required legislation in place by the end of 2026.

Driving UK Aviation Decarbonisation

The Bill is a key part of the wider UK aviation decarbonisation strategy. The government's Sustainable Aviation Fuel mandate is already in force since January 2025. This mandate requires jet fuel suppliers to blend SAF into conventional fuel. The obligation starts at 2% in 2025. It then increases to 10% by 2030 and 22% by 2040.

SAF is critical for meeting UK net zero goals. It reduces greenhouse gas emissions by around 70% on average compared to fossil kerosene. The mandate is expected to deliver up to 6.3 megatonnes of carbon savings by 2040.

Industry Impact and Challenges

The House of Lords scrutiny includes debate on several key amendments. These amendments cover the rules for revenue certainty contracts and the impact on air travel ticket fares. Airline representatives have expressed skepticism over cost projections. Some fear the levy could negatively affect the UK aviation sector's competitiveness.

However, the government projects significant economic benefits. Future low-carbon fuel production could support up to 15,000 jobs. It could also generate £5 billion in gross value added (GVA) by 2050. The legislation is crucial for unlocking this growth and investment.

• The Bill aims to support the UK's 10% SAF mandate target by 2030.
• The RCM uses a Guaranteed Strike Price to provide investor certainty.
• Parliament is scrutinizing the potential impact on air travel ticket costs.
• The legislation is projected to support up to 15,000 jobs by 2050.

For global airline trends and commercial aviation news, turn to flying.flights. For airline finances, mergers, and industry strategy, visit the Business category at flying.flights/business.