The European Union (EU) is pursuing the most aggressive action on climate change of any region in the world, imposing legally binding requirements on all industries rather than aspirational objectives. The European Green Deal, or EGD, strives for climate neutrality by 2050 with a transitional target to cut the bloc’s net greenhouse gas emissions by at least 55 percent by 2030, compared with 1990 levels. To deliver the latter, the European Commission in July 2021 adopted a set of wide-ranging proposals to make the EU's climate, energy, transport, and taxation “Fit for 55.”

Many new policies and regulations will affect air transport and aerospace, but the ReFuelEU policy undoubtedly is the most far-reaching legislation in the Fit for 55 package. The initiative calls for sustainable aviation fuels (SAF) to account for at least 2% of the total aircraft fuel used starting next year.

This minimum increases every five years, to 6% in 2030, 20% in 2035, 34% in 2040, 42% in 2045, and 70% in 2050. A specific proportion of the fuel mix—1.2 percent in 2030 progressively rising to 35 percent in 2050—must be synthetic low-carbon aviation fuels like e-fuels or e-SAF using power-to-liquid technology.

Under the new rules, the share of SAF blended with fossil kerosene applies throughout the European Economic Area (EEA)—the EU’s 27 member states plus Iceland, Liechtenstein, and Norway. The mandates prohibit member states to set higher or lower mandates.

The legislation puts the obligation to provide SAF with the fuel suppliers, not with the airlines directly. Thanks to a “flexibility mechanism,” they will have to supply the SAF blend initially averaged over the eligible EU airports they supply.

To avoid tankering of fuel acquired at lower prices outside the region, the new rules will oblige airlines to refuel at least 90% of the required fuel volume for outgoing flights at EEA airports on an annual average.

Mandating SAF Uptake

Europe’s airlines have mixed emotions about the SAF uptake obligation.

“It’s not that we don’t want to comply, we want to comply,” commented International Airlines Group CEO, Luis Gallego, during a conference organized by Brussels-based trade body Airlines for Europe (A4E) earlier this year.  IAG, parent company of Aer Lingus, British Airways, Iberia, Level and Vueling, bought about 12 percent of the world’s SAF supply last year, he said, adding that most of it came from the U.S. “Is 6 percent SAF by 2030 doable when 90 percent of investment in SAF is in the U.S.? It makes no sense to oblige us to buy something here that is produced in the U.S.” 

A4E’s member airlines are set to invest €14.8 billion in SAF by 2030, and they want “SAF in Europe,” insisted Gallego.

The trade body, whose members include the continent’s largest airline groups and low-cost carriers EasyJet, Ryanair, TUI and Volotea, is calling on policymakers to provide incentives to “supercharge the production of SAFs across Europe – including competitive tax credits, funding, and support for nascent, emerging and established SAF projects or fuel producers.”

“We are all one hundred percent aligned on the need to decarbonize,” Air France-KLM CEO Ben Smith said, speaking at the recent A4E summit. “But we have a disadvantage compared to competitors that do not have the same regulatory burdens. Many of our competitors have no SAF mandate, they don’t have carbon prices, and they don’t have national taxes on aviation.” 

Air France-KLM is already the largest buyer of SAF because France implemented a SAF blending mandate of 1% in 2022, Smith noted. Two other European countries, Norway and Sweden, have SAF uptake obligations in place, of 0.5% since 2020 and 1% since 2021 respectively.

Passengers May Avoid European Hubs

“I could advise my passengers to use a hub outside of Europe,” Lufthansa Group CEO Carsten Spohr lamented. “With no global playing field we will price ourselves out of the market.” 

His position is not new. The German flag carrier for years has warned that the EU’s Fit for 55 legislative package and the SAF blending mandate, in particular, will “significantly weaken” the competitive position of globally operating EU airlines compared with non-EU airlines with hubs in, for instance, Istanbul, Doha, and Dubai. EU airlines will have to uplift SAF—which typically costs three to five times as much as traditional fossil jet fuel—for their short- and long-haul connections starting within the EU. Their non-EU counterparts will have to buy an SAF blend only for the flight to their hub and use fossil Jet-A1 for the onward long-haul flight.  

Moreover, airlines will need to pay for their carbon footprint on intra-EU flights—including intra-EU feeder flights to long-haul—under the EU Emissions Trading System (ETS). The Fit for 55 initiative calls for reforming ETS and phasing out aviation’s free allowances by 2026. According to A4E analysis, the mandate will likely increase fivefold the cost of compliance for the ETS for its member airlines to over €5 billion to €6 billion (up to $6.4 billion) annually. The EU's existing Emissions Trading Scheme covers flights in and between countries in the EEA and to the UK and Switzerland.

Under the Fit for 55 initiative, airlines flying in the EU also will have to measure and report non-carbon dioxide (CO2) emissions per flight starting in January. Several industry associations, including the Aerospace, Security, and Defense Industries Association of Europe (ASD) and IATA, call the requirement premature. “Formulating and implementing regulations based on insufficient data and limited scientific understanding is foolish and could lead to adverse impacts on the climate,” remarked IATA Director General Willie Walsh.

Are SAF Incentives Lacking?

The European Commission has acknowledged that its climate regulations could lead to the loss of traffic flows connecting through EU airports and to carbon leakage, but a review scheduled for 2027 will evaluate whether the new green policies resulted in distortions of competition in the global air transport market and which remedies to take.  

However, it snubs A4E’s criticism that its aviation decarbonization policy is all about “sticks,” as opposed to the U.S.’s Inflation Reduction Act. "[The mandates are] very much a stick, but we are also putting carrots in place,” stated Rachel Smit, a member of outgoing EU Transport Commissioner Adina Vălean’s cabinet.

Carrots already approved by the EU’s co-legislators include the zero-rating of SAF under the EU ETS and the allocation of 20 million aviation ETS allowances to airlines between 2024 and 2030 to cover part or all of the price differential between SAF and fossil kerosene.  “Airlines seem to like to overlook this scheme, which is worth [depending the price of carbon] around €1.6 billion to €1.7 billion and is money going directly to the airlines. The much-touted U.S. IRA is money going to the oil companies and it’s not all going to SAF production,” an official of the European Commission’s department for mobility and transport explained to AIN.

“For us, it is not whether we need the ReFuelEU or the American system of incentivizing SAF production. We need both,” said Vincent De Vroey, civil aviation director at ASD.  “We need to lower the price [of SAF] and increase the production, and tax credits and incentives will help achieve that. But at the same time, we also need to guarantee that everybody will use it. That’s why we need the mandates that the ReFuelEU provides,” he explained. “The EU SAF mandate is actually an obligation for fuel producers to supply a SAF blend at the airport, so everybody will need to use it.”

He described the ReFuelEU for aviation as a “positive” regulation and one that the entire European "ecosystem" of airlines, airports, manufacturers, and air navigation service providers have supported. “And we see that, by the way, other regions are also moving into that direction, as the 5% CO2 emissions reduction objective by 2030 – agreed upon by ICAO Member States at the end of last year - shows,” De Vroey told AIN.

The SkyNRG SAF market outlook for 2024, developed in cooperation with consultancy ICF, lists the UK, Japan, Singapore, India, Brazil, British Columbia, Indonesia, and Malaysia as jurisdictions that have developed legislation or proposals for legislation to drive domestic SAF uptake in the last year. If all those policies materialize, they would bring the global demand under targets to 9.2 million tonnes/ 3.1 billion gallons and under a mandate to 6.9 tonnes by 2030.

The ReFuelEU mandates will drive SAF demand in the EU to close to 1 million tonnes in 2025—accounting for twice the global market in 2023—and reach 2.8 tonnes by 2030. Renewable fuel capacity announcements to date would deliver 3.8 tonnes of SAF by 2030, with a total of 5.5 tonnes in the pipeline. “This suggests that a minimum success rate of 50 percent would have to be achieved to meet EU demand when not factoring in imports,” the SkyNRG authors note. “However, in 2024 we have identified an ongoing trend of delays in the sector, which means that actual SAF capacity in 2030 is likely to be lower than what has been announced.”

Accelerating the development of domestic production capacity will require the EU or its member states to increase financial support mechanisms, somehow mirroring what the U.S. expects the IRA to accomplish. “In other words, we have the stick and we need to complement it with the carrots. This is why we welcome the inclusion of SAF on the single list of net zero technologies in the EU’s Net Zero Industry Act (NZIA) as a first step into the right direction," according to De Vroey.  He calls the allowances earmarked for the use of SAF on ETS-eligible flights between 2024 and 2030 as “an example of what we would call smart regulation," which incentivizes the right behavior, rewarding airlines to use SAF beyond the regulatory obligation level.

“The broader picture obviously is carbon neutral aviation; it's not only about SAF, it's also about ATM and about technology,” emphasized De Vroey. “We need to continue doing research on new kind of technologies, be it hydrogen or hybrid electric, but also ultra-efficient engines and 100 percent SAF capable NextGen aircraft.”