As the aviation industry races toward its 2050 net-zero emissions goal, sustainable aviation fuel (SAF) has emerged as a key player in the sector’s decarbonisation efforts. With growing investments and government mandates to support SAF production, the momentum is undeniable. However, investors remain wary, with lingering concerns over the long-term regulatory framework and the costs that both airlines and passengers may ultimately bear.
Dealmaking in the SAF Sector Gathers Pace
In recent months, major players in the aviation industry have struck high-profile deals in the SAF market. United Airlines, for instance, partnered with Neste, a leading SAF supplier, to introduce SAF at Chicago O’Hare International Airport. South Korea, on the other hand, has set a target for all departing international flights to include at least 1% SAF by 2027. Meanwhile, in the UK, the Labour government introduced a mandate to ensure that 10% of jet fuel demand is met by SAF by 2030, with pledges to support producers through a revenue certainty mechanism.
SAF, which is made from renewable sources such as used cooking oil, animal fats, and biomass, is seen as a potential game changer for reducing the environmental impact of aviation. While it still generates emissions, its life cycle greenhouse gas footprint can be reduced by up to 94%, depending on the source and production methods.
Despite these advancements, questions remain about whether the market can scale up fast enough to meet demand without pushing costs too high for passengers or causing unintended environmental consequences.
Concerns Over Higher Costs and Passenger Impact
A key hurdle for SAF is its cost, which is currently higher than traditional jet fuel. Airlines, in turn, will likely pass these expenses onto passengers. However, one SAF producer argued that costs will decrease as production scales up. For now, the higher price tag remains a challenge. “The truth is, it’s going to be more expensive. You can’t really sugarcoat that,” said Clara Bowman, Chief Operations Officer at Porsche-backed HIF Global, a firm developing SAF from renewable energy and recycled CO2.
Bowman expressed optimism that, as with other renewable technologies like solar and wind, SAF prices will fall as production ramps up and the industry becomes more efficient. For now, however, wealthier markets are expected to bear the brunt of the higher costs, at least in the short term.
The Role of Regulation and Investor Hesitation
One of the most significant concerns for investors is regulatory uncertainty. While governments in the U.S., Europe, and Asia have introduced subsidies and mandates to promote SAF, the long-term durability of these policies remains unclear. Investors are wary of making significant financial commitments without assurances that regulations and incentives will remain in place for decades.
Rick Nagel, managing partner at Acorn Capital Management, highlighted this issue, noting that while the SAF market has grown to roughly $1 billion in recent years, there are still significant hurdles. “You’ve got this circular reference that occurs where you have demand created by industry goals and environmental mandates, but not everyone can count on the government incentives to plug the gaps,” Nagel explained.
Bowman shared this sentiment, noting that while there is ample liquidity to fund green projects, “the issue is having a well-structured project to be able to take advantage of that financing.” She pointed to policies like the European Union’s Renewable Energy Directive and Japan’s SAF mandate as encouraging steps. In the U.S., the Biden administration’s Inflation Reduction Act has spurred growth in SAF startups, creating further optimism for the sector.
Scaling Up SAF Production to Meet Demand
Despite the industry’s enthusiasm for SAF, supply is still a major challenge. United Airlines, a major proponent of SAF, has been using the fuel since 2016 but notes that the current supply is far from adequate to meet demand. According to the International Air Transport Association (IATA), SAF production is expected to triple by 2024 to 1.9 billion litres. However, this would still only meet 0.53% of global aviation fuel demand.
The need for large-scale infrastructure investment is another barrier. SAF production requires new refineries and access to renewable feedstocks, which will take time and significant investment to develop. Investors and industry leaders are calling for clearer regulatory frameworks to ensure a smooth transition and avoid disruptions.
The Long Road Ahead
While SAF remains the most viable option for decarbonising aviation in the near term, other technologies are also on the horizon. Hydrogen-powered planes and electric aircraft are being explored as potential long-term solutions, but these innovations are still in their infancy. For now, the industry’s focus remains on SAF as the best option to reduce emissions without requiring immediate changes to aircraft or infrastructure.
Despite the uncertainties, industry leaders remain hopeful that SAF will play a significant role in achieving net-zero emissions by 2050. However, as investment grows and governments continue to adjust their policies, it is clear that the road ahead for SAF is still fraught with challenges. Investors will need more certainty around long-term regulation, production scalability, and cost competitiveness before fully committing to this greener future.
Conclusion
The aviation industry’s push toward sustainable jet fuel is gaining momentum, but significant questions remain. As dealmaking in the SAF sector ramps up, investors are seeking reassurance that governments will continue to support the sector with regulatory frameworks and subsidies that endure for decades. For the industry to meet its decarbonisation goals, collaboration between airlines, investors, and governments will be crucial, especially as SAF production scales up to meet the rising demand.
