Policy Shortcomings Puts SAF Production at Risk

IATA forecasts sustainable aviation fuel (SAF) will reach 0.7% of total airline fuel consumption in 2025, doubling production to 2 million tonnes but adding $4.4 billion to the global fuel bill. The association criticizes European SAF mandates for significantly increasing costs due to compliance fees, making SAF five times more expensive than conventional jet fuel. IATA urges governments to implement more effective policies, redirect fossil fuel subsidies, and ensure the success of CORSIA to support a global SAF market, while highlighting India's potential leadership in biofuels with its 2% SAF blending target by 2028.

Analysis

The International Air Transport Association (IATA) projects Sustainable Aviation Fuel (SAF) production will double to 2 million tonnes in 2025, yet this will only constitute 0.7% of global airline fuel consumption and add an estimated $4.4 billion to the industry's fuel bill. A significant concern highlighted is the impact of European Union and UK mandates, effective January 1, 2025, which have reportedly doubled the cost of SAF for airlines in Europe. Compliance fees associated with these mandates are expected to add $1.7 billion on top of the $1.2 billion market price for the one million tonnes of SAF required to meet European targets in 2025, effectively making SAF five times more expensive than conventional jet fuel in the region. IATA criticizes these mandates for being implemented without adequate market conditions or safeguards against practices that inflate decarbonization costs, contrasting the additional $1.7 billion in fees with the potential to abate an additional 3.5 million tonnes of carbon emissions if that sum were used differently. To foster a global SAF market, IATA is launching a SAF registry and a SAF Matchmaker platform. The association urges governments to create more effective policies, including redirecting a portion of the $1 trillion in global fossil fuel subsidies towards renewable energy, develop comprehensive energy policies that prioritize SAF allocation, and ensure the Carbon Offsetting Scheme for International Aviation (CORSIA) functions as the sole market-based mechanism. India is presented as a potential leader, targeting 2% SAF blending for international flights by 2028, supported by policies like guaranteed pricing and capital support.

Key Decisions for Investors

• Investors should scrutinize the impact of rising SAF costs, particularly the $4.4 billion global increase and the five-fold premium in Europe due to mandates, on airline profitability and operating margins, especially for carriers with significant European operations.
• Consider a cautious approach towards investments directly tied to European SAF mandates until there is clarity on policy adjustments to mitigate excessive compliance costs; conversely, explore opportunities in regions like India that are fostering SAF production through supportive policies such as guaranteed pricing and capital support.
• Monitor government actions on redirecting fossil fuel subsidies (globally $1 trillion) towards renewables and SAF, as well as the functional efficacy of CORSIA, as these factors will critically determine the scalability and economic viability of the SAF market and related investments.