The UK Government’s mandate on sustainable aviation fuel and implications to the industry

Global air traffic passenger demand grew by approximately 36% between 2022 and 2023, and expectations suggest that it will grow by a further 12% in 2024. As a result, the consumption of jet fuel is expected to rise from 100 billion to approximately 150 billion gallons by 2025. This means that there is more pressure than ever for the aviation sector to remain innovative in relation to adopting more sustainable methods of using and producing jet fuel.  

Sustainable Aviation Fuel (SAF) is thought to hold the potential to half the aviation industry’s carbon emissions by 2050. The UK Government has recently introduced a new mandate for adoption of SAF which will start on 1 January 2025.

What is SAF? 

SAF is a non-conventional certified jet fuel (Jet-A/A1) derived from fossil fuel and synthetic components which are made from renewable feedstock, including cooking oils, plant oils, fats, agricultural, municipal and forestry waste. The most common types of SAF presently used are:

• Hydrotreated Esters and Fatty Acids (HEFA)
  This is currently the only type of SAF commercially available today. It involves creating biofuel by refining vegetable oils, waste oils or fats into SAF through hydro-treating and hydro-processing.
• Alcohol to Jet (AtJ)
  This type of SAF involves using agriculture crops to produce alcohols such as ethanol and iso-butanol, subsequently requiring the removal of oxygen and linking of the molecules together.
• Gasification
  This process involves converting raw materials, such as municipal waste, into syngas which is then further converted into jet fuel.
• eFuels / Power-to-Liquid (PtL)
  This type of SAF is produced by using green hydrogen to capture carbon dioxide and by using renewable electricity to create synthetic fuels. It is thought to be most promising pathway to reducing emissions where it uses less land and water compared to other SAF. However, there is currently a lack of infrastructure in place in order to produce this type of SAF widescale.

According various sources, air transport represents approximately 2-3% of global human induced greenhouse gas emissions, and SAF is thought to believe to reduce CO2 emissions by 80% compared to traditional jet fuel.

The UK Government’s new mandate  

The UK Government has recently introduced a new mandate requiring for transient shifts and adoption of SAF. The mandate is to begin in 2025 and the requirements will increase as follows:

Year	Total Percentage of UK Jet Fuel demand
2025	2%
2030	10%
2040	22%

What does this mean for airlines, consumers and insurers?  

For airlines, SAF provides an option to incentivise performance on carbon reduction and meet their goals of emission reduction. Through the combination of scientific research, policy and technology, airlines will be encouraged to adopt its use.

For consumers, SAF enables individuals to consider another factor when choosing which airline to fly with, which may be dependent on the airlines uptake of SAF and reduction in carbon emissions generally. Whilst price will remain the major factor affecting demand, consumers are now considering the impact on the environment more than ever; consumers are reported to be willing to pay 9.7% more for goods which are more sustainable.

For insurers, the transition from jet fuel to SAF appears to be relatively seamless where at present we are yet to become aware of any major hurdles to overcome.

Considerations for the future

Use and implementation of SAF requires many considerations, some of which include:  

• Availability of resources required to produce SAF, including availability and provision of infrastructure.
• Emissions and due diligence in relation to the supply chain of its production.
• Cost in production.
• Who should bear the cost: airlines or consumers?
• Whether the use of SAF is sustainable long term. 
• Reliability and use of traditional jet fuel in reserves. 
• The implementation and flexibility of drafting policy in relation to SAF.
• Investment in relation to production.
• How insurers respond in underwriting policies further to the adoption of SAF for airlines.
• Ability to remain innovative with its use.
• What will the impact be on developing nations and flight routes to those countries?
• Can continued aviation growth ever truly be considered sustainable as it is currently defined?
• How does sustainability fit into defence priorities?
• What will the impact be to cargo flights and the costs to wider consumers?
• How does SAF production, including feedstock creation and acquisition, impact on other factors such as biodiversity, water and pesticide use/crop prices?
• Is SAF sustainable at large scale? Is there sufficient green energy available for Power-to-Liquid (PtL) SAF production? What infrastructure and resources will be required to increase production, and those energy demands?
• How do airlines ensure SAFs are sustainably sourced? Who’s responsibility is this? Where would liabilities arise and for who?

Comment

The UK Government’s mandate shows that there is a clear intention to find an alternative to traditional jet fuel within the aviation sector in order to reduce carbon emissions. SAF appears to be the next best alternative which can become available commercially. Whilst research in relation to its production, use and long term impact remains to be ongoing, we can expect to see it more widely used in coming years.

This use of SAF will enable investors, airlines and consumers to all play a part in transitioning to a lower carbon emission aviation sector, which in turn will enable us to gain more of an insight around the many questions which currently remain for insurers.

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