The UK government has released an open consultation into how the development of sustainable aviation fuels (SAF) should be funded.
Its position is that the so-called revenue certainty mechanism (RCM) should be funded by industry and that the preferred approach is to introduce a levy on suppliers of jet fuel.
The proposal is to use a levy to cover the cost of payments to SAF producers and cost of administering the scheme. This is consistent with existing schemes for renewable electricity and hydrogen.
But for the aviation industry, which works on small profit margins, that presents a number of challenges – and a dilemma for airlines as whether to pass on costs in higher ticket prices or absorb them.
The government believes the RCM will help producers get the investment they need to ramp up the production of SAF in the UK.
A UK SAF industry will support the delivery of emissions reductions through the SAF Mandate, which was implemented in January, and help drive growth – amid widespread concerns about the limited production of SAF so far.
Alongside the UK’s Advanced Fuels Fund, which has been expanded by £63m, the RCM aims to address barriers to domestic production and help the UK realise the full potential of this technology.
In July 2024, the King’s Speech, which trails UK public policy plans, announced that a bill would be introduced to help support SAF. The government has since confirmed that it will be introduced in this parliamentary session to ensure all required legislation is in place for the RCM by the end of 2026.
Polluter pays principle
The UK government’s position centres around the “polluter pays principle” for hard to abate sectors, such as aviation, and the precedents set by other low carbon energy schemes.
It’s a phrase with repercussions far beyond airline boardrooms, potentially impacting everyone from frequent flyers to once-a-year leisure travellers. That’s why the RCM is so important to future aviation policy. And, as things stand, the industry needs to work harder to tackle emissions.
Transport accounted for 34% of the UK’s greenhouse gas emissions in 2022, when including international aviation and shipping. Aviation is currently the second-largest contributor to emissions from transport, but by 2040 it is set to overtake road vehicles as transport’s largest emitter.
Analysis illustrating the estimated costs for the contracts has shown how the intervention could require “relatively modest amounts of funding,” the government claims.
The nature of current and forecasted market dynamics for UK SAF could result in the RCM being viewed as an insurance mechanism that will not experience significant payments to the producers from the counterparty, particularly in the early years.
The proposed approach to funding the RCM is through introducing a variable levy on aviation fuel suppliers, allowing the cost to be spread across the supply chain and ensures that it is borne by those benefiting from the supply of fossil aviation fuel.
Aviation fuel suppliers will also benefit from the additional SAF production that the scheme will stimulate, helping them to meet their SAF Mandate obligation.
The UK’s Department for Transport (DfT) said it wants to work closely with industry on the detailed design of any levy and would expect to consult on the detailed design in due course.
Government and industry are tackling aviation emissions through a variety of measures, although some technological solutions to reduce aviation emissions, such as zero emission flights, are at a relatively early stage of development and commercialisation.
SAF is one of the most effective ways to reduce aviation emissions as it is available today as a ‘drop-in fuel’ that does not require modifications to existing aircraft, the government states, although the main hurdles so far have been scaling SAF, and volumes have been minuscule.
Read more: Is UK SAF Mandate achievable?
Commercial plants can then typically cost £600m to £2bn to reach economies of scale and tend to run at a loss during their first years of deployment.
First-of-a-kind plants often struggle to secure major investment from equity and debt providers due to several associated risks, including revenue certainty.
How to respond
See the ‘Ways to respond’ section of the consultation page on GOV.UK to find out how you can respond to the consultation, which will run until 31 March 2025.
