Co-authored by Christopher Jackson, Oliver Beiersdorf, Patrick Bradley, Gregory Speier, Simon Spells, Andrew Harper, Catriona Henderson, Catherine Kiernan 

It is no surprise that costs and regulatory mandates are cited in the survey as main factors influencing – albeit in contrasting ways – the uptake of sustainable fuel. This reflects our experience of decarbonization efforts in transportation markets generally, where companies are facing new costs and a range of other government sustainability commitments and initiatives. The reality is: Fundamental change in sustainable fuels inevitably requires both higher cost and new regulation. 

Aviation sector

High cost and regulatory mandates are central challenges to the aviation sector as it tries to incorporate sustainable aviation fuel (SAF) into widespread use by aviation operators. SAF is unique in terms of its incorporation into the existing market: Although it is produced from sustainable feedstocks, it resembles traditional jet fuel in terms of chemistry and therefore may be incorporated into existing fuel infrastructure and aircraft technologies.  Nevertheless, the hurdles to its incorporation are significant. 

SAF cost constraints

The high cost of SAF is central to airlines’ [in]ability to incorporate it into business plans since fuel constitutes more than 40% of an airline’s total operating expense.  A price-per-gallon comparison is illustrative: In early 2024, U.S. jet fuel retailed at approximately $2.85 per gallon, while SAF prices were approximately $6.60 per gallon, according to Argus Media, which provides commodities pricing. 

SAF prices are high due to the limited availability of sustainable feedstocks and the nascent stage of technologies to produce it. Increased production is needed to reduce costs through mass processes, and there is a concern about the implications for load factors if the costs are simply passed through to passengers via ticket prices. Solutions to the low-production challenges may include financial incentives provided by governments, but certain costs inevitably must be passed down the value chain. SAF that costs three times what regular jet fuel does is prohibitive for many airlines. 

SAF regulatory approaches

Government regulation to encourage SAF use may take either the “carrot” or the “stick” approach. In 2023, the EU debuted its ReFuelEU Aviation Initiative, part of its broader Fit for 55 initiative (which includes the goal of climate neutrality by 2050).  ReFuelEU uses the stick approach by requiring aviation fuel suppliers to include a certain percentage of SAF in fuels provided to aircraft at EU airports.  The percentage of SAF required will increase incrementally from 2% in 2025 to 35% in 2050. ReFuelEU penalizes fuel suppliers that don't meet SAF quotas by at least twice the price difference between conventional and sustainable jet fuel.

In contrast, the U.S. government has taken the carrot approach by offering tax credits to SAF producers that achieve a minimum of 50% reduction in lifecycle greenhouse gas emissions.  These incentives are part of the Inflation Reduction Act, a broad package of measures to address the climate, economy and energy security. Provided that some of these benefits are shared with the flying public, this is likely to be a more viable approach for the aviation industry. 

The EU and the U.S. approaches both seek to stimulate the SAF market by making production more economically viable, but fundamental policy reform is needed to incorporate certain high-cost sustainability initiatives like SAF, and we hope that with the change of government in the UK, measures can be introduced that support a commitment to the climate, the economic viability of aviation and its accessibility and affordability for the travelling public. We will be looking to the U.S. elections for similar reassurances. Given the climate commitments spearheaded by many governments and the United Nations, there is reason to hope for a more sustainable future in the skies, however, there remains a social imperative to keep aviation accessible and affordable to the travelling public particularly in the developing world. Balancing our commitments to the environment with our wider commitments to society may have never been more complex. 

Survey results: Thirty-eight percent of respondents say that Cost is the key factor affecting organizations’ use of sustainable fuel sources (see bar chart); followed by: Regulatory prohibitions or restrictions (33%), Availability of debt or equity investment (24%), Regulatory disclosure requirements and reputational concerns (22%), Commitment to voluntary carbon reduction or other environment targets (20%), Corporate purpose and ethical business (18%), Customer requirement or expectation (17%) Shareholders and other stakeholder engagement expectations (12%), Company targets / objectives / promises / policies (11%), and Government subsidy or revenue support schemes; or similar incentives (7%).