Europe's sustainable aviation fuel market: Cleared for takeoff but still taxiing

In the EU, the aviation sector is responsible for 4% of total greenhouse gas (GHG) emissions. This equals almost 14% of all transport emissions in the EU. In order to reduce emissions from this sector, the European Commission has passed the ReFuelEU Aviation regulation, which aims to reduce GHG emissions in aviation by more than 60% by 2050, compared to 1990. In this publication, we look into the regulation’s targets and penalties, explore characteristics of the main types of sustainable aviation fuel (SAF), and provide insight into the dynamics of the European SAF market.

SAF requirements will progressively increase to 70% by 2050

The primary method to reduce GHG emissions in aviation today is to replace conventional fossil jet fuel with SAF. SAF can be blended with conventional jet fuel and is, therefore, also known as a “drop-in fuel.” By progressively increasing the minimum SAF blending requirement, the aviation sector can gradually decarbonize.

ReFuelEU Aviation adopts this gradual approach by setting progressively higher, volume-based, minimum SAF blending requirements expressed as a percentage of the total aviation fuel supplied to EU airports. Additionally, it includes a specific mandate for synthetic aviation fuels (SAF produced with green hydrogen) to ensure the growth of this segment. The regulation requires SAF, including synthetic aviation fuels, to constitute 70% of all jet fuel used in the EU by 2050.

Noncompliance brings penalties

ReFuelEU Aviation took effect on January 1, 2024, with certain articles temporarily postponed until January 1, 2025. Since its implementation, member states and involved parties must comply with its provisions. The regulation assigns specific responsibilities to aviation fuel suppliers, EU airport managing bodies, and commercial aircraft operators.

Aviation fuel suppliers are tasked with providing sufficient eligible SAF to aircraft operators. It’s estimated that fewer than 30 jet fuel suppliers operate at EU airports, with BP and Shell being the largest, supplying more than 20 of these airports. If fuel suppliers fail to meet the minimum quantity or provide incorrect information, they will be fined twice the price difference between SAF and conventional jet fuel, multiplied by the volume shortfall. Additionally, any SAF shortfall must be delivered in the next reporting period, on top of the minimum volumes required for that period. Fuel suppliers are not required to supply SAF to every airport under the scope of the regulation. Instead, they may choose which airports they supply to fulfill their obligation as long as, on average, the target has been met.

Airport managing bodies are required to provide the necessary infrastructure, including storage facilities. Airports with annual passenger traffic exceeding 800,000 or freight traffic over 100,000 metric tons must ensure aircraft operators have access to SAF and electricity for refueling or recharging. Currently, this concerns 142 airports. Airports in remote areas and certain islands are exempt from these requirements. Failure to comply will result in fines, although the regulation does not specify how these fines should be calculated.

Aircraft operators are required to prevent tankering practices, where aircraft carry more fuel than necessary to avoid refueling at destinations with higher fuel prices. They must ensure that the annual quantity of fuel uplifted at any given EU airport is at least 90% of their yearly aviation fuel requirement. This measure aims to reduce unnecessary fuel consumption and CO2 emissions. Aircraft operators that conduct at least 500 commercial passenger flights or 52 commercial all-cargo flights per year from EU airports fall under the regulation. It is estimated that over 95% of all flight departures from EU airports will be impacted. Noncompliance will result in fines, calculated as twice the yearly average price of aviation fuel per metric ton multiplied by the total yearly non-tanked quantity.

Under ReFuelEU Aviation, three main types of SAF are eligible: SAF produced from various biofuels, synthetic aviation fuel derived from renewable energy, and SAF made from recycled carbon fuels (see table 1). The European Commission often uses the sustainability definitions and criteria from the Renewable Energy Directive (RED III) to define these SAF types. RED III serves as the primary legal framework for advancing the uptake of renewable energy across all EU sectors and countries.

[1] Read more on non-fossil, low-carbon hydrogen and the eligibility of certain aviation fuels.

Regarding biofuels, EU SAF must be produced from feedstocks that are listed in Annex IX Part A and B of RED III or from “other feedstock.” Due to sustainability and food-safety concerns, the EU restricts the use of food and feed crops for biofuels and completely prohibits their use for SAF production. This contrasts with the US and South America, where biofuels based on food and feed crops have a well-established market (see our analysis of the US SAF market).

Synthetic aviation fuels, or e-SAF, should be produced according to all the RED III criteria, particularly the two accompanying delegated acts (EU) 2023/1184 and (EU) 2023/1185. The EU has strict rules regarding the sources of CO2, detailed in the delegated acts (see our publication Hydrogen in Europe, part 2: What are renewable fuels of non-biological origin?).

SAF from recycled carbon fuels are derived from fossil waste gases or exhaust gases, which are unavoidable byproducts of industrial processes in installations like refineries and steel mills. Recycled carbon fuel can also be produced from solid waste streams from fossil sources that are unsuitable for material recovery.

The EU has established a merit order for different types of SAF based on their sustainability performance. This ranking prioritizes the most sustainable fuels, according to the EU. However, this order does not necessarily reflect their market readiness. We dive into this below.

The EU’s (implicit) legislative merit order promotes some SAF fuels while limiting others

The EU’s merit order promotes the use of highly sustainable fuels while imposing limits on those with potential concerns, such as biofuels derived from food and feed crops. To implement this strategy, the EU uses a complex mix of (sub)targets, limits, double counting, and multipliers.

For example, when calculating targets, the EU double counts aviation biofuels from Annex IX Part A and B toward the target. Additionally, biofuels from Annex IX Part A are counted as 1.2 times their energy content. The share of biofuels from Annex IX Part B in total transport is capped at 1.7%. Similarly, the share of biofuels from “other feedstocks” in total SAF is limited to 3% for each aviation fuel supplier. Synthetic jet fuel is double counted and has a multiplier of 1.5 times its energy content. These measures illustrate the EU's complex web of interventions designed to guide the sustainable fuel market, particularly the SAF market, in the desired direction.

In our view, the EU strives for a merit order that places aviation biofuels from Annex IX Part B and other feedstocks at the bottom, aviation biofuels from Annex IX Part A in the middle, and synthetic aviation fuels at the top.

Used cooking oil is currently the main feedstock for SAF production

In 2024, global SAF production represented only 0.53% of total jet fuel usage. In Europe, SAF production slightly surpassed 1 million metric tons. Most European SAF is derived from aviation biofuels (feedstock from Part B of Annex IX of RED) and is produced via the hydroprocessed esters and fatty acids (HEFA) pathway. Among the feedstocks used, used cooking oil (UCO) is the most prevalent, accounting for approximately 80% of SAF production.

Many advanced biofuels listed in Annex IX Part A of RED III are still in the research phase and face significant technical and financial challenges, hindering their large-scale production. Additionally, the fraction of biomass from mixed municipal waste is often already utilized for recycling, composting, or biogas production. Agricultural residues, such as straw and animal manure, are commonly used for soil amendment, animal bedding, and fodder. Consequently, the production of SAF from advanced biofuels remains limited. This situation is similar for biofuels derived from other feedstocks.

Synthetic aviation fuels are still at a very early stage. No fuel plant has yet evolved beyond a pilot stage. Therefore, the construction of synthetic aviation fuel plants will need to accelerate significantly to meet the first mandated requirement of 0.7% in 2030.

In summary, the primary type of SAF currently available in the market is based on biofuels derived from Annex IX Part B feedstock. Other types are still in nascent stages of development.

SAF production is costly, with some types unlikely to become cost-competitive

SAF is expensive. The production costs of SAF based on aviation biofuels (Annex IX Part B) are currently over three times higher than those of conventional jet fuel. For SAF that is not yet commercially viable, the European Union Aviation Safety Agency has calculated production costs (see figure 2). These calculations indicate that advanced aviation biofuels (based on Annex IX Part A feedstocks like algae) and recycled carbon aviation fuels have the potential to become cost-competitive with aviation biofuels (Annex IX Part B). In contrast, synthetic aviation fuels are less likely to achieve cost-competitiveness due to the high cost of green hydrogen, which is why the EU has established a specific target for this segment.

To conclude, SAF derived from biofuels listed in Annex IX Part B provides a real-life price benchmark for other SAF types. Advanced aviation biofuels from Annex IX Part A feedstocks and recycled carbon aviation fuels have the potential to be cost-competitive with these biofuels. Synthetic aviation fuels are relatively expensive.

The most mature fuel types are not the most desired, and the most desired are not yet mature

Europe faces a challenge: The types of SAF that are most readily producible do not have the highest ranking in the merit order, while those that do are not yet producible at scale. The table below provides an assessment of different types of SAF based on their position in the merit order, availability, and production costs. It highlights that aviation biofuels from Annex IX Part B are low in the merit order but are the most available and competitively priced. Conversely, synthetic aviation fuels are high in the merit order but are not readily available and have high production costs.

Europe depends on Asian imports of UCO

Europe is a large consumer of UCO for sustainable transport. In addition to being utilized as a feedstock for SAF, UCO is also used in the production of conventional biodiesel (FAME) and hydrotreated vegetable oil (HVO) for road and maritime transport. However, Europe’s supply of UCO is insufficient to meet demand, leading to a heavy reliance on imports. Asia is the primary supplier of UCO for the European market, with China and Malaysia accounting for half of total imports (see figure 3).

Pressure on Asian UCO exports to the EU is mounting

The flow of Asian UCO exports to the EU could come under pressure because of two developments. Firstly, Asian governments are aiming to utilize UCO to make their own transport sectors more sustainable. For example, in early 2025, Indonesia restricted exports of UCO and palm oil residue to ensure domestic supply, supporting a new target in 2025 to mix 40% palm oil-based fuel with diesel, up from 35%. China is expected to promote the use of UCO for domestic purposes in the coming years. In this context, China terminated an export tax rebate for UCO in December 2024, which is interpreted as a sign in that direction. Reportedly, at least four new SAF facilities in Thailand, Malaysia, and Japan have started or will begin operations this year. These facilities use UCO as an ingredient and represent a total production capacity of over 700,000 metric tons per year. Rising domestic demand in Asia could pressure Asian UCO exports to the EU.

Secondly, in February 2025, the European Commission imposed anti-dumping duties ranging from 10% to over 35% on biodiesel imports from China that currently exclude SAF. This indicates the commission's critical stance on biofuel imports from China and suggests that SAF may face similar scrutiny in the future. On the other hand, these tariffs may lead to reduced biodiesel imports by the EU, forcing Chinese biodiesel manufacturers to find new markets or to switch to SAF production if they want to continue supplying the EU market. From this perspective, the biodiesel tariff might incentivize China to switch to SAF production and exports.

Changes in US federal policy could support (Asian) biofuel exports to the EU, but state policies provide a counterbalance

In recent years, the consumption of (Asian) UCO in the US increased significantly, mirroring trends observed in the EU. This rise is primarily attributed to its use as a feedstock for the burgeoning production of renewable biodiesel, stimulated by the Inflation Reduction Act enacted under former President Biden. However, UCO demand in the US is likely to decline under the current administration. This could benefit the EU, as more Asian UCO might become available for the EU to import to reach its sustainable transport targets.

In the coming period, the tariffs imposed by President Trump on Chinese imports will pressure the competitive position of Chinese UCO. Furthermore, proposed new federal tax incentive schemes are less favorable for using imported UCO as a feedstock for renewable fuels. These schemes exclude imported UCO as a feedstock for sustainable fuels, make ethanol eligible for tax credits (promoting the use of corn as a feedstock), and switch the credit from a blender’s credit to a producer’s credit. The latter shifts the incentive from companies that blend domestically produced or imported biodiesel with diesel fuel to companies that produce biofuels, promoting US production over (Asian) imports.

In addition to developments at the federal level, state-level incentives also play a role in US demand for UCO, particularly California’s Low-Carbon Fuel Standard program. California – the largest renewable diesel market in the US – employs the program to encourage the use of cleaner fuels, especially incentivizing low-carbon-intensity feedstocks such as UCO. In November 2024, the California Air Resources Board updated its targets to reduce the carbon intensity of the state’s transportation fuel to 90% by 2045, with a cap of 20% on the use of virgin vegetable oil in renewable diesel as of 2028. As canola and soy are already close to that cap, UCO may once again be seen as an interesting feedstock. Implementation of these updated targets is currently paused but, once started, could counterbalance less favorable policies at the federal level.

The use of UCO brings environmental and sustainability concerns

The use of UCO as a feedstock for sustainable fuels is controversial. Both the EU and the US have expressed concerns about the potential for fraud, particularly in cases where virgin oil is mixed with UCO to artificially inflate UCO volumes. This practice undermines the integrity of sustainable fuel initiatives.

Additionally, there is a risk that exporting countries might use palm oil to meet domestic biofuel demand while exporting UCO. Similarly, some countries that traditionally use UCO for animal feed and other products may choose to export their UCO while substituting palm oil for it domestically. This practice not only affects the sustainability of biofuel production but also raises environmental concerns, as it could lead to increased indirect land-use change and deforestation in Asia.

The SAF market in the EU is currently at an early stage. It is small and primarily supplied with SAF made from UCO, a biofuel classified under Annex IX Part B. In addition to the environmental, social, and governance concerns surrounding UCO, the availability of supply poses a significant challenge to the EU's SAF ambitions. The EU heavily relies on imported UCO from Asia, which is experiencing increasing domestic demand. To ensure UCO fulfills its sustainability promise, enhancing transparency in supply chains is crucial. This pressure could be alleviated by reduced demand from the US for Asian UCO and additional supplies from countries like Thailand and Vietnam. The pressure on UCO availability may also decrease as biodiesel use in road transport is phased out in favor of electric vehicles, although this is a long-term prospect.

To reduce dependence on UCO and to meet SAF targets that align with Brussels' merit order of SAF types, Europe needs e-SAF and biofuels made from Annex IX Part A feedstocks. However, the technologies to produce Annex IX Part A SAF and e-SAF are not yet commercially available. This places the SAF market in a conundrum: What the market is able to produce, the EU doesn’t want, and what the EU wants, the market cannot produce… yet.

The authors thank Owen Wagner and Oscar Tjakra for their contribution.