Why REFuel EU may not work

Every aspect of sustainability in aviation gives rise to controversy. Even the term “sustainable aviation fuel” is controversial with some preferring “low carbon fuel on a life cycle basis”. SAF actually burns like JetA1 kerosene, it’s the production which makes the difference. The UK Advertising Standards Authority is investigating whether even the use of the term SAF by Virgin Atlantic is misleading to consumers!

After initial expressions of passionate enthusiasm for sustainability, some lessors are now expressing caution and scepticism that governments will find the cash to make and support the needed investments.

What are the main provisions of the RefuelEU aviation initiative?

• Aviation fuel suppliers are mandated to ensure that all fuel provided to aircraft operators at EU airports contains a minimum percentage of Sustainable Aviation Fuel (SAF) from 2025. Additionally, starting in 2030, a minimum share of synthetic fuels is required, with both proportions gradually increasing until 2050. The specified percentages include 2% SAF in 2025, 6% in 2030, and 70% in 2050. Synthetic fuels must account for 1.2% in 2030, escalating to 35% in 2050.
• Aircraft operators must guarantee that the annual quantity of aviation fuel uplifted at a given EU airport constitutes at least 90% of the yearly aviation fuel required. This provision aims to discourage tankering practices that could result in additional emissions due to excess weight.
• Eligible sustainable aviation fuels and synthetic aviation fuels includes certified biofuels, renewable fuels of non-biological origin (such as renewable hydrogen), and recycled carbon aviation fuels meeting the sustainability and emissions saving criteria of the Renewable Energy Directive (RED). The maximum allowable proportion is 70%, excluding biofuels from food and feed crops. Low-carbon aviation fuels, including low-carbon hydrogen, can contribute to meeting the minimum shares outlined in the regulation.
• The regulation outlines the rules governing competent authorities, to be designated by member states for enforcing the regulation, along with provisions for fines.
• A Union labelling scheme is established to indicate the environmental performance of aircraft operators using SAF. This scheme aims to empower consumers with information to make environmentally conscious choices and promote eco-friendly flights.
• Data collection and reporting obligations are imposed on fuel suppliers and aircraft operators. These requirements facilitate monitoring the regulation's impact on the competitiveness of EU operators and platforms.

Let’s look at the first main provision of the initiative, as well as the main problem RefuelEU poses to fuel suppliers and airline carriers. Currently, SAFs remain quite marginal. SAF accounts for only 0.1 percent of all fuel used in aviation. Sustainable fuels are also two to four times more expensive than the traditional fossil fuel, kerosene. Moreover, the SAF industry is still in its infancy – with current SAF production capacity in the EU estimated to at about 0.24 million tonnes (10% of the SAF required to meet the proposed mandate by 2030).

Airlines have already expressed concerns, noting that there is not enough SAF to hit the targets set by RefuelEU and it's hard to see how these targets can be met by even the most willing. The EU’s new rule mandates hefty fines for those that cannot reach the targets. Lufthansa’s CEO, Carsten Spohr has expressed the view that there is a 99% risk that the mandate will not be met by airlines. European officials acknowledge the concerns of airlines, but still believe this target is attainable. Meanwhile, BP’s Brussels manager, Alexander Kerst, has expressed the opinion that SAF prices could be reduced if the EU extends the list of substances considered sustainable, such as biofuels made from cover crops. There are also conflicts between airlines and fuel companies, with airlines arguing there is too little SAF being produced, while fuel companies argue that demand has been too minimal to produce more sustainable fuels. The EU currently imports most of the green fuel being used in the EU from the US.

Despite these concerns, EU officials remain optimistic about the Green transition of aviation, while airlines and fuel producers scramble to adapt to a mandate that is demanding and expensive, with an uncertain future for the industry. A RefuelEU Aviation study highlights the substantial scale-up required in Sustainable Aviation Fuel (SAF) production to achieve the decarbonisation goals of the aviation sector. According to the study, an additional 7 SAF production plants are necessary in the EU by 2030, increasing to 104 plants by 2050. Meeting the demand for Power-to-Liquid (PtL) fuels would require an estimated 0.4% and 5.5% of the EU's renewable electricity generation by 2030 and 2050, respectively. Other studies propose even more significant needs, suggesting approximately 30 additional SAF plants by 2030 and 250 plants by 2050, along with a higher share of the EU's electricity demand for PtL fuel production. These projections underscore the considerable challenges and scale of expansion required in SAF production to effectively contribute to the aviation sector's decarbonisation.

The question is: is Europe ready to make such a drastic change with so little at its disposition? Both airlines and fuel suppliers will face massive costs associated with an increased incorporation of SAF. The transition to SAF and synthetic fuels, especially as their required percentages rise over time, could lead to additional expenses in production and operations. The obligation to increase the use of SAF also requires substantial investments in the development of new infrastructure for production, distribution, and storage – something that Europe is currently lagging in. This can be financially burdensome for businesses, especially smaller operators. Moreover, businesses will face major financial penalties if they fail to meet the specified requirements, leading to concerns about the enforcement process of this mandate. To add, the Union labelling scheme for environmental performance could influence consumer choices. Airlines not meeting the required environmental standards may face challenges in attracting environmentally conscious consumers, affecting market share and profitability. Overall, the aviation sector will suffer.

UK and EU governments are finding that despite all the rhetoric, consumers are reluctant to pay for the green transition.

All relevant studies conclude that SAFs represent the most viable path toward decarbonising the aviation sector with operation of the current global fleet. It is imperative to encourage the production of SAFs, but we must also evaluate the negative impact of the ambitious new targets on the affordability of air transport, as well as the costs imposed on fuel suppliers and airlines to meet targets. The European Commission should have regard to the consequences of these regulations on the operational dynamics and competitiveness of the European sector compared to its counterparts in third countries in order to prevent carbon leakage. It is a long road ahead, and the adaptation process will become burdensome for consumers, businesses, and industry alike. In order to make RefuelEU work, Europe needs the proper infrastructure, resilient financial structures, and quick adaptation from the aviation industry in order to innovate and remain profitable.

Similarly, EU restrictions on financial institutions could have the perverse impact of EU financial institutions exiting aviation, to be replaced by financial institutions subject to lesss onerous restrictions.

During the Airline Economics conference in Dublin in January 2024, a number of lessors expressed scepticism that EU/UK governments will dedicate sufficient priority to this effort to actually make it happen.

Green transition was never going to be pain free or easy in a democracy.