EIC Sector Analysis: The UK and US SAF market

Written by Igor Santos, EIC Junior Energy Consultant

Aviation is one of the most challenging sectors to decarbonise, despite its relatively small contribution to global CO2 emissions. In addition to the CO2 produced by fuel combustion, aviation also affects other atmospheric gases, contributing to around 4% of the global temperature rise since pre-industrial times. The shift from conventional jet fuel to low-emission alternatives, such as biofuels, hydrogen, or electrification, is essential, particularly in countries with high and growing consumption. However, hydrogen and electric aviation technologies remain in their early stages, making sustainable aviation fuels (SAF) the most feasible option for decarbonisation in the near term. In this context, both the UK and US are actively advancing SAF markets, supported by regulatory frameworks and technological innovations.

In the UK, a mandate has recently been introduced requiring that SAF constitutes at least 2% of all jet fuel used in flights departing the country. This figure is set to rise to 10% by 2030 and 22% by 2040. The mandate aims to result in an average annual increase of 1.6% in the proportion of SAF within the aviation fuel supply over the next five years, enforced through a traceable certificate scheme. Under this system, suppliers will receive certificates based on the greenhouse gas emissions (GHG) reductions achieved in the previous year. These certificates can be used to meet the mandated obligations, with any excess available for sale to other suppliers. The mandate also includes a buy-out mechanism, allowing suppliers to fulfil obligations if they cannot secure enough SAF.

However, despite the introduction of the mandate, the UK currently has only one operational SAF facility, expected to produce around 50m litres of SAF this year. This represents just 17.3% of the 287.5m litres required for 2025, with the shortfall likely needing to be imported. The limited domestic supply, coupled with the high buy-out price, will lead to higher costs for consumers until SAF production increases. Moreover, the absence of a revenue certainty mechanism may discourage investment in new SAF plants. According to EICDataStream, while there are 17 SAF projects under development in the UK, nine are in the early stages and none are under construction. Notable projects such as LanzaTech’s Project Dragon, which will be the world’s first large-scale alcohol-to-jet (ATJ) fuel plant and was anticipated to begin operations in 2026, has yet to receive final investment decisions (FID), suggesting stagnation in development.

Additionally, although government funding is significant, it is not enough. The Department for Transport (DfT) estimates the cost of a single SAF plant at over ￡1bn, while the UK government has allocated just over US$2.6bn in total, creating a considerable funding gap. As a result, it seems unlikely that the target of having five commercial SAF plants under construction by 2025 will be met.

Similarly, the US has made progress in advancing the SAF market. In early January 2025, the guidance for the new 45Z Clean Fuels Production tax credit was released. Unlike the flat-rate 40B credit, this scheme offers up to US$1 per gallon for clean fuels used on roads and US$1.75 per gallon for fuels used in SAF production, provided the fuels have at least 50% lower emissions than petroleum-based fuels. However, this policy is set to span only three years, instead of the 10+ years needed to stabilise investor risk. The country also faces challenges regarding feedstock supply, especially used cooking oil (UCO), which accounts for 60% of renewable fuel feedstock. Potential tariffs, particularly those proposed during Donald Trump’s presidential campaign, could disrupt supplies, further complicating the US SAF market.

At present, the US has four commercial-scale SAF facilities with a combined capacity of 64m gallons per year. The government aims to ramp up production to 3bn gallons by 2030, necessitating 8-12 commercial-scale plants. According to EICDataStream, there are 45 SAF projects planned in the US, with 25 in detailed engineering, 18 in early stages and only two under construction. Of these, only five have received final investment decisions, with just one granted in 2024, well below the 14 anticipated. If the tendency persists, the number of FIDs expected in 2025 may also fall short, further indicating that not all planned projects will materialise.

Therefore, although the new tax credit benefits SAF producers, uncertainties around president Trump’s second term and his stance on tariffs could create challenges. The president has already withdrawn the US from the Paris climate agreement and signed an executive order to ease the permitting process for oil and gas projects on his first day. If tariffs increase, particularly on imports from China, US companies could face higher production costs, which could hinder their competitiveness in the SAF market, sidelining potential investments in clean fuel.

In conclusion, both the UK and US are making progress in decarbonising aviation through SAF development, but several challenges remain. These include slow project development, uncertainties surrounding feedstock supply and regulatory complexities, all of which could hamper the achievement of ambitious government targets. While SAF plays a central role in aviation’s decarbonisation, significant investment and more robust policy frameworks are necessary to ensure the sector’s transition to a lower-carbon future.

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