Getting It Right: Why the SAF Revenue Certainty Mechanism Matters for Decarbonising Flight
Author: Jonathon Counsell, Group Sustainability Officer, IAG
Last month, I was in Sunderland to see the ground breaking of a new factory which, once complete, will turn used car tyres into fuel to power planes. The plant is the first of its kind in the UK, and part of a brand-new industry in the Northeast. The company behind the project, Wastefront, is one of a handful of Sustainable Aviation Fuel – or SAF – plants IAG is investing in.
We’re making progress
The development of a UK SAF industry is vital to decarbonising aviation and its continued energy security and international competitiveness. SAF means we can keep flying for work, enjoy holidays, distribute medicine and food, but with up to 80% fewer lifecycle emissions than traditional jet fuel. Last year IAG was the largest global buyer and consumer of SAF and as of the end of 2024 we have made binding commitments in excess of $3.5bn on purchases and investments.
But we are facing challenges
There are obstacles, however. The first is scale of production. Greater support is essential, alongside stronger incentives to accelerate production at the volume and pace required to ensure a long-term, affordable supply. To support, IAG is investing in a range of suppliers to get new facilities up and running. In the UK, this includes Wastefront in Sunderland, as well as LanzaJet and Nova Pangaea Technologies in Teeside.
The second problem is the cost gap. Right now, SAF is three to five times more expensive than traditional jet fuel. The fossil fuel industry has a vast, established, global supply chain, but SAF is still in its early stages. New refineries require upfront investment, and it will take years before there is price parity between SAFs and fossil fuels.
A solution: price guarantees
To give the private sector confidence to invest, the UK government is introducing a ‘revenue certainty mechanism’ for SAF (or RCM, for short). This is a way to guarantee future SAF prices that derisks investment – similar to the model already successfully used to build the UK’s offshore wind industry. Price certainty gives investors confidence, and signals to international partners that the UK is an attractive place to build low carbon technologies.
This scheme is a welcome step, but the cost needs further modelling. We believe a revenue certainty mechanism is the right instrument to incentivise efficiency, balance priorities and offer value for money, but the important part will be in the detailed design which IAG will continue to support.
Speed is a key factor. The Department for Transport is currently aiming to have the policy finalised by the end of 2026. Ideally, we want to move quicker as the UK government’s 10% SAF mandate for airlines will come into force in 2030. To help meet this, we would need six or seven new SAF plants in the UK within the next five years. It’s a tight timescale and our suppliers need certainty, fast, if they are to start and finish construction on these advanced and complex facilities.
Who pays?
The other big decision is about who pays for the RCM. The goal of any price certainty is to attract investment in the early days of a new technology, to give investors confidence in potential returns. IAG is already playing a big part in this effort, as a guaranteed customer and committed co-investor in SAF.
Under current proposals, airlines and their suppliers could end up paying even more to fund the new SAF plants. We must ensure new proposals are not at the expense of keeping air travel affordable and accessible when aviation drives billions of pounds of economic value (GVA – Gross valued Added) and supports hundreds of thousands of jobs across the economy. Fuel bills are typically up to a third of an airline’s costs, and in the UK we already pay significantly higher costs than our competitors with Air Passenger Duty, higher airport charges and business rates, and carbon charges through the UK Emissions Trading System.
We believe there is a different way to fund the RCM: using the aviation industry’s contribution into the UK Emissions Trading System. The ETS was set up in 2021 as a way to reduce CO2 emissions from heavy industries and is paid into by firms in energy-intensive sectors - including aviation. The trade body, Airlines UK, estimates that aviation’s contribution to the ETS will contribute £1 billion to £4 billion to the Treasury over its coming ten-year compliance period. This funding could be used for SAF projects which is entirely consistent with the original purpose of the scheme.
In the EU, ETS funding is used to support low carbon R&D, as well as to finance SAF allowances for airlines to reduce the overall cost of fuels. The combination of these measures means that EU carriers currently face much lower SAF costs than UK carriers, making Britain a less attractive place for airlines to invest and create jobs. Ultimately, as well as decarbonising, we need to ensure the goal of government policy with SAF, as with other aviation policies, is that the UK remains a competitive place to run and grow an airline, compared to other markets.
Airlines – and their customers – will pay for the SAF they use just as they do for traditional fuel today. But repurposing money from the UK ETS to fund a new SAF guarantee through an RCM will also prevent those airlines that are investing in SAF already, from paying twice through an additional levy. The ETS framework already exists, let’s use it for what it was intended: paying to reduce carbon emissions.
This is an exciting time for the UK sustainable aviation fuel industry with potential for new jobs, investment and growth in an entirely new sector. With the right policy support SAF can create significant economic value adding £1.8 billion in economic value (Gross Value Added) annually to the UK economy, contributing to energy security, creating over 10,000 jobs and exporting British innovation around the world. If the government weighs us down with layers of additional costs, it won’t speed up the transition – it will stall it.
Note: IAG has responded to the government’s RCM consultation, which closed yesterday.