Policy and geopolitical challenges.

 

Alignment of SAF policy across regions and the future of SAF subsidies 2.2 Policy and geopolitical challenges Asia Pacific In 2024, Asia Pacific emerged as a hot SAF market, with an increasing number of governments introducing supporting policies (see Figure 8). Singapore introduced a new levy on air tickets to support SAF expansion; Malaysia, the Philippines, Indonesia and South Korea announced or explored plans to introduce SAF mandates; and Australia made funding available for low-carbon fuel projects as part of its $1.1 billion innovation fund

China is likely to unveil more detail on its rumoured SAF policy in 2025. The country gradually released the first components of its SAF policy in 2024, when it launched a new sustainability certification body in Chengdu and a consultation on domestic fuel standards, while piloting SAF usage with Air China, China Eastern and China Southern in September 2024. In Hong Kong SAR, a policy white paper released by the Hong Kong SAF Coalition recommended a SAF uplift blueprint and a feasibility study into a levy mechanism to encourage SAF uptake. Although Japan was one of the first countries to propose a SAF mandate, many of the executives consulted for this report believe the country’s SAF sector is developing slowly. Respondents that attended one of the regional Airports of Tomorrow roundtables in Tokyo concurred that Japan’s ability to produce SAF in the short term may be limited. However, they remained confident that with a level playing field among carriers domestically and internationally to spur demand, along with the right supply-side incentives, most SAF production pathways could be scaled-up in Japan. While domestically produced fuel is unlikely to meet all the demand for SAF in Japan, there is particular interest in scaling-up HEFA in the short term and e-fuels in the long term. However, large quantities of used cooking oil are currently exported to other countries, with limited options for new offtakes with restaurants – although trials for improved collection in Hokkaido are showing promising results. For Japan to remain competitive, argue executives from its domestic aviation industry, the government needs to roll out additional incentives. 

Latin America 

Latin America also saw some key market developments. Brazil signed its Fuels of the Future bill into law in October 2024: this established its national SAF programme and introduced a mandate on carriers to reduce GHG emissions by 1% in 2027, gradually ramping up to 10% in 2037 – although this abatement does not necessarily need to come from SAF. The Brazil government also announced an investment of around $1 billion to stimulate SAF production through biorefineries development as well as research and development. As of November 2024, the government has been evaluating the 76 proposals received, which totalled a value of around $28 billion (of which 43 proposals worth $20 billion have fuel production as the main goal). In April 2024, Chile announced its SAF Roadmap 2030, focused on starting local production by 2030 and setting a target of 50% SAF by 2050, with a promising role for power-to-liquid. Chile and Brazil established a partnership creating a joint working group on SAF, which aims to share best practices, regulatory and market experience, and technical and scientific knowledge on SAF development

Middle East

 In the Middle East, following the introduction of the United Arab Emirates’ SAF policy in 2023, Oman announced the development of local SAF policies and standards during 2024. Other countries in the region have not yet implemented comprehensive national SAF policies, but are formulating strategies or leveraging partnerships for SAF development. This includes Saudi Arabia, where the General Authority of Civil Aviation convened the inaugural Civil Aviation Environmental Sustainability Program Implementation Committee in November 2024, designed to achieve net-zero emissions by 2060 by tracking progress and providing guidelines to the aviation sector. Europe Europe has strong SAF policy foundations in place: its mandate under the ReFuelEU initiative requires a 2% share of SAF in EU airports from January 2025.

Middle East 

In the Middle East, following the introduction of the United Arab Emirates’ SAF policy in 2023, Oman announced the development of local SAF policies and standards during 2024. Other countries in the region have not yet implemented comprehensive national SAF policies, but are formulating strategies or leveraging partnerships for SAF development. This includes Saudi Arabia, where the General Authority of Civil Aviation convened the inaugural Civil Aviation Environmental Sustainability Program Implementation Committee in November 2024, designed to achieve net-zero emissions by 2060 by tracking progress and providing guidelines to the aviation sector. 

Europe 

Europe has strong SAF policy foundations in place: its mandate under the ReFuelEU initiative requires a 2% share of SAF in EU airports from January 2025 and the bloc features complementary policies such as the EU Emissions Trading System (EU ETS). Yet there are very few SAF production facilities that are non-HEFA, few co-processing plants48 and only a handful of SAF projects going through FID. Not all European countries have committed funding for SAF programmes, although, notably, the United Kingdom has confirmed an additional revenue support mechanism for the industry. The report by Mario Draghi on the future of European competitiveness estimates that €61 billion a year will be needed for aviation decarbonization in the continent, which is seen as a priority for the sector to remain competitive.

 United States 

In the US, the Clean Fuels Production Credit (section 45Z) was set to provide a tax credit from 1 January 2025 for the production of transportation fuels with lifecycle GHG emissions below certain levels. Days before the incoming Trump administration took over, the US Treasury released guidance on section 45Z, clarifying eligibility for credits of up to $1.75 per gallon, as well as detailing an updated methodology to calculate the carbon intensity of the fuel. To reduce the import of foreign feedstocks the US government restricted the applicability of 45Z to refineries that use domestic feedstocks. While such “carrots” have long been advocated by the industry, biofuel producers raised public concerns about whether the new guidance release would provide enough certainty to negotiate feedstocks and offtake agreements going forward. At the time of writing, however, the long-term impact of the 45Z guidance remains unclear after President Trump signed an executive order to freeze and review all new federal rules, including a 90-day postponement of the 45Z tax credit. Meanwhile the “Farm to Fly Act” was reintroduced in the Congress. It does not involve tax credits but focuses on clarifying SAF eligibility and taxonomy and fostering collaboration. Promisingly, a Montana Renewables project looking to deploy SAF got a loan guarantee approved by the new administration in February 2025.

Policy patchwork 

There are two important consequences arising from the proliferation of SAF policy across regions. First, a patchy policy framework is developing, with different sustainability standards and targets, as well as different obligated parties and reporting requirements. Second, most emerging markets benefit from competitive-priced feedstocks, electricity or labour costs compared to Europe and, to some extent, the US. Meanwhile, China benefits from the world’s largest renewable energy pipeline as well as used cooking oil and raw materials for electrolysers. As a result, many of the stakeholders interviewed for this report agreed that the market for SAF and wider aviation decarbonization technology in the US and Europe could face challenges from Asia and South America. For example, there is a likelihood that producers in emerging markets will prioritize domestic supply rather than exports, due to their own mandates as well as logistics and carbon-related issues. Consequently, there are concerns that regions like Europe may not be able to develop a competitive domestic market for the sustainable fuels that represent a critical cost for their airlines, nor even be able to import these fuels if more countries move to mandate SAF usage.

Expectations on aviation decarbonization policies for 2025.

Building on this context, the Forum’s survey asked executives for their views on how regional and global policies on aviation decarbonization might evolve in 2025 (see Figure 9).

Oceania: the regulatory advances Australia achieved in 2024 bring optimism to 2025, although advancing domestic SAF production and feedstock availability continue to remain pragmatic challenges. For New Zealand, expectations were more pessimistic. –

 North America: stakeholders’ views were split on whether SAF would remain a priority for the new Trump administration in 2025. Early announcements and the reintroduction of the bi-partisan Fly to Farm Act suggest the topic still remains relevant across the political spectrum, but the temporary freeze of grants and incentives, including for clean hydrogen, pose practical challenges to progress on decarbonizing aviation. – 

China: while many of the C-suite stakeholders interviewed for this survey expected no substantial policy development, there was general consensus within industry that China could soon introduce substantial production incentives and targets for its domestic SAF industry. During regional Airports of Tomorrow roundtables, attendees said that Hong Kong SAR and mainland China are unlikely to introduce mandates unless there is certainty they can be met. – Europe: the extent to which policy can strengthen Europe’s competitiveness is expected to dominate the debate during 2025. In January, the UK government introduced a guaranteed strike price for SAF; meanwhile in February, the European Commission published its new Clean Industrial Deal. By mid-2025, an EU Sustainable Transport Investment Plan is expected, which could include SAF investment provisions among other transport decarbonization solutions.

Alongside these developments, some executives expected a relaxation of feedstock criteria (e.g. on cover crops) to potentially increase the pool of fuels and regions from which Europe may import SAF in the future, while boosting competitiveness. Discussions will also continue on whether the EU’s Carbon Border Adjustment Mechanism (CBAM) should expand to include aviation as it currently excludes the sector. – 

Sub-Saharan Africa: stakeholders did not expect any significant changes in the SAF policy landscape in the region, although a number of feasibility studies currently being undertaken by ICAO’s Assistance, Capacity-building and Training for Sustainable Aviation Fuels (ICAO ACT-SAF) initiative may prompt some early policy development. With South Africa taking over the presidency of the G20 in 2025, the topic may continue to feature in international discussions. A sustainable fuels roadmap has been proposed as one of the G20’s deliverables, although, at the time of writing, the themes of SAF and aviation seem to be playing a less prominent role than during the previous G20 presidency of Brazil.

Middle East and North Africa: respondents were split on whether the region would move forward with its SAF ambition and, for example, whether the targeted development of earlystage facilities to produce SAF at commercial scale by 2025 would remain on track. Several stakeholders however believed the Gulf Cooperation Council (GCC) could prove to be a receptive venue for coordinated policy discussions on aviation decarbonization.  

Last year saw positive momentum for ICAO’s CORSIA initiative. Saint Lucia, Gabon and Uzbekistan joined the voluntary phase 1, bringing the total number of countries participating in the scheme from 2025 to 129. Four new carbon credit programmes were approved by ICAO as CORSIA-eligible, expanding the pool of credits available and potentially easing the crunch that market commentators expect in the coming years. Developments on Article 6 of the Paris Agreement, approved at COP29, were welcomed by the industry as a positive step towards a smoother implementation of CORSIA. In future, for a carbon credit to be compliant with CORSIA, the host country in which the project is located must authorize the transaction (via a “letter of authorization”) and adjust its carbon inventory to ensure the carbon savings are not double-counted in its nationally determined contributions. Despite these advances, several respondents to the Forum’s survey flagged the implementation of CORSIA as a key risk for 2025. Many pointed out that China, Brazil, Russia and India have yet to join the first phase and see a potential risk that the US may reduce its participation or compliance, given the country has the largest demand for CORSIA units.57 Many of the airlines interviewed, however, reiterated their support for CORSIA and their willingness to participate, even on a voluntary basis. This demonstrates widespread support for the scheme and the importance of multilateral collaboration to tackle international aviation emissions. Nevertheless, participants’ ability to purchase credits may still be limited and market-dependent, with experts expecting potential volatility. In some markets, airlines will increasingly need to comply with not only CORSIA but also local emission trading schemes. In the EU, this year will see the continuation of the gradual phase-out of free allowances for airlines and reduction of the aviation emission caps, alongside a price-bridging mechanism to support SAF uptake. However, there were diverging views among respondents on the effectiveness of the ETS, as the price-bridging support is applied retrospectively and flights departing from the EU to destinations outside the European Economic Area (EEA) are not covered by the scheme – apart from the United Kingdom and Switzerland. The EU ETS is evolving to address non-CO2 emissions, including those from the aviation sector: from 2025, it aims to incorporate emissions such as nitrogen oxides (NOx), particulate matter and water vapour into its framework. The inclusion of nonCO2 emissions will require airlines to monitor and report these emissions for each flight. Many airlines claim this adds regulatory pressure and leads to compliance costs and operational adjustments, although European carriers flying predominantly short-haul and other industry stakeholders welcomed this development.  An increased focus on non-CO2 emissions and contrails has been a theme of 2024, which saw a flurry of activities and trials in this area. Several airlines have been testing and optimizing flight planning and airspace management to reduce the formation of contrails, using AI and optimization software to help select more fuel-efficient routes and altitudes. Many respondents expect trials to continue in 2025, while expressing cautious optimism around the impacts, given the scientific uncertainty surrounding these issues. Research into this area is continuing: one of the latest studies from the Whittle Laboratory at the University of Cambridge highlights how the implementation of a global contrail avoidance system could reduce the warming effect of aviation by 50-85% by 2050. 

Geographic concentration of feedstock resources

 As of 2024, the vast majority of SAF being produced or developed is HEFA, with increasing interest in alcohol-to-jet following the inauguration of the first commercial-scale refinery by LanzaJet in 2024. SAF production is therefore highly dependent on bio-feedstock and trades. This report has already discussed how markets in Asia and South America benefit from access to higher volumes of feedstocks and lower costs, while other markets, including the US and Europe, have developed greater dependency on imported low-cost feedstocks (see section above). China has been the world’s largest supplier of used cooking oil, with peak exports in November 2024, due to a sharp increase in shipments to Europe and the US. Following updated 45Z guidance, market experts consulted for this report expect trade flows to be diverted from the US to Europe, although the Chinese government’s removal of the 13% tax rebate on exports is expected to create volatility. On a similar note, in 2024, Indonesia restricted exports of palm oil mill effluent and used cooking oil, to favour domestic use ahead of an increased B40 biodiesel blending mandate and a tighter approval process for exports announced in 2025. Executives interviewed believe recent feedstock trades and policies are opening up an opportunity for alternative feedstocks or other countries to step in. Latin America is a natural candidate, with Brazil holding notable volumes of soybean (HEFA feedstock) and sugarcane (AtJ feedstock). According to market experts consulted for this report, trades of tallow, which could potentially lead to fuels with a lower carbon intensity than used cooking oil, may also face an increase in 2025, although much of this is likely to be used for renewable road transport fuel rather than aviation. Meanwhile, China has been increasing its global share of ethanol production for use in road transport, reaching approximately 4.9 billion litres in 2024. Renewable diesel refinery capacity in China is currently limited, but it could be temporarily boosted and subsequently repurposed for SAF if and when demand for road transport fuels decreases. However, new SAF facilities will most likely be needed to achieve scale, further exacerbating changes in feedstock value chains. Amid an increasingly complex trade and geopolitical context, experts interviewed are confident that, during 2025, regions such as Europe may have to explore loosening feedstock eligibility criteria to accommodate a wider pool of imports, or look at greater domestic production of feedstocks, such as cover crops. These decisions will come with sustainability trade-offs (discussed in the following section) and will need to be assessed alongside anti-dumping concerns, already the focus of a European investigation in 2024.