Fueling the Future: How adequate is European public funding for SAF?
Brought to you by Climate Catalyst
Sabrina Ahmed
Business Engagement Manager
Climate Catalyst
The aviation sector is at a critical juncture on a pathway to reaching net-zero emissions but opinion is divided on how the industry will get there. When non-CO2 effects are considered, the sector accounts for up to 5 per cent of global warming. Without action, global emissions from aviation could rise to 22 per cent by 2050.
The urgency of the issue appears well understood by the industry. It has committed to a collective net-zero target and universally endorsed ‘sustainable aviation fuels’ (SAF) as an area for action. And whilst there’s growing momentum in this space, driven by regulatory mandates in the UK and EU, there remains a sense of skepticism for how targets will actually be met.
Commercial production of SAF is in its infancy. It needs significant scale-up capital to provide the mandated volumes. At the European level, this necessitates an increasing supply of e-fuels - alongside biogenic fuels that meet stringent sustainability criteria - due to their higher lifecycle emission reduction potential. Delivering mandates requires both public and private investments, yet despite the regulatory certainty they provide, investors are still hesitant to bridge the financing gap, with 51 companies still waiting to reach Final Investment Decision (FID) in the EU.
What is holding investors back?
The fundamental barrier seems to be revenue confidence - driven by price risk and concerns around feedstock availability - with many waiting on additional policy mechanisms to mitigate their concerns. There is often discussion on the divergent ‘carrot’ versus ‘stick’ approaches that have been taken by the US and EU/UK policymakers respectively, with many seeing the US landscape of tax-credits and less stringent lifecycle criteria as a more favourable market to invest in.
EU investors feel a lack of existing supply-side policies leaves them in ‘wait and see’ mode until revenue certainty mechanisms are implemented. This narrative is commonplace when understanding the challenges facing the scaling of the SAF market, and for delivering net-zero aviation more broadly. Yet it is often forgotten that many SAF projects are eligible to access existing pools of public funding in Europe that could be used on the road to FID.
What public funding is available?
Governments have already started to provide fiscal incentives in the form of grants and subsidies, aiming to reduce project risk by lowering production cost and helping producers achieve economies of scale. Grants from the EU Innovation Fund and the UK’s Advanced Fuels Fund have been utilised by companies such as Nordic Electrofuel and LanzaTech to move beyond feasibility and FEED studies in support of the initial stages of SAF plant construction.
Governments are also supporting large-scale infrastructure projects such as EU’s Hy2Infra and via the UK’s Green Industries Growth Accelerator fund, which will indirectly support the SAF market by enabling access to cost-competitive feedstocks such as hydrogen and captured carbon for e-fuel production - the highest integrity subcategory of SAF. However, with the majority of SAF today coming from biogenic or waste-based fuels like HEFA, e-fuels in the aviation sector will require targeted support to scale their production in line with emission reductions, and alignment across funding schemes to maximise support for producers.
It's the variety and complexity of these different funding pots which led us to produce an EU/UK public funding table, which can be filtered by country and funding type.
Path to commercialisation
We know that public funding only takes us so far. Whilst these early funds are a critical enabler, many projects still face the commercialisation ‘valley of death’ where they struggle to access the necessary finance before they are seen as sufficiently de-risked. This is where collaboration within the value chain is crucial. Industry can play a role through demand aggregation for collective offtake, passing on the green premium to corporate buyers looking to offset inhouse emissions, and new or incumbent energy players in the fuel market can support project development through their financial leverage.
Those chasing tax incentives must remember it's the public who foots the bill. Whilst everyone wants a greener aviation sector, industry players risk alienating consumers already wary of greenwashing. It's time to confront skepticism in the SAF market head-on. By forging cross-value partnerships and encouraging financiers to seize the first-mover advantage, the industry can achieve the critical progress needed now for the aviation industry to meet its climate targets.
Climate Catalyst work with business, investors and civil society to influence and accelerate policy change. Through our work with partners in Europe and Asia, we focus on complex challenges where collaboration has the greatest potential to unlock action and secure lasting change.