Understanding the ReFuelEU Aviation Regulation and Implications for Aviation in the EU
Brought to you by King & Spalding
Brendan Hundt
Partner, Corporate, Finance and Investments
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King & Spalding
Enacted in October 2023, Regulation 2023/2405 (the “Regulation”) is the latest tool in the EU’s implementation of its renewable energy and decarbonisation policy. The Regulation owes its existence, in part, to the slower than anticipated uptake of sustainable aviation fuel (“SAF”) following the enactment of “RED II” (2018/2001/EC), which set out general rules on renewable energy for the transport sector but no aviation-specific measures. In 2021, the EU’s “Fit-for-55” package foreshadowed the “ReFuelEU Aviation Initiative” that would require aviation fuel suppliers to blend increasing levels of SAF with conventional jet fuel taken on-board aircraft at EU airports,
including synthetic low carbon fuels (or “e-fuels”).
The Regulation, which is the result of this initiative, applies to aircraft operators, EU airports and aviation fuel suppliers (who are each subject to the reporting regime under the Regulation) and selected points of note include:
SAF includes “synthetic aviation fuels,” “aviation biofuels” (which comprise “advanced biofuels” and “biofuels”) and “recycled carbon aviation fuels.” In essence, all types of SAF must comply with the lifecycle emissions savings criteria in RED II (as amended by RED III in 2023) but “first generation” biofuels produced from food and feed crops are excluded from the meaning of SAF.
Commencing in 2025, aviation fuel suppliers must ensure that all fuel made available to aircraft operators at EU airports contains a minimum share of SAF (and a minimum sub-share of synthetic aviation fuels from 2030 onwards), which will increase over time. The logic for the minimum share of synthetic aviation fuels is that the minimum thresholds will aid their scale up and ultimately reduce the costs of production. Also, certain biofuels made from feedstocks competing with other industries cannot contribute more than 3% to compliance with the minimum shares of SAF and there is a five year transition period during which aviation fuel suppliers may supply the minimum share of SAF as an average over all the aviation fuel they supplied across EU airports for that reporting period.
Aircraft operators must ensure that the yearly quantity of aviation fuel uplifted at a given EU airport is at least 90% of their yearly aviation fuel required. This is intended to avoid “tankering” by airlines where they overfill aircraft at airports with cheaper fuel.
Aircraft operators are prohibited from reporting SAF use under more than one greenhouse scheme, however, aircraft operators are incentivised to use SAF by the EU ETS as all quantities of SAF used that are certified as RED-compliant will be attributed zero emissions under the EU ETS. This also enables aircraft operators to preserve their emissions allowances when SAF is used instead of fossil jet fuel, although a phase out of free emissions allowances for the aviation sector is expected to come into effect in 2026.
By the end of 2024, EU member states must develop rules on penalties applicable to aircraft operators, EU airport operators and aviation fuel suppliers for breaches of their obligations under the Regulation. Fines should be “proportionate and dissuasive” and not less than double the price difference between conventional fuel and the applicable SAF type multiplied by any shortfall quantity. Any revenues generated by fines should be used by EU member states to support R&D in the field of SAF or mechanisms to bridge the difference in price between SAF and conventional fuel.
By 1 July 2024, the EC will complete its assessment of whether a book-and-claim system to further facilitate the supply and uptake of SAF for aviation during the flexibility period (i.e.1 January 2025 to 31 December 2034) should be set up or recognised.
Industry responses to the Regulation have been cautiously optimistic but, predictably, the common theme is that the mandate needs to be supported by the right supply side measures (e.g. production incentives, such as production tax credits similar to the US Inflation Reduction Act) to ensure that the higher cost of fuel (attributable to the increasing blend of SAF over time) does not result in significantly higher costs for aircraft passengers in the EU. The EC also needs to recognise that the different SAF “pathways” require different combinations of supply and demand side measures prior to these pathways reaching technological and production maturity – one size does not fit all.
Lastly, a book-and-claim system is also seen as an essential (and urgent) step prior to 2025 as it is inevitable that SAF production will not be evenly spread across the EU for some time and flexibility will be required. 2024 will be a busy year as the European aviation sector prepares for the commencement of the SAF supply obligations in 2025 and it will be a sector well worth watching.
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