The global market for SAF is in a nascent yet rapidly developing stage, driven by the urgent need to reduce carbon emissions in the aviation sector. There has been significant progress in SAF production, adoption, and regulatory support over the past few years. While challenges related to cost and scalability remain, the concerted efforts of governments, industry players, and technological innovators provide a promising outlook for the future of SAFs. The next few years will be pivotal in determining the extent to which SAF can transform the aviation industry and help achieve a more sustainable future for air travel. This chapter sets out a high-level view of the current state of the SAF industry, its key stakeholders and the economic forces at play.

The annual production capacity for SAF is still relatively limited compared to the total jet fuel demand. Estimates suggest that SAF production in 2023 was around 0.1% of the total aviation fuel consumption, though this number is expected to increase significantly in the coming years. The International Air Transport Association (IATA) estimates indicate that during 2024, even after anticipated increases in supply, the share of SAF may reach 0.5% of total aviation fuel consumption (IATA, 2023). These small percentages contrast starkly versus projections indicating that SAF could constitute up to 10% of global jet fuel demand by 2030, contingent on continued investment and supportive policies.

Decarbonization targets set by governments and associated policies that necessitate the aviation industry to move to greener fuels give guidance to future demand trajectories. Several countries have introduced blending mandates requiring airlines to use a certain percentage of SAF, these are crucial for driving demand and encouraging investment in SAF infrastructure. For example, the European Union’s ReFuelEU Aviation initiative aims for a 2% SAF blend by 2025, increasing to 63% by 2050.

To complement policy driven requirements, and to support commitment to state level targets, governments in the United States, European Union, and other regions have implemented subsidies, tax credits, and grant incentives to promote SAF production and use. The U.S. Inflation Reduction Act (IRA), for instance, provides significant financial incentives for SAF production

Voluntary commitments to SAF by airlines are bolstering demand projections. Instead of relying solely on conventional carbon offset routes, airlines are increasingly adopting SAF offtake agreements to reduce their carbon footprints. As of December 2023, more than 43 airlines have made voluntary commitments to blend SAF into their fuel supply (HCS Group, 2023). In alignment with these commitments, the IATA, the trade association for the world’s airlines, comprising 330 members, has committed to reach net zero CO2 emissions by 2050 (IATA, 2023).

Whilst voluntary commitments are not legally binding, and policy makers can change course, the unified signaling from industry participants provides a clear direction for the SAF industry as a whole. Forecasts done by Dutch fuel supplier SkyNRG show an increase in SAF production capacity to 17.3 million tonnes by 2030, up significantly from 4 million tonnes in 2023. Similarly, to reach its decarbonization targets, the IATA estimates global demand will be in the region of 360 million tonnes by 2050, representing a 99.9% increase from current levels. Landmark legislation on SAF in the EU, the US, and the UK will act as the primary demand driver. SkyNRG estimates that Europe and the US could have around 120 million tonnes of SAF capacity installed by 2050 (SkyNRG, 2024).

The reluctance of infrastructure investors to commit to SAF projects stems from uncertainty regarding the business case and how costs will be distributed. The narrow profit margins and high capital costs associated with such projects further deter private equity (PE) involvement. To mitigate risk and attract investment, early-stage technologies like PtL may require state-level funding or public- private partnerships (PPP) to de-risk private sector involvement. Additionally, existing biofuel refiners could repurpose their facilities for SAF production, provided there are incentives and opportunities to do so.

The next 2-3 years will be crucial for scaling up SAF production, with approximately €1 trillion in capital expenditure (CAPEX) needed to establish 450-950 new production sites by 2030 (PwC, 2023). As production volumes increase and efficiencies improve, capex costs are expected to decline. Economies of scale in advanced technology systems that form integral parts of the production process such as electrolyzers and carbon capture will be critical to improvements in project economics .

Regions with high renewable energy penetration will be particularly attractive for investment, given the importance of renewable electricity in SAF production, especially for e-kerosene projects. Focusing on renewable energy sources not only supports the sustainability of SAF production but also enhances the long-term economic viability of such projects.

Several non-financial challenges also impede the growth prospects of SAF. Allocating agricultural land for biomass feedstock supply is particularly challenging in regions like Europe, where land for biomass feedstock might conflict with food production. For instance, meeting the UK’s biofuel demand with crops like rapeseed could require 68% of the country’s agricultural land. Competing land uses for renewable energy projects, such as wind and solar PV generation, also create conflicts (Institution of Mechanical Engineers, 2023). Other growing sectors with similarly high land requirements include nature-based carbon removal/sequestration and hydrogen storage (ScienceDirect, 2023). Unplanned land diversion for SAF energy crops could negatively impact the carbon footprint by releasing stored carbon from forests and reducing their sequestration capacity (WRI, 2023). A renewed focus on sustainable agriculture is fostering mutually beneficial ventures between producers and biomass feedstock suppliers (Greenair, 2023). Furthermore, new production pathways can diversify the feedstock requirements which may alleviate agricultural challenges.

The implication of the supply gap and economic challenges of SAF is an industry that is heavily dependant on, and therefore sensitive to, policy frameworks. Changes in regulations or incentives have the potential to significantly shape or alter the path to transition and decarbonization of the aviation industry. The lack of visibility on green airfare price elasticity and the degree of commitment from policy makers to require the aviation industry to go green creates a maze for investors and industry participants to navigate in determining the pathway to SAF uptake. Feedstock producers, SAF producers, ancillary fuel service providers, their development programmes and airlines will all form an important part of a collaborative effort to decarbonise aviation, whilst competing for the same policy driven economics.