Europe's path to climate-neutral aviation

For two years now, the ReFuelEU Aviation Regulation has formed the legal basis for partially decarbonising aviation in the European Union (EU) by 2050. The aim is to create a single market for sustainable aviation fuels (SAF) – the key building block for reducing CO₂ emissions from aviation. The regulation distinguishes between three categories of sustainable aviation fuels: biofuels for aviation, synthetic aviation fuels and recycled carbon-based aviation fuels.

All sustainable aviation fuels must achieve a greenhouse gas reduction of at least 65 to 70 per cent compared to fossil kerosene. The ReFuelEU Aviation Regulation sets an initial blending quota of two per cent SAF from 2025. By 2030, this share is to increase gradually to six per cent, of which 1.2 per cent must be synthetic SAF (eSAF). 

In 2035, the requirement will increase to 20 per cent SAF, of which five per cent must be eSAF. Finally, for 2050, the regulation stipulates a SAF share of 70 per cent in the overall fuel mix, with a mandatory eSAF share of 35 per cent.

Why is the quota alone not enough?

Despite the ambitious quotas, there are obstacles that jeopardise the ramp-up of the SAF market. The latest publication from PtX Lab Lausitz, the PtX Lab Paper ‘How far will the transition go in Europe? Two years of ReFuelEU Aviation’ (English version will soon be available), highlights what these obstacles are.

In the paper, experts from the Lausitz competence centre explain that fossil aviation fuels are significantly cheaper. As a technical report by the European Aviation Safety Agency (EASA) shows, no type of SAF is expected to achieve price or cost parity with kerosene in the foreseeable future.

Without targeted government subsidies, the economic viability of SAF therefore lags far behind fossil fuel market prices. In addition, investments in SAF plants currently still carry a high economic risk (known as the ‘first mover disadvantage’). However, with the help of appropriate instruments, this can be turned into an advantage by providing long-term security for companies that invest now. 

The market situation at many airports, where a small number of fuel suppliers set prices largely without intense competition, also currently reduces the attractiveness of SAF.

The need for accompanying measures

In the SAF market, which is still in an early stage of development and suffers from considerable coordination problems, quotas can send a stable and reliable signal of demand and boost the market ramp-up of sustainable aviation fuels. Nevertheless, accompanying measures are needed to pave the way for climate-neutral aviation in Europe.

In financial terms, straightforward support mechanisms could create the necessary incentives for investment. Targeted support for investment expenditure and operating costs (CAPEX and OPEX support) for a limited number of pioneers would be conceivable. In addition, double auction mechanisms, among other things, could help to reduce price uncertainties.

At the regulatory level, making supply chains more flexible can contribute to the emergence of new business models. So-called book & caim (B&C) approaches can form a basis for this.

How far will Europe's aviation fuel transition go?

The quotas set out in the ReFuelEU Aviation Regulation are a key component in ramping up the market for sustainable aviation fuels and thus in defossilising aviation. At the same time, price and production gaps, economic risks and existing structures are significantly slowing down the expansion of SAF production capacities. 

In order to build up the necessary capacities, targeted start-up financing, effective price stabilisation mechanisms and virtual SAF markets are needed. Additional measures are therefore necessary to sufficiently accelerate the ramp-up of the SAF market and reliably achieve the specified quotas.