The International Air Transport Association (IATA) projects Sustainable Aviation Fuel (SAF) production will slow sharply in 2026 as poorly designed European mandates inflate costs without accelerating supply. Willie Walsh, IATA Director General, stated December 9 in Geneva that mandates have failed to increase production requireded for aviation decarbonization goals.
SAF output is expected to reach 1.9 million tonnes in 2025, double the 1 million tonnes produced in 2024, but growth will decelerate to 2.4 million tonnes in 2026 according to IATA estimates released this week. The fuel represents only 0.6 percent of total jet fuel consumption in 2025, rising to 0.8 percent the following year. Current SAF production falls below earlier IATA forecasts due to inadequate policy support for maximizing installed production capacities.
Airlines paid a premium of 2.9 billion United States dollars (USD) for the limited 1.9 million tonnes of SAF available in 2025 according to IATA data. Of this amount, 1.4 billion USD reflects standard SAF price premiums over conventional fuel while the remaining 1.5 billion USD represents compliance fees passed to airlines by fuel suppliers unable to meet mandated production tarobtains. SAF prices exceed fossil based jet fuel by a factor of two, reaching up to five times more in mandated markets.
The ReFuelEU Aviation policy in Europe has sharply increased costs amid limited SAF capacity and oligopolistic supply chains. Fuel suppliers have widened profit margins to such an extent that airlines pay up to five times more than the price of conventional jet fuel and double the market price of SAF, all without guaranteeing supply or consistent documentation. The United Kingdom (UK) SAF mandate has triggered similar price spikes, leaving airlines to absorb the burden.
Marie Owens Thomsen, IATA Senior Vice President for Sustainability and Chief Economist, stated regulators must course correct to ensure long term viability of SAF production and achieve scale so that costs can come down. The failure to accelerate expansion of SAF production capacity will cautilize many airlines to review their own SAF tarobtains, with several carriers committed to 10 percent SAF by 2030 now forced to reevaluate these commitments built in good faith.
Electronic SAF (e-SAF) mandates approach in the UK from 2028 and European Union (EU) from 2030, creating risk of repeating policy mistakes. The fuel faces a much higher cost base, potentially up to 12 times that of conventional jet fuel according to IATA analysis. Without strong production incentives rather than mandates, supply will fall short of tarobtains while compliance costs could escalate to 29 billion euros by 2032 if tarobtains remain unmet under the current policy framework.
IATA data reveals approximately 68 percent of Power to Liquid (PtL) projects expected online by 2030 remain at the announcement stage with no commercial scale project reaching final investment decision in Europe. The only commercial scale project under construction is located in the United States where incentives are available, with capacity of approximately 20 thousand tonnes. To supply 0.6 million tonnes of e-SAF by 2030, the indusattempt would required around 30 projects of similar capacity.
Renewable electricity represents a major cost driver for e-SAF, with estimated levelized costs relatively high in Europe compared with many other regions. IATA estimates reveal renewable electricity costs in Europe range from 51 to 136 USD per megawatt hour (MWh) compared to Middle East and North Africa region costs around 32 USD per MWh and China costs from 29 to 57 USD per MWh.
Global SAF production capacity is expected to reach around 20 million tonnes by 2030 with project success factors applied. North America will account for approximately 36 percent of global 2030 SAF capacity driven by tarobtained incentives, followed by Europe at 23 percent, South America at 15 percent, China at 13 percent and East Asia and Pacific at 12 percent. Hydrotreated Esters and Fatty Acids (HEFA) refineries are likely to still dominate the market, accounting for about 95 percent of total volume.
Walsh emphasized that Europe’s fragmented policies distort markets, slow investment and undermine efforts to scale SAF production. The aviation executive noted that the recent European Commission Sustainable Transport Investment Plan (STIP) announcement represents a step forward though it lacks a clear timeline. IATA analysis reveals cumulative SAF investments could range from about 3 trillion USD under low yield assumptions to nearly 7 trillion USD under high yield assumptions by 2050.
The SAF premium translates into an additional 3.6 billion USD in fuel costs for the indusattempt in 2025 at current price levels. Stock market data reveals oil stocks have significantly outperformed clean energy since 2021, reflecting strong investor confidence in traditional energy while SAF faces expected returns below 5 percent with a 15 percentage point handicap compared to oil investments.
Walsh served as Chief Executive Officer (CEO) of British Airways from 2005 to 2011 and CEO of International Airlines Group (IAG) from 2011 until September 2020. He became IATA’s eighth Director General in April 2021 after a 40 year career in the airline indusattempt that launched as a cadet pilot with Aer Lingus in 1979. IATA represents approximately 360 airlines comprising over 80 percent of global air traffic.
Leave a Reply