Europe became the linchpin of sustainable aviation fuel (SAF) adoption after the implementation of the EU’s RefuelEU Aviation regulation and the U.K.’s SAF mandate. According to these regulations, airlines are required to blend at least 2% of SAF in their fuel use starting January 1, 2025. These blending requirements will get stricter with higher targets set for 2030 and beyond. European policymakers and industry players are accelerating efforts to meet these targets through a growing number of SAF initiatives across the region. Some of these were highlighted in recent editions of ADI’s SAF Tracker, such as the following:
1. The UK Department for Transport (DfT) released a new levy on fossil-based jet fuel suppliers to fund the revenue certainty mechanism (RCM) that aims to provide price stability for SAF producers (72nd Edition).
2. Eni received approval from Italy’s Ministry of the Environment and Energy Security (MASE) to convert part of its Sannazzaro refinery into a biorefinery to produce HVO and SAF (70th Edition).
3. DG Fuels (DGF) announced plans to modify its patented SAF production technology to produce e-SAF in compliance with EU regulations (69th Edition).
4. The U.K. Government awarded ~$85 million to 17 companies under the third round of its Advanced Fuel Fund (AFF) to support the development and construction of several e-SAF projects (66th Edition).
However, the main challenge for the EU SAF market lies in the absence of clear certification and verification systems. Certification provides formal validation that a specific volume of SAF meets recognized sustainability and lifecycle emissions standards, typically under programs such as the EU Emissions Trading System (ETS) and the ICAO Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). These certificates are essential, as they allow airlines to claim verified carbon reductions from their SAF use and count them toward regulatory compliance and emissions reporting requirements.
Recently, airlines across Europe, such as Ryanair, Lufthansa, and Air France-KLM, expressed concerns about paying high premiums for SAF. As shown in Exhibit 1 from ADI’s SAF Tracker, the current average SAF prices are already ~2.5 times higher than jet fuel prices. More so, fuel producers often impose a surcharge on airlines to cover additional costs for meeting SAF mandates. Additionally, airlines are typically locked into bundled supply agreements that include both conventional jet fuel and SAF, as most European producers use co-processing to produce SAF. When these fees are included, SAF prices in the EU and UK rise even more, reaching nearly $10 per gallon.
Exhibit 1. Average jet fuel, SAF, and EU and UK SAF prices in U.S. dollars per gallon.
Yet, despite paying significant premiums for SAF, airlines do not receive the necessary certificates to verify their SAF purchases. As a result, airlines must absorb the extra costs of SAF premiums without the ability to claim CO2 emissions reductions under the EU ETS or ICAO’s CORSIA scheme. Even so, the number of estimated projects that are fully verified and approved under CORSIA remains very limited. Some suppliers and traders are trying to increase activity by offering to deliver eligible credits at a fixed future date, often from projects that are only partially eligible today but are expected to become fully approved by the time of delivery.
According to the recent International Air Transport Association (IATA) report, airlines are expected to pay an additional ~$1.7 billion in surcharge fees to meet Europe’s carbon pricing and SAF mandates in 2025. To help cover these additional SAF costs and stimulate demand, the European Commission has allocated ~$116 million in carbon allowances to ~53 airlines under the EU ETS over the past two weeks. To address the certification issues, ICAO’s CORSIA Phase 1 announced a list of suppliers and traders offering “guaranteed” CORSIA delivery contracts. Despite these efforts, there is still considerable uncertainty for buyers, adding to risk.
The EU SAF market is at a pivotal point. Lack of standardization of verification will impact the EU SAF market across the value chain. Similarly, SAF markets in Asia Pacific are also facing challenges with rising certification and compliance costs. Without a clear, transparent, and standardized certification framework, SAF producers may struggle to reach final investment decisions (FID) as airlines hesitate to commit to long-term offtake agreements, and passengers could face higher ticket prices. As mentioned in our previous blog, “South Korea joins the SAF chorus with a new roadmap”, industry players at the recent Asia-Pacific Petroleum Conference (APPEC) 2025 highlighted that certification and compliance costs are the key factors pressurizing SAF margins. EU’s SAF framework must ensure that SAF purchases are supported by clear and transparent certification to give airlines more flexibility to negotiate dedicated SAF supply agreements and drive adoption. Besides, refiners and corporates must have proportional SAF in their sales, placing equal obligation at their end to comply and verify SAF use.
– Christine Ho and Panuswee Dwivedi
About ADI Analytics
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