Response: Revenue certainty options to support a sustainable aviation fuel industry in the UK 

Earlier this year, the UK government called for responses to inform its consultation on a revenue certainty mechanism to support sustainable aviation fuel (SAF) producers. The SASHA Coalition submitted a response emphasising that:

• A revenue certainty mechanism will be important in addressing barriers to investment in SAF production, particularly for e-fuels.

• HEFA-based SAF (made from waste oils) should not be covered by the revenue certainty mechanism.

• The revenue certainty mechanism must be industry funded.

Consultation response

Section 1: Strategic case 

Q 1: Do you agree with the rationale for implementing a revenue certainty mechanism? If not, why not? 

We agree with the rationale for introducing a revenue certainty mechanism. As outlined in the consultation document, aviation is a significant contributor to UK greenhouse gas emissions – with the true climate impact of aviation likely higher when accounting for the non-CO2 impacts. Sustainable aviation fuels (SAF) will play a role in lowering this figure, but they have the greatest potential to do so when the SAFs with the greatest emission reduction potential – those produced using green hydrogen – are incentivised over other, less sustainable alternatives.  

A revenue certainty mechanism will be important in addressing barriers to investment in SAF production. This is particularly important for SAFs produced using green hydrogen, where the nascency of technology and higher costs associated present increased barriers to projects reaching final investment decision (FID). With further investor confidence, as seen in other industries such as low carbon electricity through the contract for difference (CfD) scheme, we believe that the introduction of a revenue certainty scheme for SAF will be important for incentivising investment in UK e-fuel (SAF) production. Furthermore, scaling eSAF production supported by the mandate and a well-designed RCM will lead to increased hydrogen production, complimenting UK H2 targets and, ultimately, improving economies of scale and reducing cost. When more efficient and cleaner hydrogen propulsion systems for aircraft are available - per studies like the ATI’s Fly Zero and commercial plans by the world’s largest airframe manufacturer Airbus – this will enable improved economics for the transition to direct hydrogen fuel, and thus zero-carbon commercial flight at scale.  

We agree that the UK is well placed to become a global leader in the production of green hydrogen-derived fuels for the aviation industry, and that this will bring further benefits in supporting a just transition for workers and providing good jobs across the country. Alongside ambitious regulations that send a strong demand signal for green-hydrogen derived fuels for aviation, a revenue certainty mechanism will further incentivise domestic production of these fuels.  

Section 2: Scope 

Q 2: Do you agree or disagree that HEFA-based SAF should not be covered by the proposed revenue certainty mechanism? Please provide supporting evidence. 

We agree that HEFA-based SAF should not be covered by the proposed revenue certainty mechanism. Not only are HEFA-based SAF production routes at a more mature stage of development when compared to other, more nascent SAF production routes, but they also face feedstock availability challenges and do not offer the emission reduction potential of fuels produced using green hydrogen and a renewable source of carbon dioxide, such as from DAC. If the mechanism was to cover HEFA-based SAF, there is a risk that it would lock-in investments into fuels that long-term do not provide a sustainable pathway towards decarbonising aviation.  

Research from Transport and Environment recently identified 45 e-kerosene projects in the European Economic Area (EEA) – but crucially none of the 25 major projects within this study had reached final investment decision. With high production costs for these fuels a significant barrier to securing offtake agreements with airlines, it is clear that further incentives beyond a SAF mandate will be necessary to scale e-fuel production. Thus, any revenue certainty mechanism should be targeted towards incentivising the fuel production pathways that face the greatest barriers to investment – namely e-fuels.  

Section 3: Revenue certainty mechanisms 

Q 3: Do you agree with our explanation of the Guaranteed Strike Price mechanism? Is there anything else we need to consider?  

We agree with your explanation of the Guaranteed Strike Price Mechanism.  

Q 4: Do you agree with our explanation of the Buyer of Last Resort mechanism? Is there anything else we need to consider?  

We agree with your explanation of the Buyer of Last Resort mechanism.  

Q 5: Do you agree with our explanation of the Mandate Auto Ratchet mechanism? Is there anything else we need to consider?  

We agree with your explanation of the Mandate Auto Ratchet mechanism.  

Q 6: Do you agree with our explanation of the Mandate Floor Price mechanism? Is there anything else we need to consider?  

We agree with your explanation of the Mandate Floor Price mechanism.  

Section 4: Options assessment and conclusions 

Q 7: Do you agree or disagree that the Mandate Auto Ratchet option should not be taken forward? Please provide supporting evidence where possible. 

We agree that the mandate auto ratchet should not be taken forward as the preferred option. While the scheme has the potential to be up and running sooner, we don’t believe it offers sufficient confidence to investors (for example, the ability to be amended in the future by secondary legislation) and lacks targeting towards the UK SAF market.  

Q8: Do you agree or disagree that the Mandate Floor Price option should not be taken forward, even if can be delivered sooner than the private law contract mechanisms? Please provide supporting evidence where possible. 

We agree that the mandate floor price should not be taken forward as the preferred option. Similarly to the mandate auto ratchet, we see a risk with the ability for the mechanism to be amended by secondary legislation and the impact of this on investor certainty, and the lack of specificity it offers to support the UK SAF market.  

Q 9: Do you agree or disagree that the certainty required by the investment community is best achieved through a private law contract between a producer and Government (or Government backed counterparty)? Please provide supporting evidence where possible. 

We agree that mechanisms that provide a private law contract between a producer and government achieve the best certainty to the investment community. While the legislative action required means that any mechanism would take longer to implement, we believe that this risk is lessened by the greater legal certainty that producers get. The additional focus that a private law contract approach provides to UK produced SAF in particular is a further advantage when viewing the mechanism as a route to promote UK e-fuel production. However, to mitigate the risk of a long lead in time for the mechanism to be established, the government should prioritise the delivery of the revenue certainty mechanism post election to ensure that the UK retains a first-mover advantage in the production of e-fuels for aviation.  

Q 10: Do you agree or disagree that the GSP should be the preferred option to consider developing of the two private law contract options? Please provide supporting evidence where possible. 

We agree that the guaranteed strike price should be the preferred option to consider developing. Alongside there being a precedent for this format from the energy sector that will bring increased investor confidence and a point of reference for developing the scheme, we see this route as being key to ensuring that the mandate targets UK SAF production in a way that more effectively reflects the full price of SAF (as opposed to the value of SAF certificates under the buyer of last resort mechanism).   

We do recognise the risk associated with the legislation for the guaranteed strike price likely only being delivered at the end of 2026 at the earliest, and for that reason note that the government post-election should make delivery of the mechanism a priority for mitigating the risk of slow delivery.  

Under this route, we also want to reinforce the importance of the revenue certainty mechanism being industry funded. Currently, international aviation is not in the UK ETS and air passenger duty (APD) is not equivalent to VAT nor fuel tax, meaning that the full cost of fossil fuel use in aviation is not yet adequately priced: as such, any support to industry needs to ensure that the burden is not falling on the taxpayer. This should extend to the scheme being administered by a body that operates externally to the Treasury, in the manner that the Low Carbon Contracts Company operates for renewable energy generation. This will minimise the potential of Treasury money being used to administer the scheme.