Supporting Policies for Sustainable Aviation Fuels: Key Areas for Further Research

Although policies that require the aviation sector to reduce emissions already are in place, the deployment of sustainable aviation fuels is still in early stages. What research questions can help support the industry’s development?

California and a trade group comprising airline companies agreed in October to increase the production and use of sustainable aviation fuels (SAFs) in the state. California aims to increase the use of SAFs tenfold by 2035. SAFs are an alternative to conventional jet fuels that can help reduce greenhouse gas emissions from the aviation sector, which potentially could triple by midcentury compared to 2005 levels. The number of policies that support SAFs has been increasing, and the conversation around effective policies to support SAFs is evolving. In a previous blog post, we explored key considerations for policymakers in creating a robust policy framework for the promotion of SAFs. These considerations include potential reductions in greenhouse gas emissions; the cost of different raw materials and production pathways; alternative uses of resources outside the aviation sector; the economic, social, and environmental effects of different policy designs; and issues beyond the energy sector.

In this blog post, we build on these considerations and identify key research areas that can provide valuable insights for policymakers. In particular, we compare major policy approaches that currently are in effect and offer a list of potential questions for three areas of research: the cost, life-cycle emissions, and impacts of SAFs beyond the aviation sector; the effects of policies that aim to increase the demand for SAFs on the aviation industry; and the effects of policies that incentivize the production of SAFs on actual production and uptake.

Comparing Current Policy Approaches

Several types of policies are in place to stimulate the use of SAFs, both in the United States and globally. These policies offer different incentives for the use of SAFs and for technical innovation in SAF production.

The EU Emissions Trading System (ETS) is a policy that caps greenhouse gas emissions in the European Union, including aviation fuels on flights within the European Economic Area; requires emitters to hold allowances that are sufficient to cover their emissions; and permits individual emitters to buy or sell allowances that become available when emissions are reduced. The purchase and sale of emissions allowances provides clear economic signals for decarbonization in the aviation sector. The EU ETS also allows for flexibility in how emissions reductions may be achieved by individual sources, which encourages technological innovation.

In practice, the performance of any cap-and-trade system such as the EU ETS depends on the details of its implementation. Important factors include the total amount of emissions allowed in a given time period; the availability of allowances that emitters receive for free; and market dynamics, including the price of emissions allowances. Importantly, the limited geographical scope of the EU ETS may lead to carbon leakage, which refers in this case to flights and their emissions potentially shifting to regions outside the jurisdiction of the policy. For example, airlines may deploy higher-emissions aircraft on routes outside the European Union, or replace direct flights in the European Union with flights that have layovers outside the bloc.

The Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) was created by the International Civil Aviation Organization to help reduce global emissions from international flights. CORSIA operates by setting targets for the emissions reductions that airlines must achieve, either through the adoption of SAFs or the purchase of emissions credits from other sectors to offset their emissions. One concern is that the effectiveness of offsetting depends on the quality of the projects through which airlines purchase emissions credits. Moreover, since no underlying system exists to allow airlines to trade credits for offsets, CORSIA does not provide strong incentives for airlines to exceed their emissions-reduction targets.

The European Union, along with other countries including the United Kingdom and Japan, also have introduced mandates for the production and use of SAFs. While these mandates can be effective at creating demand and scaling up production in the short term, they are less cost-effective than a cap-and-trade system over the long term because they do not account for differences in costs that suppliers incur when meeting the mandates. In a cap-and-trade system, emissions trading provides larger economic rewards to producers that manufacture SAFs at a lower cost, which improves overall efficiency. Moreover, mandates typically create incentives only for the fuels that are mandated under a given program, which limits opportunities for technological innovation.

Finally, tax breaks that are based on production, such as those for SAFs in the Inflation Reduction Act, may be helpful in the short term by providing an economic cushion for fuel suppliers. But tax breaks are less cost-effective than a cap-and-trade system because they provide the same financial incentives to all suppliers, regardless of their production costs, which potentially misses opportunities to drive improvements in production efficiency. Tax breaks that depend on output also may be difficult to phase out once the market achieves sufficient economies of scale, at which point such incentives become unnecessary to stimulate growth.

The challenges of choosing among various policy approaches, reducing SAF costs, and scaling up production highlight several areas that need further research. Knowledge gained can support the development of more robust policies that help decarbonize the aviation industry. Some of these questions require additional data, while others can be addressed through simulations and modeling.

How May Cost and Life-Cycle Emissions Evolve for Sustainable Aviation Fuels, and What Are the Broader Impacts of Increased Adoption?

The cost of SAFs remains high, and the path toward a SAF industry with lower production costs is uncertain. Cost and emissions intensity are specific to individual fuels; so are broader spillover effects, like competition for raw materials across sectors. While nobody has a crystal ball that can predict cost and emissions intensity of SAFs in the future, policymakers can refine the strategies they implement by identifying the key drivers of these outcomes. As conditions evolve, this research can be updated to guide necessary policy adjustments. We believe that several questions will be important to answer in the near future, as outlined below.

How long will it take for the costs to come down for low-emissions SAFs, and what are some key uncertainties? The time needed to reduce costs will be especially important in gaining buy-in for policies that impose tighter limits on aircraft emissions. Key issues include scaling up novel SAF technologies, along with potential constraints on the availability of raw materials. An approach is needed that integrates technological and economic considerations.
How do synthetic fuels produced with advanced technologies compare with crop-based biofuels in terms of life-cycle emissions reductions, if alternative potential uses for renewable energy, hydrogen, and captured carbon are considered? This comparison is especially important given the existing mandates for the future use of synthetic fuels in the European Union and United Kingdom. Fuels that are produced with renewable hydrogen need to comprise 28 percent of all aviation fuels used in the European Union by 2050 and 3.5 percent of all aviation fuels used in the United Kingdom by 2040. 
How does indirect land use change (i.e., converting land to meet demand for certain crops or forest products) affect life-cycle emissions for crop-based SAFs? Indirect land use change remains a frequently cited, but under-researched, factor that affects the overall emissions impact of SAFs. Sorting through the ongoing disagreement between the United States and the European Union about what qualifies as SAFs could contribute to this research.
Beyond emissions reductions, what are the broader impacts of SAF production? Examples of broader impacts could include increases in food prices due to competition for raw materials such as corn. Understanding these impacts is crucial for developing a holistic view of the environmental and economic trade-offs associated with different production pathways for SAFs.

How Do Demand-Pull Policies Affect the Uptake of Sustainable Aviation Fuels, the Aviation Industry, and Emissions?

The policy options sketched out in the previous section affect demand for SAFs in different ways. Policies like CORSIA or the EU ETS create incentives for consumers of aviation fuels to demand low-carbon alternatives. However, the effectiveness of these policies, known as “demand-pull” policies, hinges on the details of their implementation. These policies may lead to unintended consequences, such as distortions to the market for aviation fuels. Research on the following questions can improve our understanding of the scale and efficacy of demand-pull policies.

How are airlines complying with CORSIA? To what extent are airlines purchasing emissions offsets or reducing emissions from their operations? How has CORSIA affected emissions from the aviation sector?
How could the price and availability of high-quality emissions offsets influence decisions to buy SAFs in accordance with CORSIA? Moreover, how can concerns be addressed about the lack of high-quality offsets that would be in accordance with CORSIA? The lack of high-quality offsets is important, given that CORSIA is the only global policy that addresses emissions from international aviation, which accounted for over 60 percent of all emissions from the aviation sector in 2018.
How has the EU ETS affected aviation emissions inside and outside the European Union? The limited geographical scope of the EU ETS raises concerns about carbon leakage if airlines seek to avoid EU jurisdiction in favor of the less binding constraints in CORSIA. These workarounds also could impact consumer welfare by altering the availability of flights, airline routes, and ticket prices. Does evidence exist of these workarounds in practice?
What are the effects of the EU ETS on airline competition, airfares, and the affordability of flights? The EU ETS will increase operating costs for airlines that operate in the European Economic Area, potentially putting these airlines at a disadvantage against non-EU competitors on international routes. The higher costs can be passed on to consumers, leading to increased airfares and potentially reducing the affordability of flights within Europe.
What are the likely effects of reducing the number of free allowances for EU emitters while introducing a reserve of free allowances for airlines that increase their use of SAFs? The European Union has recently reformed its EU ETS to phase out free emissions allowances for airlines by 2026 and introduce a reserve of 20 million allowances to support the adoption of SAFs. Fewer free allowances would increase the cost for airlines of complying with the EU ETS, which could increase airfares or lead to operational changes such as rerouting flights. A reserve of free allowances based on the increased use of SAFs could encourage the adoption of SAFs, but how large that effect might be is still uncertain.
How might fluctuating oil prices affect the competitiveness of SAFs? An understanding of the effect of oil prices on the competitiveness of SAFs is essential for the development of robust policies that ensure SAFs remain a viable alternative, regardless of conditions in the oil market.
What credible and practical policies could help finance an equitable transition to a low-carbon aviation sector? Examples of such policies could include surcharges for business-class tickets that are based on emissions, or taxes on frequent fliers.
How do different groups of consumers perceive SAFs? What factors most influence willingness to pay for air travel that is powered by SAFs? What can airlines accomplish by marketing the climate benefits of low-carbon fuels, and can this marketing potentially allow airlines to charge a premium for flights that produce lower emissions due to their use of SAFs, as verified by third parties?

How Do Supply-Side Policies Affect the Production of Sustainable Aviation Fuels and (Ultimately) Uptake?

Policies such as mandates and tax breaks for SAF production, known as “supply-push” policies, create incentives for increasing the supply of SAFs. However, the effect of these policies on demand ultimately depends on the extent to which they reduce the price of SAFs. Various research questions need to be addressed to improve understanding of the efficacy of supply-push policies, along with the scale of their effects.

What are the potential impacts of tax credits in the Inflation Reduction Act on SAF production costs, the price gap with conventional jet fuels, and overall SAF uptake? Understanding how these credits are affecting SAF costs and uptake can help policymakers refine policy design to effectively reduce aviation emissions. Additionally, understanding the distribution of the benefits of these subsidies among different stakeholders—such as fuel refineries, airlines, and farmers—can help quantify the effects of these policies on equity.
Can the Renewable Fuel Standard be reformed to provide more effective economic signals for producing alternative aviation fuels? Some raw materials that are used to produce SAFs also are used for renewable diesel, a low-carbon alternative used in road vehicles. The Renewable Fuel Standard, administered by the US Environmental Protection Agency, currently favors renewable diesel over SAFs by offering stronger incentives for its production. Research can help compare the potential benefits across these use cases and identify how policies can be reformed to maximize climate benefits.
How effectively have state-level policies boosted the production of SAFs? Could such state-level policies scale up to the national level? One relevant example is the Low Carbon Fuel Standard in California, which allows SAF producers to sell credits to fuel suppliers, which can be used to comply with the standard.
What are the likely impacts on SAF cost and uptake that result from policies which mandate a certain percentage of SAFs in jet fuels? These types of mandates already are in effect in the European Union and other regions.
How might different policies, such as SAF mandates and the EU ETS, interact? Could the combined effects of these policies differ significantly from what would be expected by considering the individual impacts of each policy?

Sustainably Fueling This Research

Answers to these questions can help policymakers support the production and use of SAFs more effectively and equitably—and create greater benefits in terms of mitigating greenhouse gas emissions. Industries, governments, and philanthropies that are working to achieve climate goals can help accelerate SAF deployment by funding researchers to study the questions that we’ve suggested. Collaboration among scholars and industry experts can further ensure that the most up-to-date information is used to answer these questions.

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