Sylvie Willis
Sustainable aviation fuel (SAF) is a promising solution to the aviation industry's contribution to global warming, currently estimated to account for 2.5% of human-caused CO2 emissions and 5% of all emissions of greenhouse gases. While the SAF market is still in its early stages, with less than 1% of aviation fuels used in Europe being SAFs, there is a growing demand for these fuels, with about 40 airlines committing to using some 13 million metric tons of SAF by 2030. The price markup of SAF compared to fossil-based jet fuel is a key consideration, with estimates ranging from 9% to 16% per ton by 2038-2040, depending on the adoption scenario. Long-haul routes may see a higher markup of up to 6% in 2038. Despite the higher cost, there is a demonstrated willingness from airlines and corporates to pay a premium for SAF, indicating that the economic feasibility of SAF may be manageable and even accelerated by increasing regulatory requirements and customer preferences for sustainability.
| Characteristics | Values |
|---|---|
| Cost compared to fossil-based jet fuel | Higher |
| Cost markup | Manageable for airlines and customers |
| Cost markup under the EU Quota pathway | 9% per ton |
| Cost markup under the IEA Net Zero pathway | 16% |
| Cost markup for long-haul flights | 6% |
| Cost markup for short-haul flights | 2% |
| Cost markup for low-cost carriers | Twice that of full-service network carriers |
| Customer willingness to pay | Strong |
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What You'll Learn
The cost markup of SAF compared with fossil jet fuel
Sustainable aviation fuels (SAFs) are new non-fossil fuels projected to reduce aviation greenhouse gas emissions by 53% while still using existing infrastructure. SAFs are currently being blended with fossil kerosene, and their capacity to reduce emissions varies based on the feedstock used and the transition pathway. Despite their potential, SAFs face adoption challenges due to their higher cost and the required upfront capital expenditure.
The cost markup of SAFs compared to fossil jet fuel is a critical factor in assessing their economic feasibility. PwC conducted an analysis of the costs of SAF adoption from 2025 to 2050, considering two scenarios with different SAF blending ratios. Under the first scenario, based on the EU's ReFuelEU Aviation directive, the SAF cost markup peaks in 2040 at 9% per ton. In contrast, under the second scenario, the International Energy Agency's (IEA's) Net Zero by 2050 pathway, the maximum markup is about 16% in 2038. Long-haul routes typically experience a higher markup per flight, at 6% in 2038 compared to 2% for short-haul routes on the IEA Net Zero pathway. Additionally, low-cost carriers (LCCs) face almost double the cost markup compared to full-service network carriers (FSNCs).
While SAFs have a higher upfront cost, the long-term benefits and potential price reductions cannot be overlooked. As production scales up, costs may decrease, narrowing the gap between fossil fuels and SAF prices. Additionally, the willingness of airlines to pay a premium for SAFs and the increasing customer demand for sustainability are encouraging factors. RMI and the Mission Possible Partnership's survey of 23 companies revealed a promising outlook, with airlines indicating a substantial willingness to pay for SAFs.
Despite the manageable cost markup indicated by PwC's findings, the SAF market is still in its early stages. The supply and demand dynamics must accelerate to meet emissions reduction targets and mitigate the impacts of climate change. Governments are providing incentives to boost supply, but clarity on demand, especially customer willingness to pay, is crucial for attracting investors to SAF projects. As the aviation industry contributes significantly to global warming, the transition to SAFs is essential for a more sustainable future.
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Impact of airline business model and route length
The impact of the airline business model and route length on the cost of sustainable aviation fuel (SAF) is a complex issue that is still evolving. SAF is projected to reduce aviation greenhouse gas (GHG) emissions by 53%, but currently, less than 1% of aviation fuels used in Europe are SAFs due to their higher cost and upfront capital expenditure.
Long-haul routes and low-cost carriers (LCC) experience the biggest markups in the transition to SAF, with costs potentially twice as high as for short-haul routes and full-service network carriers (FSNCs). For example, on a typical long-haul flight like Munich to New York, economy-class fares would rise by around US$10–$17, while non-economy fares would increase by US$36–$63. These cost increases are due to the higher fuel costs of SAF, which are currently two to three times higher than fossil jet fuel.
The higher costs of SAF for long-haul and low-cost carriers can be influenced by various factors, including the feedstock used and the transition pathway. Geopolitical tensions affecting feedstock exports and rising feedstock prices impact the production and cost outlook for SAF. Additionally, the airline business model, such as the ability to distribute additional costs across different customer segments, can play a role in mitigating the impact of higher SAF prices.
However, the good news is that airlines have shown a willingness to pay a substantial premium for SAF, indicating that the cost markup may be manageable for both airlines and customers. Customers are increasingly willing to pay extra for sustainability, and regulations and voluntary commitments from airlines are driving demand for SAF. As production scales up and costs come down, the price gap between fossil fuels and SAF may narrow, accelerating the transition to more sustainable aviation.
Overall, while the impact of the airline business model and route length on SAF costs is significant, the evolving dynamics of supply, demand, and collaboration between stakeholders will shape the future of SAF pricing and its role in decarbonizing the aviation industry.
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Customers' willingness to pay for sustainability
Sustainable aviation fuel (SAF) is a "drop-in" fuel that can be used in existing aircraft without any modifications and has the potential to reduce emissions from flying by between 70% and 90%. However, the SAF market is still in its early stages, and supply and demand are not growing fast enough to meet emissions reduction targets. While governments are providing incentives to boost supply, there is less clarity on demand, particularly regarding how much customers are willing to pay for SAF. This makes SAF projects less attractive to investors.
To address this knowledge gap, RMI and the Mission Possible Partnership conducted a survey of 23 companies, examining their willingness to pay (WTP) for SAF and SAF certificates (SAFc). The survey focused on two primary groups of SAF buyers: airlines and logistics service providers, and corporate customers. Airlines and logistics service providers showed an average WTP of $6 per gallon for SAF, almost three times the current price of fossil jet fuel. This indicates a strong commitment to sustainable practices, even when it comes at a higher cost. However, due to thin margins, this "green premium" will likely be passed on to customers in the form of increased ticket prices, as is common for products with environmental benefits. Corporate customers, on the other hand, demonstrated an average WTP of $300 per ton of CO2 emissions abated for SAFc, with some variation across sectors.
The findings from this survey signal a promising future for SAF, with airlines and corporates showing a willingness to pay a premium. As production scales up and costs potentially decrease, the price gap between fossil fuels and SAF may narrow, further accelerating adoption. This demonstrated willingness to pay for SAF represents a pivotal step toward decarbonizing the aviation sector and sends a strong signal to producers, investors, and policymakers that demand for sustainable alternatives is growing.
While the survey provides valuable insights, further research is needed to fully understand the demand for SAF and accelerate its adoption. Additional studies should focus on the impacts of legacy procurement practices and the relationship between decarbonization budgets and WTP. Furthermore, there has been limited research into the public's WTP for low-carbon jet fuels (LCJF), with only a few studies examining citizens' perceptions, attitudes, and WTP for premium ticket prices. These studies have identified social trust, perceived risks, and attitude as key factors influencing WTP.
In conclusion, the aviation industry is taking steps towards sustainability, and the survey results indicate a positive outlook for SAF adoption. However, more comprehensive research and market studies are required to enhance transparency, attract investors, and meet emissions reduction targets.
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Cost of SAF adoption from 2025 to 2050
Sustainable aviation fuel (SAF) is a promising solution to the aviation industry's contribution to global warming, currently estimated at 2.5% of human-caused CO2 emissions. However, the SAF market is still in its early stages, with less than 1% of aviation fuels used in Europe being SAFs. This is due to the higher cost of SAF and the upfront capital expenditure required, which has led to muted demand.
To address this challenge, PwC conducted an in-depth analysis of the costs of SAF adoption from 2025 to 2050, considering two ramp-up scenarios with different SAF blending ratios. The first scenario, the "EU Quota Pathway," is based on the EU's ReFuelEU Aviation directive, while the second follows the International Energy Agency's (IEA's) Net Zero by 2050 pathway.
The analysis found that under the EU Quota Pathway, the SAF cost markup peaks in 2040 at 9% per ton. In contrast, under the IEA Net Zero pathway, the maximum markup is about 16% in 2038. Long-haul routes see the biggest markup per flight, at 6% in 2038 compared to 2% for short-haul flights on the IEA Net Zero pathway. Additionally, low-cost carriers (LCCs) experience a cost markup nearly twice that of full-service network carriers (FSNCs).
Despite the higher costs of SAF, there is a growing willingness among airlines and corporates to pay a premium for SAF and SAF certificates. This signals a strong demand for sustainable aviation alternatives and encourages producers, investors, and policymakers to accelerate the adoption of SAF. As production scales up and costs potentially decrease, the gap between fossil fuel and SAF prices may narrow, making SAF a more economically feasible option.
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The role of regulatory requirements
The aviation industry is currently responsible for about 2.5% of human-caused CO2 emissions and 5% of all greenhouse gas emissions. As the world works to limit the effects of global warming, the industry is under pressure to reduce its environmental impact. Sustainable aviation fuels (SAFs) are one solution, with the potential to reduce emissions by up to 90%. However, the high cost of SAFs and the required upfront capital expenditure are barriers to their widespread adoption.
Regulatory requirements play a crucial role in addressing these challenges and accelerating the transition to SAFs. Governments and regulatory bodies are implementing policies and incentives to boost the supply of and demand for SAFs. For instance, the EU's ReFuelEU Aviation directive sets targets for the increased use of SAFs, while the International Energy Agency's (IEA's) Net Zero by 2050 pathway provides a framework for achieving carbon neutrality in the aviation sector. These regulatory initiatives send a clear signal to the market, encouraging investment in SAF production and infrastructure.
Additionally, regulatory requirements drive the transparency and reporting of emissions data. As more companies commit to transparent emissions reporting and ambitious greenhouse gas reduction goals, the demand for SAFs is expected to increase. This transparency enables corporates to make informed decisions about their fuel choices and supports the development of a robust market for SAFs. Furthermore, regulatory standards and certifications, such as SAF certificates, enable companies to demonstrate their sustainability efforts and meet their decarbonization targets.
The tightening of regulatory requirements also influences customer behaviour and preferences. Customers are increasingly willing to pay extra for sustainability, which further drives demand for SAFs. This shift in consumer behaviour is crucial in encouraging airlines and fuel producers to adopt SAFs. Regulatory requirements, therefore, play a pivotal role in addressing the challenges of high costs and limited demand, accelerating the transition to SAFs, and ultimately contributing to the aviation industry's efforts to mitigate its environmental impact.
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Frequently asked questions
The cost of sustainable aviation fuel (SAF) is calculated daily and varies depending on location and the feedstock used. The Argus SAF 100 Index calculates the price for the US West Coast, including federal and state environmental credits.
The cost markup of SAF compared to fossil-based jet fuel is higher, but the difference is projected to be manageable for airlines and customers. Under the EU's ReFuelEU Aviation directive, the SAF cost markup peaks in 2040 at 9% per ton, while under the IEA Net Zero pathway, the maximum markup is about 16% in 2038.
The demand for SAF is expected to rise as more companies commit to transparent emissions reporting and ambitious greenhouse gas reduction goals. However, there is a lack of clarity on how much customers are willing to pay for SAF, making projects less attractive to investors.
SAF can reduce emissions from flying by between 70% and 90%. SAFs are projected to slash aviation GHG emissions by 53% while still using existing infrastructure as they can be used in current aircraft without modifications.
