RefuelEU regulation will drive demand for SAF in Europe

RefuelEU is the first step on the long road to decarbonise aviation and will have a significant impact on the evolution of demand for SAF in Europe.

Robin Nelson
Consulting Editor

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Article Summary

The European Union's ReFuelEU regulation is planned to come into effect from 1 January 2023, following the Trialogue negotiations between the three EU Institutions (EU Commission, Parliament and the Council of European Union) which started in September 2022.

European aviation fuel suppliers will have two years to prepare, then from 2025 will be required to blend a minimum volume percentage of SAF in the aviation fuel supply. The mandated levels increase in steps every five years and include separate targets for the share of sustainable biofuels (biojet) and synthetic aviation fuels (e-kerosene) (see Figure 1).

Biofuel components must meet the sustainability and greenhouse gas emissions criteria in the EU's Renewable Energy Directive (RED-II) and be certified in accordance with the directive (European Commission, 2022).

Although the EU Parliament proposed more ambitious targets for e-kerosene, the Council of Europe support the Commissions proposed targets, as shown in Figure 1, and subject to the Trialogue negotiations. These negotiations will also align on the feedstocks allowed for biojet and for e-kerosene. The ReFuelEU regulation is considered an important regulatory stimulus for the ongoing development and commercial scale-up of technologies to produce sustainable aviation fuels.

Scandinavian countries have set autonomous targets, mandating a minimum volume of SAF of 5% by 2025 and 30% by 2030 in their aviation fuel supply. European aviation kerosene demand in 2019, before the Covid-19 pandemic.

The European Commission's impact assessment for the RefuelEU regulation shows jet fuel demand for the EU-27 growing from 38 million tonnes (Mt) in 2010 (EU-27) to 50 Mt by 2050 in the base case scenarios (European Commission, 2021). This compares with 2019 actual demand in the EU-27 at 46 Mt (39.5 Mt international, 6.5 Mt domestic) (Eurostat, 2022a), (Eurostat, 2022b). Including UK demand at 12 Mt and Norway at 0.9 Mt results in a total European jet fuel demand of 59 Mt in 2019 (see Figure 2).

Impact of Covid-19 on aviation fuel demand in 2020-21
The dramatic curtailment in air travel during the Covid-19 pandemic resulted in a 55% fall in demand for aviation fuel in the EU-27 in 2020 (see Figure 2). In turn, the lower demand resulted in a zero to negative jet-fuel margin for most of 2020 into 2021. The International Air Transport Association (IATA) reported global passenger traffic had started to recover to 40% of 2019 levels in 2021 and 61% in 2022 (IATA, 2022a).

Global demand for air cargo or freight was more robust during this period, with demand in 2022 expected to be 13% above 2019 levels (IATA, 2021). The Air Transport Action Group (ATAG), in its Waypoint 2050 study, estimates air traffic demand globally is not likely to fully recover to 2019 levels until 2024 (ATAG, 2020).

European air traffic in the first six months of 2022 had recovered to nearly 80% compared with the same period in 2019 (IATA, 2022a), (IATA, 2022b). 

We are living in a time when the risks of disruptions such as the Covid-19 pandemic, worsening impacts of climate change, prolongation or escalation of conflicts, and economic recession are all too real. While scenarios can help, any exploration of future demand over a 25-year duration should include a note of caution.

ICAO aviation growth scenarios
The International Civil Aviation Organisation (ICAO) has published three scenarios looking at growth in passenger and freight traffic, post-Covid-19, with projections towards 2050. The growth forecasts for Europe, within the ICAO mid, high and low scenarios (ICAO, 2021), are summarised in Table 1.

IEA Energy Scenarios
The IEA lays out pathways for global aviation that are consistent either with its Sustainable Development Scenario, which aims to limit the increase in average temperature to 1.8ºC, or its more recent Net Zero Emissions (NZE) Scenario, which limits the increase in average temperature to 1.5ºC (IEA, 2021).

Fuel efficiency improvements
The ICAO scenarios look at growth in air traffic using passenger and freight volumes. Fuel efficiency improvements can temper the impact of traffic growth on fuel demand. In 2010 ICAO adopted a goal for an average 2% annual fuel efficiency improvement in international aviation. The IEA notes that the aviation industry achieved an average 2.4% fuel efficiency improvement between 2000 and 2010, then 1.9% between 2010 and 2019 (IEA, 2022). ICAO considers that the introduction of new aircraft with hybrid engines, along with other efficiency-enhancing features, could help achieve its target over the next decades. In the near term, the economic pain felt by the industry during the pandemic meant that while fleet owners took older, less efficient aircraft out of service, they also postponed purchases of the latest and most efficient aircraft.

European scenarios for SAF demand
This section draws on three of the published scenarios, the IEA NZE and SDS and the ICAO High Growth Scenarios, to explore how demand for SAF could evolve, should the levels proposed by the Commission by adopted.

Whilst the analysis described in this article is based on published scenarios, neither IEA nor ICAO were approached to endorse the subsequent analysis for Europe. To avoid any misperception, the European scenarios are identified as EU-27 NZE, EU-27 SD, and EU-27 HG.

UK focus is on domestic aviation
As the UK is following an independent strategy for aviation decarbonisation, UK figures are excluded from this analysis of the impact of EU regulation. The UK's - Jet Zero' strategy commits to net-zero emissions in UK domestic aviation by 2040 (UK Government, 2022), while the ReFuelEU regulation includes international departures from EU airports.

The average annual change in fuel demand under the three scenarios in Table 2 was used to explore the future demand for biojet and e-kerosene determined by the ReFuelEU mandate levels, assuming traffic demand in the EU will have fully recovered by 2025.

In the EU-27 NZE scenario, the average annual growth in aviation traffic in the EU is reduced to 1.8% a year.

Plausible changes in consumer behaviour that would be consistent with this scenario include a lower level of growth in business travel due to the normalisation of video conferencing, mainly for internal but also for a share of business-to-business meetings. Additionally, the EU and national governments could put in place measures to encourage a shift away from short-haul domestic travel to rail, such as more direct city-to city rail links.

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