The U.S. and Europe Can’t Agree on What Counts as Sustainable Aviation Fuel. That’s Leaving Investors in a Bind.

Source: By Claire Brown and Yusuf Khan, Wall Street Journal • Posted: Monday, June 24, 2024

Confusion swirling against a backdrop of failed investment in the alternative fuel industry

Fuel producers and airlines are scratching their heads over how best to invest their cash RALPH ORLOWSKI/REUTER

Airlines see sustainable aviation fuel as the only realistic way for the industry to decarbonize. World governments are helping to accelerate production with generous incentives and strict mandates.

At issue is a debate about what goes into the fuel that powers planes, with confusion swirling against a backdrop of failed investment in the alternative fuel industry.

Right now, for example, almost everyone agrees that used cooking oil can be used to make SAF. But a glut of overseas imports recently raised suspicions the U.K. market was flooded with fake oil (that is, virgin oil that was never actually used for cooking). The British government has imposed a cap on the amount of SAF that can be made using this method.

In Europe, regulators are effectively excluding “crop-based” feedstocks such as corn, soy and sugar cane from a new mandate Photo: stefani reynolds/Agence France-Presse/Getty Images

An even bigger issue is emerging between the EU and the U.S. In Europe, regulators are effectively excluding “crop-based” feedstocks such as corn, soy and sugar cane—basically anything that could be used for human food or animal feed—from a new mandate, meaning they can’t be counted toward a SAF quota rolling out next year. Meanwhile, the U.S. says that fuels made with these inputs can be eligible for tax credits as long as they meet certain requirements.

Types of Sustainable Aviation Fuels

Hydroprocessed Esters and Fatty Acids (HEFA)

Usually made from used cooking oils, fats and vegetable oils, the initial feedstock is turned into fuel by removing oxygen by combining it with hydrogen. Then the remaining hydrocarbon chain is transformed into jet fuel through a process known as cracking.

Alcohols to Jet (AtJ)
Here oxygen is removed from alcohols like ethanol or iso-butanol and then linking the remaining molecules together into a chain long enough to create the same hydrocarbons used to make jet fuel. The process starts with ethanol, which can be made from corn, sugarcane, or other feedstocks.
Biomass Gasification + Fischer-Tropsch (Gas+FT)
In a multi-step process biomass and other waste products are digested to eventually produce carbon monoxide and hydrogen, at which point the molecules can be combined to create jet fuel.
Power to Liquids
The newest of the processes, here green hydrogen is produced from electrolysis of water. That hydrogen is then combined with carbon dioxide to synthesize liquid hydrocarbons which are then refined into jet fuels.

Airlines, investors and SAF producers are caught in the middle.

“For airlines and for businesses that travel internationally, it does create a lot of confusion and uncertainty, and sometimes a reticence to enter the market,” said John Dees, senior decarbonization scientist for carbon management firm Carbon Direct.

“They don’t know how their purchase of SAF is going to be treated, whether it will qualify under a regulation or whether it’ll be admissible under a voluntary standard.”

The carrot, the stick, and the cornstalk

Starting next year, flights taking off from EU airports will need to be filled with at least 2% sustainable aviation fuel in addition to conventional jet fuel. The proportion ramps up to 20% by 2035.

The mandate, called ReFuelEU, applies to all airlines that operate in the region—not just European operators—and will eventually require that fuel blends contain a minimum level of synthetic fuels manufactured with captured carbon.

The U.S. by contrast adopted an incentives-driven policy, offering a sliding-scale tax credit of $1.25 to $1.75 a gallon for fuels that achieve life-cycle emissions savings of 50% or more compared with jet fuel.

The main confusion comes from what actually counts as SAF and whether it’s good for the environment.

EU regulators worry that the inclusion of crops will increase demand and result in deforestation or farmland being switched from food to fuel. U.S. businesses argue that SAF feedstocks will come from corn acreage that is already being farmed. How much carbon is actually saved is also debated.

“Under the Renewable Energy Directive, we agreed on a minimum greenhouse gas emissions reduction threshold of 65% for biofuels,” a European Commission representative said. “Most, if not all, biofuels produced from food and feed crops are unlikely to meet the threshold. The U.S. opted for a lower level of minimum 50%.”

Critics of the European policy argue that by excluding crop-based fuels and mandating synthetics, ReFuelEU just makes a key product for decarbonization pricier. Prices for SAF delivered in California sat at roughly $5.34 a gallon in June, compared with just above $3 a gallon for ordinary jet fuel, according to data from pricing agency Argus Media.

Ground crew prepare an Emirates aircraft. Photo: giuseppe cacace/Agence France-Presse/Getty Images

“Will it make flying from Europe more expensive? Probably,” said Tom Michels, director of government affairs at United Airlines, referring to the EU mandate.

Crop-based biofuel isn’t entirely banned in the EU. While it won’t count against the mandate, airlines who want to meet additional SAF goals can still use it as a supplement. By 2030, for example, when EU says all flights should run on 6% synthetic SAF, Irish budget airline Ryanair has a 12.5% renewable-fuel goal. In theory it could use a fuel blend of 6% synthetic and 6.5% crop-based SAF to power its planes.

Ongoing confusion 

Amid the uncertainty, those within the industry say fuel makers, airlines and investors are unsure where to put their money.

“The signal in the U.S. is ‘invest in corn and soybeans,’ whereas the EU regulator is pushing harder on synthetic SAF and trying to avoid competition between SAF and food production,” said Nic Lockhart, partner at law firm Sidley. “These differences undermine investment in SAF production because regulators are pointing investors in different directions.”

SAF producers are also on wobbly ground. In the past month, California-based Fulcrum BioEnergy, which had raised over $1 billion to create biofuels from household waste, has teetered on the edge of bankruptcy.

Gevo, a Colorado-based startup, which has the largest amount of SAF committed to buyers, according to a tracker maintained by the United Nations’ International Civil Aviation Organization, is a penny stock and faces being delisted from the Nasdaq. It produces SAF through the alcohol-to-jet route. LanzaTech, which owns a quarter of LanzaJet, a startup backed by oil giant ShellBritish AirwaysAll Nippon Airways, Suncor and Mitsui, is also failing to turn a profit with its SAF-from-ethanol operation.

LanzaJet, the Renewable Fuels Association (where Gevo is a member), and other U.S. ethanol groups have filed to join a lawsuit brought by EU ethanol producers challenging ReFuelEU.

“We’re trying to change things and make things real and abate carbon,” said Gevo CEO Patrick Gruber. “I believe in it deeply. And policy where it’s so restrictive that nothing will ever get done is crazy. It’s ridiculous.”

“The signal in the U.S. is ‘invest in corn and soybeans,’ whereas the EU regulator is pushing harder on synthetic SAF and trying to avoid competition between SAF and food production,” says Nic Lockhart, partner at law firm Sidley. Photo: Daniel Acker/Bloomberg News

For private investors, the cost of investing in new technologies is also a problem. Jason Cheng, CEO of climate-focused private-equity company Kerogen Capital said that he has primarily focused on investing in the fats and oil route known as hydroprocessed esters and fatty acids, or HEFA, because that pathway has been proven at scale and isn’t too costly to set up.

“We are going to need other pathways [to produce SAF]. The problem is investors do not think like that. We just invest in proven technology,” said Cheng.

Corporate customers looking to reduce the impact of employee air travel are also facing uncertainty about which SAF products will qualify for the nascent voluntary carbon market. A recent EU greenwashing investigation into 20 airlines over SAF claims raised the specter of reputational risk. Last year, less than half as many SAF-purchasing commitments were announced as in 2022.

Eni’s Enilive biorefinery in Gela, Sicily, Italy: Photo: Eni

Still, for some producers, like Italian energy producer Eni, it’s just a matter of working the regulations in your favor.

“It’s just a different diet in terms of feedstocks,” said Stefano Ballista, chief executive of Enilive, the company’s decarbonization arm.

Eni is targeting production of 5 million tons of biofuels a year split between two plants in Italy largely made with municipal waste, to fit with the requirements from the EU and a plant in Louisiana that will use crops like soy and corn on top of other fats and waste residues.

“It’s going to be volatile in the development stage,” Ballista said, “As a strategy, biofuels are key to the energy transition and accelerating the transition in the transport sector. It’s a core part of our business plan.”

Write to H. Claire Brown at and Yusuf Khan at