UK Government Proposes Fuel Levy to Support Sustainable Aviation Fuel Revenue Mechanism

The UK government has initiated a brief consultation to explore funding options for a proposed price guarantee mechanism aimed at reducing revenue uncertainties for Sustainable Aviation Fuel (SAF) producers in the UK. Following a previous consultation on the mechanism’s structure, the government now suggests that the chosen Revenue Certainty Mechanism (RCM) be financed through a levy on jet fuel suppliers.

The primary goal of the RCM is to ensure a stable income for SAF producers, regardless of price fluctuations in the market. This stability is intended to help airlines maintain lower costs while instilling confidence in potential investors, who have yet to emerge in significant numbers. Having already provided support to various SAF production start-ups through its Advanced Fuels Fund and implemented a SAF mandate in January, the RCM is anticipated to be the final component needed to stimulate a UK SAF industry.

The government stated, “The RCM, combined with the mandate, will contribute to our net-zero goals, allowing the aviation sector to continue growing, including through airport expansions.” This initiative is also expected to attract substantial investment in the SAF sector, creating green jobs, promoting innovation, and driving growth as part of the government’s Plan for Change.

The RCM is designed as a temporary measure to address the uncertainties in SAF market prices, drawing parallels with similar mechanisms used in other renewable energy sectors. By keeping SAF prices manageable for airlines, the RCM aims to protect travelers from significant fare increases, promising that any price rises will align with usual ticket price variations.

Furthermore, the government has committed to monitoring the mechanism’s impact and managing liabilities by capping support to a pre-determined volume of SAF and agreeing on strike prices within contracts. The UK airline industry has expressed its support for the RCM, viewing it as a means to boost SAF production and comply with the mandate, which requires a 10% SAF blend in all jet fuel by 2030, with increasing percentages over time.

Tim Alderslade, Chief Executive of Airlines UK, remarked, “We look forward to collaborating with the government on its design, focusing on fostering a competitive market and supporting pioneering plants. The aim must be to produce as much SAF as possible at the lowest cost for consumers, facilitating the industry’s transition to net zero while minimizing passenger impact.”

Gaynor Hartnell, Chief Executive of the Renewable Transport Fuel Association, added, “The RCM is crucial for enabling SAF production in the UK rather than relying on imports. Domestic SAF production leads to more jobs and enhances fuel security.”

The government’s preference for an industry-funded price support mechanism is grounded in the ‘polluter pays’ principle applicable to hard-to-abate sectors like aviation, drawing from precedents established by other low-carbon energy initiatives. Its analysis suggests that the necessary funding could be modest and that the RCM will function more as an insurance mechanism.

The proposed funding model involves a variable levy on aviation fuel suppliers, allowing costs to be distributed across the supply chain and ensuring that those benefiting from fossil aviation fuel bear the costs. The consultation document states, “Aviation fuel suppliers will also benefit from the additional SAF production stimulated by the scheme, helping them meet their SAF Mandate obligations.”

The levy will cover payments to SAF producers and the costs associated with administering the scheme, aligning with existing renewable electricity and hydrogen programs. The government anticipates that the costs and total levy amount will fluctuate over time, tied to changes in the price of UK-supplied non-Hydroprocessed Esters and Fatty Acids (non-HEFA) SAF. The most significant variations are expected in the early years of the scheme when limited SAF volumes may not fully offset external price shocks.

For the fuel suppliers required to pay the levy—estimated to number around 20—individual contributions will be determined based on market share. For instance, a supplier that accounts for 20% of the total UK aviation fuel supply would be responsible for 20% of the scheme’s funding requirement.

Notably, the consultation document indicates that UK-produced power-to-liquid SAF may encounter significant challenges, based on updated analyses of production costs and the corresponding SAF mandate buy-out price for the PtL fuel obligation. The government plans to engage with stakeholders to address this issue.

The consultation will run from March 3 to March 31, with the Sustainable Aviation Fuel (Revenue Support Mechanism) Bill scheduled to be introduced in Parliament in the spring, and the necessary legislation expected to be finalized by the end of 2026.