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From 2025, in application of the European ReFuelEU Aviation regulation, EU aviation fuel suppliers will have to incorporate a minimum of so-called sustainable aviation fuels (SAF) into the fuel mix they supply to EU airports. The implementation of this mandate is supported by a system of penalties dependent on the price of SAF, the levels of which will be set by Member States by the end of 2024. Fuel suppliers who fail to meet their quotas will face penalties of at least twice the price difference between fossil kerosene and SAF. This briefing shows that paying the penalties under RefuelEU would always be more costly than complying with the mandate, as long as the penalties are based on accurate price references. This is an important long term signal for the deployment of SAF.
However, despite the prospect of paying high penalties, legacy jet fuel suppliers are currently not involved in any major e-kerosene projects in Europe. This wait-and-see attitude jeopardizes the success of e-kerosene projects across the EU, which would need the financial capabilities of oil companies to develop. Jet fuel suppliers must start supporting the development of the e-kerosene market now, either by investing directly in the companies behind existing projects, by signing offtake deals with them, or by developing their own projects.
Only biofuels (mostly derived from waste oils and fats) are currently produced and sold in the EU. The price estimates available for this type of SAF would lead to a penalty close to 4,000 EUR per tonne. For so-called synthetic fuels, or e-kerosene, the penalty is more difficult to determine, as they are not yet available on the market. According to T&E's estimates, e-kerosene could be sold for 4,900 to 9,000 EUR per tonne, resulting in a penalty of 8,100 to 16,300 EUR per tonne of fuel not supplied.
Paying the penalty also does not exempt fuel suppliers from filling their quotas, which are simply carried over to the following year. Over the years, this mechanism makes the cost of non-compliance with the mandates very high, particularly for e-kerosene: if they totally fail to develop this fuel, suppliers could have to pay collectively up to 292 billion EUR in penalties between 2030 and 2035.
Any SAF mandate is as good as its enforcement mechanism, this is why T&E recommends the following to national policymakers:
It is most urgent to put an end to the uncertainty surrounding the level of the SAF and e-SAF penalties, which deprives project developers from the visibility they need to build their business cases. Member States must disclose their penalties by the end of 2024, as required by ReFuelEU.
To ensure consistency across the EU, Member States should base themselves on the price references contained in the forthcoming EASA report on ReFuelEU implementation, granted that report provides realistic estimations of e-SAF prices. Setting the penalties above 9,000 EUR per tonne would ensure they are higher than the price of e-kerosene in all scenarios.
Penalties will have to be updated regularly to take into account probable price fluctuations and ensure they remain always higher than the price of SAF.
Enforcing ReFuelEU is an opportunity to improve the transparency of the jet fuel market. For example, EASA’s annual technical report should include data about the annual volumes of jet fuel supplied by the main aviation fuel providers in Europe.
