Sustainable Aviation Fuel Bill

Thursday 20th November 2025 Lords Chamber

Second Reading

12:40

Moved by

[Lord Hendy of Richmond Hill]

That the Bill be now read a second time.

Scottish and Welsh legislative consent sought, Northern Ireland legislative consent granted.

[The Minister of State, Department for Transport (Lord Hendy of Richmond Hill) (Lab)]

My Lords, I am pleased to present the Sustainable Aviation Fuel Bill for Second Reading today. I welcome the right reverend Prelate the Bishop of Chester and congratulate him on his forthcoming maiden speech in your Lordships’ House today. I look forward to hearing his contribution to this important debate, and to his many contributions in the months and years ahead.

If we are to be an outward, confident trading nation that is connected to the world and leading the way on innovation, we must move as fast as we can towards a greener, cleaner future for flying. Domestic transport accounted for 29% of the UK’s greenhouse gas emissions in 2023. Aviation is currently the second largest contributor, and it faces unique barriers to decarbonisation. By 2040 it is set to overtake road vehicle use as transport’s largest emitter. SAF will be key to decarbonisation, a drop-in solution that can be used today in today’s aircraft with today’s infrastructure. SAF also has huge economic benefits for the wider low-carbon fuels industry, potentially supporting up to 15,000 jobs and contributing up to £5 billion to the economy by 2050.

SAF is not the only measure that we are supporting to address emissions in the aviation sector. The Government are supporting the development of more efficient and zero-emission aircraft technologies, and we have announced a further £1 billion of funding for the Aerospace Technology Institute to help to spur green aerospace innovation. The Civil Aviation Authority, supported by my department’s funding, is shaping regulations for zero-emission aircraft through its hydrogen challenge. Alongside that, we are advancing airspace modernisation to enable cleaner, quicker and quieter journeys. The Government are also establishing a UK airspace design service with the Civil Aviation Authority and the National Air Traffic Service, which are working together to launch this by the end of the year.

Turning to aviation fuel, the Government, alongside industry, are working collaboratively to ramp up the UK’s SAF industry. The UK stands at the forefront of global efforts to decarbonise aviation. When this Government came into power, we acted immediately by laying the statutory instrument for the SAF mandate, which came into force on 1 January this year. We have invested £63 million in 17 projects through the Advanced Fuels Fund, which will drive growth, support good jobs and deliver emissions reduction.

The revenue certainty mechanism introduced in the Bill is a scheme designed to support UK SAF production to drive growth and opportunity across the country. It addresses the lack of a clear and predictable market price for SAF, one of the biggest constraints on investment in UK SAF production. The RCM builds on the established precedent of contracts for difference in the renewables sector. Under the RCM, an SAF producer will enter into a private law contract with a government-owned counterparty that sets a guaranteed strike price for SAF. If SAF is sold for under that price, the counterparty will pay the difference to the producer. If SAF is sold above the price, the producer will pay the difference to the counterparty.

It is important to emphasise that no final decisions have been taken on how the strike price will be determined. The RCM contracts must set a strike price that finds a balance between securing the appropriate protection for the producer and its investors and providing value for money for the scheme and the wider sector. This is a new and emerging market. This will be the world’s first SAF RCM, and it will derisk SAF projects by addressing barriers to investment in a nascent market that is using innovative technologies. Like similar schemes in the low-carbon electricity sector, this will help to provide greater certainty of future revenue, help to attract investment in first-of-a-kind SAF plants, and support growth and opportunity across the country.

Turning to the SAF Bill, it has four key areas. First, it will enable the Secretary of State to designate a counterparty that is wholly owned by government. Secondly, the Secretary of State can direct the counterparty to enter into private law contracts with SAF producers, guaranteeing a price for the sale of eligible SAF over a period of time. The mechanism is there to support the development of a first-of-a-kind plant by increasing investor confidence. While first-of-a-kind plants are likely to be more expensive than future plants, supporting them allows future, cheaper plants to get constructed and start producing SAF. The contract allocation process will be designed to maximise competition, with all contracts to be underpinned by robust technical and commercial due diligence to ensure that successful projects represent value for money.

Thirdly, the Bill will enable the Secretary of State to make regulations imposing a levy on suppliers of aviation fuel in the UK, in order to fund the RCM. That will allow the counterparty to collect the levy to cover the costs of issuing payments under contracts that are administering the scheme. It is right that the costs of decarbonising air travel should at least be partially borne by the aviation sector rather than the taxpayer. We are levying aviation fuel suppliers because placing the levy higher up the supply chain spreads costs across the sector, and because aviation fuel suppliers will benefit from the greater volumes and lower prices for SAF that the RCM will create. The RCM will provide support only if SAF is actually being produced. If a project fails, there is no obligation on the Government to provide support. While novel technologies can have high failure rates, we can support multiple technology pathways to minimise risk and strengthen the UK’s project pipeline.

Fourthly, the Bill will enable the Secretary of State to enforce certain provisions imposing financial penalties. The Secretary of State may impose a financial penalty on a person who fails to comply with levy regulations, or with requirements under regulations made to ensure that any paid-out surplus is used to benefit fuel suppliers’ customers.

This is a comprehensive and focused Bill that lays the foundations for a thriving UK SAF industry by delivering investment certainty, cutting emissions and securing the long-term sustainability of the aviation industry. More SAF supply and lower prices are good for the aviation sector and, ultimately, for those who wish to fly. The Bill is an essential part of securing our world-class aviation sector’s future, and we want it to do that sustainably. I look forward to engaging with noble Lords on this legislation. I beg to move.

12:47

[Lord Davies of Gower (Con)]

My Lords, it is a pleasure to contribute to this debate on the Second Reading of the Sustainable Aviation Fuel Bill. I declare an interest as vice-chair of the Aviation All-Party Parliamentary Group.

I do not intend to make a lengthy speech, but I shall touch on the essential ingredient of the Bill: the introduction of a revenue certainty mechanism to support the production of sustainable aviation fuel in the UK. We know that the Government currently impose an SAF mandate on the aviation industry whereby 2% of aviation fuel used in the UK must be SAF. That target is set to rise to 10% by 2030 and 22% by 2040—somewhat ambitious, I believe; nevertheless, that is the target.

I have met and spoken to representatives of all aspects of the industry, at their request, over the last year—airport owners, airline representatives and SAF producers, to name but a few. They all have one thing in common: a genuine desire to see the introduction of lower-carbon alternatives to conventional aviation fuel, which is very encouraging, particularly when you look at some other sectors.

Worthy of mention, perhaps, is that, on the domestic front, in 2022 the Royal Air Force and industry partners carried out the world’s first 100% SAF flight, in an RAF Voyager, an Airbus product with, I might add, wings constructed in Wales. We know that most of the SAF currently produced is HEFA-based: that is to say, made from hydro-processed esters and fatty acids—hence the acronym HEFA—that are derived from oils or fats such as cooking oil. A 2025 market report produced by companies in the sector stated that globally, 82% of current SAF capacity relies on HEFA technology, which is limited by available feedstocks. Moving forward, we look to second-generation and third-generation SAFs from solid waste and other materials.

The Climate Change Committee, the independent adviser to the UK Government on climate risk, said in its 2025 report to Parliament that SAF supply was sufficient to meet the Government’s current SAF mandate that 2% of aviation fuel must be SAF. However, it said that meeting the Government’s 10% target by 2030 was “uncertain” as production of different forms of SAF

“will need to scale up”.

The committee said that SAF producers must now start to diversify away from HEFA-based forms of SAF if the 2030 target is to be achieved.

That brings me to the main points that I wish to raise with the Government today. I believe that the Bill will be successful if it includes the necessary provisions to protect existing SAF production in the UK and maintain its competitiveness in the international market. A number of global renewables companies are in the process of developing techniques to produce low-cost, low-carbon SAF, and they have chosen to conduct business here in the UK. I know this to be true because I have met them. They see the UK as a convenient climate in which to operate. Coupled with the SAF mandate already in force, this could make the UK a leader in green aviation fuel production.

However, if the Government are serious about building a UK SAF industry and capturing the green jobs and fuel security benefits of doing so, the revenue certainty mechanism needs to be introduced at pace. Other major economies are moving ahead with their own plans to support domestic SAF production, particularly in Europe through the EU’s green deal industrial plan, which provides billions of euros in incentives. If UK policy incentives do not keep pace with these markets, this will at best delay production and at worst mean that companies move their global hub and associated production facilities overseas.

I ask the Minister: how seriously do the Government take the need to move at pace to retain companies developing SAF in the UK? Does he agree that if SAF production is to be viable for developers, they will require early access to the designated counterparty for revenue certainty mechanism negotiations ahead of the Bill’s ratification? Also, while they are keen to attract foreign investment, can the Minister say what steps the Government are taking to ensure that grants from the advanced fuels fund are directed to support British technology?

Finally, what assurances can the Minister give to the travelling public that the Government’s estimated impact on ticket prices, of between minus £1.50 and plus £1.50, is accurate? In Committee in the other place, the International Airlines Group commented that some elements have not been included in the calculation, noting that the cost

“will be nearer to £10””.—[Official Report, Commons, Sustainable Aviation Fuel Bill Committee, 15/7/25; col. 17.]

I look forward to the Minister’s response.

12:52

[Earl Russell (LD)]

My Lords, we too look forward to the maiden speech of the right reverend Prelate the Bishop of Chester, and we welcome him to the House. We are generally supportive of the measures in the Bill but have some concerns about areas of government policy that lie beyond its scope, and a few questions about the details.

To put the Bill in its legitimate context, it will help reduce CO₂ emissions from aviation, but it is not a magic bullet. Alone, it is not a sustainable answer to the challenges we face. Aviation is, of course, one of the hardest sectors to abate and it is expected to show continued and rapid upward growth. Aviation is critical to our economy and our way of life. It moves some 240 million international passengers and 2.4 million tonnes of freight each year, adding £14 billion in GVA to UK GDP. The industry also supports 1 million associated jobs and £4.2 billion in associated passenger duty. Aviation accounts for 7% of UK carbon emissions, but this figure is due to rise significantly, to 11% in 2030 and 16% in 2035. Unless decisive action is taken on a broad range of fronts beyond the scope of the Bill, we will not meet our targets. Net zero 2050 is not optional; it is imperative.

We on these Benches do not wish to challenge any UK family’s right to a holiday. When we debate the Bill, we need to be clear that 15% of people in this country take 70% of the flights, and we need to change that. The Climate Change Committee was clear in 2023 when it said that SAF alone is a risky strategy. My party would reform air passenger duty to target the most frequent flyers. We would ensure that we have an escalating passenger duty so that those who fly the most frequently, pay more. We also oppose overexpansion of the airports, particularly in the south-east. This Government have chosen to take a different path, and it is for them to balance this path of increased airport expansion against their climate change commitments and targets. Therefore, we welcome the Bill but note our caveats.

SAF is widely considered as the main available pathway to decarbonise aviation. It can cut lifecycle emissions by up to 70% compared with conventional jet fuel. As we have heard, it is a drop-in fuel that can be used alongside existing aircraft and infrastructure. The SAF mandate passed last year starts at 2% and rises to 10% by 2030, and then to 22% in 2040. From 2040, the obligation will remain at 22% unless there is greater certainty of supply. The SAF mandate could, it is claimed, deliver up to 6.3 megatons of carbon savings each year by 2040.

We on these Benches welcome the revenue certainty mechanism. It will serve to strengthen investor confidence and unlock significant capital investment in the production facilities that need to be based here in the UK. It will allow for long-term stability and contracts through the guaranteed strike price. As the Minister said, this mechanism has been widely used in the renewables sector, and we know that it works. It will provide certainty to these suppliers. The approach is logical. The industry stands to benefit from cheaper staff, and the cost will be spread widely throughout the industry.

We recognise the UK’s approach, the long-term mandate, the proposed revenue support and the degree of certainty it will provide to help with this transition. Indeed, the UK is seen as an example of best practice, with ambitious targets and support mechanisms. Establishing a homegrown low-carbon fuel sector will bring significant jobs and benefits to the UK industry and wider society. Will the Minister update the House on the progress of ongoing negotiations with industry, running parallel with the Bill? Further, when will the Government be able to provide details on how the strike price will be set and what mechanisms will exist for adjustments? When do the Government anticipate that the first contracts will be signed?

While we welcome the Bill, we stress that SAF is only a first step. This is about not merely blending fuels but seeking alternative, more sustainable climate-friendly options for the longer term. That needs continuous investment and innovation in the next generations of technologies, including the battery/electric and hydrogen-fuelled. The Bill sets the policy framework, but crucial details are left to subsequent negotiations.

We have several key questions regarding the Bill’s ambition, scope and technical design. The SAF mandate requires 22% of jet fuel to be sustainable by 2040. This means that 78% of fuels will still be polluting just a decade before our net-zero deadline, so how will the Government achieve this target? In addition, the European Union has a higher target of 70% by 2050. What action will the Government take to bring further alignment not just with our EU partners but internationally?

We also have concerns about SAF feedstocks and the amount of cooking oil that is imported. It is important that we have a reliable domestic supply. We also note concerns about bioethanol and the closure of plants, particularly the Vivergo plant in Hull, and the impact of the US trade deal and subsidies on US ethanol. We are concerned about the potential for future bioethanol plant closures.

What consideration have the Government given to the inclusion of intermediate cover crops, such as catch and cover, as a scalable feedstock outside the HEFA cap to expand the resource base without competing with food markets? We believe that the transition to a sustainable aviation industry must be strategically linked to our existing industrial base. What actions are the Government taking to see that existing industrial plants are brought back into use, make sure that the planning system is fit for purpose and ensure that these plants can be brought online quickly?

While the Government are committed to undertaking a comprehensive assessment of these industrial sites to see that they are brought back online, transparency is paramount given the importance of public trust and accountability. The funding levy should also not place undue financial burden on air travellers, so how will the Government review the impacts to ensure that the levy does not include further burdens on those travellers? For the sake of public accountability, are the Government amenable to ensuring that the airlines report publicly on their use of SAF and the amount of it that they supply? We broadly welcome this Bill, but the Bill alone is not a sustainable long-term solution, and we call for greater monetary transparency and openness.

13:01

[Lord Ravensdale (CB)]

My Lords, I declare my interests as a chief engineer working for AtkinsRéalis and co-chair of Legislators for Nuclear. I look forward to the maiden speech of the right reverend Prelate the Bishop of Chester. I support the Bill, with the caveat that costs to consumers of these measures must always be front and centre, with all the freedoms that cheap air travel has opened up to people from all backgrounds in recent decades. But I accept that there is a strategic need to invest in the long-term sustainability of aviation fuel for the UK and that we need a revenue certainty mechanism alongside the mandate.

I have three broad points. My first is around the definitions in the Bill of fuels that are eligible for the revenue certainty mechanism. Clause 16 defines “sustainable aviation fuel” as,

“aviation fuel that is renewable transport fuel”.

“Renewable transport fuel” is defined in the same clause as,

“anything that is (or is treated as) renewable transport fuel for the purposes of Chapter 5 of Part 2 of the Energy Act 2004”.

It then refers to Sections 131D and 132. I proposed the amendment to what is now the Energy Act 2023 that led to Section 131D, which treats recycled carbon fuels and nuclear-derived fuels as renewable transport fuels. That amendment was therefore a key enabler for this Bill in enabling support for second-generation and types of third-generation SAF.

However, this requires secondary legislation to take effect and treat these fuels as renewable transport fuels. This has not been completely done for the surface transport renewable transport fuel order; it has been done only for recycled carbon fuels. But it has been done for the sustainable aviation renewable transport fuel order, so we have quite a convoluted legislative route here between various Acts and secondary legislation. Can the Minister please confirm that recycled carbon fuels and nuclear-derived fuels are within the scope of the revenue certainty mechanism outlined in the Bill?

Clearly, recycled carbon fuels will be very important in the near term. Over the medium to long term, nuclear could well be a significant source of synthetic fuels due to the potential economic efficiency it brings to hydrogen production, whether that is high-temperature electrolysis, with the current pressurised water reactor plants, or, looking further ahead, the sulphur-iodine cycle in advanced high-temperature nuclear plant.

My second point is around the powers that the Government are taking in the Bill. They have clearly stated that they do not intend to offer contracts for first-generation SAF based on hydrogenated esters and fatty acids—HEFA. Should this therefore be stated in the Bill? The Government should take only the powers they need, given that this Bill is a framework for the long term. There is a case that the powers in the Bill should be limited to second-generation and third-generation sustainable aviation fuels. I do not foresee any good reason why HEFA fuels would need such support, so I believe that this could be clearly stated in the Bill.

My third point is around value for money and competition. We rightly heard a lot of discussion in the other place around costs to consumers and analysis on the £1.50 impacts on airfares. The Minister clearly stated that we need to get the right balance between investors and consumers with the prices that are negotiated, but another way of looking at this relates to the competitive structure within the Bill. Of course, the way the Bill is structured around bilateral negotiations, rather than a competitive process, is what is needed for the SAF market at this stage, noting its immaturity. An auction process, such as that which we have for offshore wind, is not perhaps appropriate at this stage.

However, this Bill needs to be fit for the longer term. Competition is the way to drive down costs for consumers in the long term, as has been demonstrated in more mature markets such as offshore wind. So, in the longer term, we need that mechanism for auctions and competitions within the Bill but, looking through it, I cannot see a mechanism for setting up such a competitive process.

Other government legislation, such as the Energy Act 2013 for CfDs for renewable energy generation, clearly states that regulations made may include provision for,

“the determination of a matter on a competitive basis”.

We also have that in the Energy Act 2023 for low-carbon hydrogen, which clearly states:

“Provision falling within subsection (2) may include provision for … the determination of a matter on a competitive basis”.


This Bill makes no provision for regulations to cover the determination of a matter on a competitive basis, or indeed for allocation frameworks. I would be grateful if the Minister could state whether, in his view, a competitive framework is covered by the Bill as written and, if not, whether it should be. The Bill should be fit for the future to avoid the need for future legislation in this area, and it should be structured to minimise costs to consumers, which in the end will be enabled through competition.

Finally, this Bill will go a long way to realising second-generation and third-generation SAF production in the UK, but the Government need urgently to address broader challenges as well, not least our high industrial electricity prices. I have spoken to a number of companies that want to set up SAF plants and related infrastructure in the UK, but they simply cannot make the numbers stack up when our electricity is four times as expensive as competitors such as the USA. This is a very energy-intensive industry. Alongside the measures in this Bill, we need to address the fundamentals to ensure that we are being fair to consumers and minimising required subsidies. I hope the Government will think about the broader framework as well and not just see this as a problem to be addressed through subsidies.

13:07

[The Lord Bishop of Chester (Maiden Speech)]

My Lords, I thank noble Lords for their warm welcome, although I confess that sustainable aviation fuel was not a subject that I imagined I would be addressing when various noble Lords have given me advice about maiden speeches. I am grateful for their wisdom, warmth and welcome, and especially that of the doorkeepers and staff of this House. It seems that I should have taken them rather more literally when they said I would be working with high-flyers, and rather less literally when they pointed out that not everything was rocket science.

I speak as one born almost two and a half thousand miles from where we sit. Indeed, the first serious journey of my life was by air, back here to the UK. I am also a father and, like the rest of this noble House, entrusted with passing on entire to the next generation this good earth. Sustainability matters: the good Lord provided us with many things, but a spare planet was not among them, at least in this age. It is this balance of pragmatisms which means that I speak largely in support of the Bill. We need to be real about air travel being vital to modern life. It builds community, enables encounter and crosses divides.

My diocese of Chester serves communities in two nations and 23 local authorities. It spans urban and rural, wealth and extreme poverty. We gaze at the universe from Jodrell Bank. We support half of the Mersey’s industrial life. We rejoice in our schools and in Chester University, and we cherish our world-renowned zoo. Indeed, we also have Warrington, which, according to the i Paper, may be Britain’s hardest-working town—who knew? All are part of the life of the diocese, from the newish migrant to the most established among the Cheshire set, from those who take penalties on the sporting field to those who serve a very different type of penalty. We are linked to the world both by Liverpool John Lennon Airport, which is in the diocese of Liverpool just across the River Mersey, and Manchester Airport, where one actually lands in the diocese of Chester but disembarks in the diocese of Manchester.

To repeat myself, the diocese of Chester touches two nations. I serve a border people, just as I did in my former see of Berwick-upon-Tweed. In Chester, we have several parishes which are all or partly in Wales. My Lords—or, as I should say, “fy Arglwyddi”—“Esgob Caer ydw i a ’dw i’n dysgu tipyn bach o Cymraeg”. I apologise for my lamentable Welsh accent. I am learning a little Welsh, partly because I carried on with Duolingo long after lockdown but, much more importantly, because communication is a vital gift for those of us who nurture and curate community. In communication, we need to learn to speak and to listen. This is almost always done in person and directly. Indeed, I argue that one of our primary vocations in this noble House is to be with and to listen, for few disciplines are more vital in the search for wisdom—the search I so often witness in your Lordships’ House. The question for me is not so much how we can be great again, but how we can be kindly present. Greatness is great, but grace is greater.

Air travel does more than build community; it enables partnership and commerce. It is a vital part of the defence of our nation, as I witnessed when offering chaplaincy to our Armed Forces. It is the backbone of much international aid provision, and it enables care for people and the planet. Chester Zoo, for example, serves ecosystems around this world. The relative ease of transport is one factor in this. My experience working in the university sector showed just how much journeys matter in the service of education.

Air travel is vital and is here to stay, but its environmental impact must be addressed. This means that net zero matters, but it is not the only sustainability consideration. Mike Berners-Lee points out, when ostensibly discussing the environmental impact of bananas, that the problem is not only emissions but where they are released. Sustainable fuel is far from carbon neutral. Although it shortens the life cycle of released carbon in the sense that it releases carbon which has only recently been captured, it also moves that carbon into the upper parts of the atmosphere, where it is most harmful.

I welcome the Bill’s creation of an economic framework in which SAF becomes a viable investment. I welcome the balancing of the use between investment by directing costs towards those who make use of the service—in effect, taxing flying to enable more sustainable flight seems very sensible. By itself, though, the Bill does not do nearly enough. The move it encourages from first- to second- and then, vitally, to third-generation SAF is essential. HyNet, in which the University of Chester is a partner, and which makes use of the geology and industrial infrastructure in the north-west, is one other expression of this kind of investment. The production of green hydrogen, which combines captured carbon with sustainably electrolysed hydrogen, really is the holy grail here—let any budding and noble theologians note that I do not use that term in a technical sense

Alongside the Bill, we must invest in rail and in environmental road transport if we are to progress to sustainability. It cannot be right that more than half my return trains from this place to my home in Chester seem to be delayed or cancelled. What are the projected timescales for substantive provision of third-generation SAF? Is consideration being given to roll out this technology beyond aviation?

The Bill helps us play our part in global well-being in every sense. The question with which I come to this House is—as I mentioned earlier—not so much how we make Britain great again, but rather how we make Britain kind again. Such kindness and responsibility are what leads to greatness in a manner which actually lasts and embraces all. In this, this Bill matters. Our infrastructure must line up with our fundamental identity and core vocation if we are to thrive. The Bill represents one structural step, but it is a step in the right direction and I support it.

13:15

[Lord Raval (Lab)]

My Lords, I welcome the Bill and commend the Government on bringing forward a serious and long-awaited framework to decarbonise a sector that accounts, as the Minister said, for its ever-rising share of our national emissions.

Before I turn to aviation fuel, an altogether more uplifting and sustaining subject commands our attention. It is an extraordinary privilege and an honour to congratulate the right reverend Prelate the Bishop of Chester on his outstanding maiden speech. His contribution displayed the wisdom, moral seriousness, humour and quiet authority with which he will flourish in the work of this House.

If I may declare a personal interest, long before he was a Bishop, the right reverend Prelate joined a Senior Faith in Leadership programme which I directed. Across residencies with rabbis, imams, priests, business leaders, medics and public servants, I observed at first hand the depth of his character. He remained firmly rooted in his own tradition while offering genuine friendship across boundaries. In our digitally recorded conflict simulations—designed to test even the most devout—he kept his cool, listened with generosity and mediated with a humility that enabled others to shine. As I recall, he won.

I learned then that, although the right reverend Prelate had read mathematics at Cambridge, with every conventional avenue of worldly success open to him, he could not escape a deeper calling to ministry. As warden of Cranmer Hall, and vice-principal of St John’s College, Durham, he nurtured generations of leaders and equipped them to grapple with exactly the kinds of questions he raised a few moments ago—questions about community, purpose, presence and belonging.

The right reverend Prelate’s recent doctoral thesis offers a further window into his nature: a pastor-scholar attentive not to abstractions but to how real people grow, collaborate and serve. In it, he explores the call to integrate a leadership that is rooted ultimately in love—in the words of the right reverend Prelate himself,

“a combination of spiritual, emotional, rational, and pragmatic intelligence”,

reflecting a “relational understanding of humanity”. As was underscored by this and the preceding debate, we meet in a time marked by polarisation, disaffection, a growing distance from once-trusted institutions and the unsettling acceleration of trends intensified by digital habits, including, regrettably, the amplification of hatred that distorts our public square. The right reverend Prelate brings precisely the countervailing gifts this moment requires: not only the intellect, analytical clarity, logic and tech-savviness to address these forces—he is really brainy—but the pastoral breadth to speak, as he reminded us only moments ago, with the communication and genuine connection needed both for those who share his convictions and for those who feel unheard or left behind.

It is often communities whose social anchors have shifted that can be drawn towards simpler, louder narratives. The right reverend Prelate offers instead an approach that sees diversity not as a difficulty to be managed but as constituting a tapestry of human intelligences to be woven for the common good. Such leadership is not merely timely, it is essential. We look forward to, and indeed need, the right reverend Prelate’s statesmanship in this House.

I turn briefly to the Bill before us. The Sustainable Aviation Fuel Bill, working alongside the SAF mandate, provides the clarity and confidence that industry has long sought. With first-of-a-kind plants costing between £600 million and £2 billion, and typically running at a loss in their early years, the revenue certainty mechanism is a critical enabler of the investment this industry requires. This is precisely the sort of pragmatic investment-led policy that creates jobs, strengthens supply chains and positions the United Kingdom to lead in clean aviation technology—but ambition must meet delivery.

Industry modelling suggests that announced UK SAF projects may deliver only around half the volume required under the 2030 mandate unless further policy and investment steps are taken. Meanwhile, total UK greenhouse gas emissions, including aviation and shipping, amount to approximately 414 million tonnes of CO₂ equivalent. Aviation will not decarbonise itself, and the Bill helps ensure that the UK does not fall behind while others race ahead. I therefore strongly support its direction of travel.

My question to the Minister concerns the feedstocks that will power this transition. As has been said, many early SAF pathways rely on used cooking oils, industrial residues and, critically, black bin bag and other residual wastes. As we rightly reduce such waste and increase recycling, how does the Government’s modelling ensure a stable, sustainable and ethically sourced supply? How will Ministers balance emerging SAF demand with existing waste-to-energy plants and local authority waste reduction targets so that one green ambition does not inadvertently undermine another?

13:22

[Lord Grayling (Con)]

My Lords, it is a particular pleasure to follow a very well-articulated tribute to the right reverend Prelate, to whom I also offer my congratulations on a very well-made, thoughtful and appropriate maiden speech. He will undoubtedly make a major contribution in this House, and I think all of us welcome him to this place.

I start, ironically, by referring to my entry in the register as an advisor to AtkinsRéalis as well as to Hutchison Ports. It is a particular pleasure for me to speak in this Second Reading debate. Two years ago, I was responsible for an amendment to the then Energy Bill which mandated the Government to set up a revenue support mechanism for sustainable aviation fuel in the UK. I stopped after getting 56 Conservative signatures to the amendment, which proved enough, just about, to finally jolt the Government, particularly the Treasury, into action and starting a process which has brought us to this point today. I am glad that I will be speaking alongside my noble friend Lord Harper, who followed that by playing a significant part in delivering us to the point we are at today. My noble friend is another example of why this is a genuinely bipartisan Bill. There are debates, differences and discussions about the detail, but there has been strong support across all sides for the principles that underlie the Bill today.

I was very pleased at the time that Ministers then recognised that they needed to do something and I am very pleased that Ministers in the current Government have continued the work that we started and have delivered this piece of legislation, which I strongly support, albeit with some caveats and questions which I want to push the Minister on today, in Committee and subsequently. I think there are some things that need to be tightened up and some questions that need to be answered, but the principle is absolutely right.

For me, the reason this all matters is very simple. The aviation industry is under growing pressure over its carbon footprint. Whether you are an opponent or a supporter of net zero is, to my mind, completely irrelevant to this debate. This is actually about the market pressures on the airlines themselves, particularly from a younger generation of potential customer among whom flight shaming has become more visible. The industry has to address those concerns, and we have to help it address those concerns and its impact on the environment.

It is not just about politics, it is actually about what is commercially necessary for what is one of our most important economic sectors. Of course, that is why Virgin Atlantic, Boeing and Rolls-Royce collaborated on the ground-breaking transatlantic pioneering flight using sustainable aviation fuel two years ago. We were on that flight and it was a very unique experience. It is why I know that most of the industry strongly supports this legislation. It is why the last Government brought forward plans for the SAF mandate and why this Government continued to introduce the mandate at the start of this year.

Why then do we need a revenue certainty mechanism of the kind set out in the Bill? Our airlines could just buy SAF from overseas. The initial product being used in this country will almost certainly come principally from the United States. There are two very good reasons why the Bill remains necessary. First, our aviation sector is, as I say, a key part of our economy; it is the strongest sector in Europe, it is fundamental to our regions and to the economy of so many different parts of the country. Do we really just want to import the fuel it needs for the future, or is it better to encourage serious investment here, of the kind that companies such as alfanar are planning for Teesside—a part of the country that clearly wants and needs investment?

Even in a world of free markets, sometimes I really think we need to make sure that we do some important things for ourselves. I think we can have a successful SAF sector in the UK that brings investment and creates jobs, but SAF plants require a very large amount of capital, and investors are always cautious about new markets and developing technologies. The truth is that the first SAF plants in the United States, of which there are just a handful, received investment support from the Biden Administration. The EU is poised to introduce its own revenue certainty mechanism. The Minister was right to say that ours is the first in the world, but it is not going to be the last, so for me it comes down to a straightforward choice: do we want a SAF industry in the UK or do we just have to depend on imports? I do not think we have to. My view is that we need that industry in the UK and I strongly support the Bill as a result.

There is another reason for caution about buying SAF from elsewhere: I think the UK approach is much smarter and much better. In the United States, SAF is being produced primarily from corn. In the EU, SAF will be produced, as we have heard, from what is called HEFA—basically, used cooking oil. I absolutely do not support growing fuel in fields that could be used for growing food. I have long been uneasy about the practice of growing crops for purposes other than food, but I think it is mad to use the space that the world needs to feed itself to grow aviation fuel. The UK is right also to accept for now, I think, that HEFA will be needed for the time being, but we need to understand that it is not going to be there for ever, and it is right that its future use is capped.

There are serious question marks about the availability of HEFA and there is also the suggestion that it is often not really used cooking oil at all but near-virgin oil that has been doctored to create the semblance that it has been used in a kitchen. Of course, much of it comes from the Far East, and SAF mandates are going to spread there too, so there is absolutely no certainty of supply going forward. The UK’s approach, which has been to push quickly towards SAF produced from biowaste, of which we have quite a lot here already, and then in due course from municipal waste, has to be the right one. To me, this really is the nirvana of sustainable aviation fuel: if we can turn our waste—what we put in our black bins each week—into fuel oil, removing the impact of landfill, incineration and the rest, that has to be a good thing.

I have a question for the Minister, and this is the first of the points I want to put to him. There are rumours around that the Government want to allow first-generation SAF from crops here. I really hope that is not true and I ask the Minister to set that to rest by confirming that there are no such plans. We should not be growing agricultural crops to turn into fuel. We have taken a much smarter approach in this country to delivering aviation fuel that has a positive environmental impact. We must not see that compromised in any way.

There are a number of other issues I have with the Bill that I want to put to the Minister. I want to see these issues addressed in the debates ahead, and there is at least one that I am very committed to asking the Government or this House to put in the Bill.

My first concern is about how the levy is applied on conventional aviation fuel manufacturers. I know that the Government’s initial intent was to assign the levy based on the previous year’s market share. I genuinely do not think that approach is viable. It misses out the impact of changes in the composition of the market, which could mean that a new player faces a period without charges and is able to undercut the existing market. The levelling-up process would then come way down the track, after a long period of time when there had been a real price discrepancy between the two and a competitive advantage to the newcomer.

Also, if someone disappears from the market—and we have seen two refineries close in recent times—such a delay will also cause complications for the counterparty. So, the mechanism to apply the levy has got to be immediate. I do not understand why it cannot just be done per barrel of fuel as it leaves the refinery or the terminal. I think the Minister needs to explain to all of us why that cannot happen. I appreciate that that is going to come in the secondary legislation, but we need to understand how it is going to be applied, and it has got to be done in a timely way. It cannot happen way after the event.

I was grateful to the Minister for spending some time with me and allowing his officials to spend some time with me. I know they have thought about this, but I ask him to now put some of the Government’s thinking about this on the record, so we can understand where it is going as we go through the Bill.

My second concern is there has got to be a direct link between the commencement of the levy and the opening of the first SAF plant. We do not realistically expect the first SAF plant in the UK to be operational much before 2030. So, the levy cannot start until close to 2030, otherwise we would be raising money—which passengers are paying more for—and just leaving it sitting in the bank. It is important that there has to be a clear linkage between the arrival of SAF manufacturing in the UK and the application of the levy.

On the timeframe, there is one other thing I would just ask the Minister to consider. At the moment, because there is not an awful lot of SAF capacity anywhere in the world, we must not apply the mandate on a ratchet scale up to 2030 in a way that is detached from the reality of the availability of SAF in the marketplace. I would ask him to keep monitoring the mandate as we go towards 2030 and make sure we are not actually out of kilter with the availability of SAF for the airlines to put in their planes.

The third concern I would ask the Minister to address is there has got to be no legal doubt whatever that the proceeds of the levy will be used only to support investment in the manufacturing of SAF in the UK. There has just got to be a proper safeguard against any other part of Government going, “Oh, there’s some money there. We’ll have that for something else”. It does happen; it has happened in other countries in similar areas. We need that certainty in the Bill.

I think the most important addition to the Bill—and I would ask the Minister to go away and think about this, because it must be in primary legislation, so there is no doubt in the courts going forward—would be to make it absolutely certain that the revenue support mechanism is going to be used only to support the production of SAF in the UK. There has got to be no legal doubt about this and no loopholes whatever.

The Government already know that there are loopholes out there and there are people trying to take advantage of them. The Government have already had to stop one multinational in the hydrogen marketplace from benefiting from UK financial support while planning to produce part of its product in the Middle East. It would be relatively easy for a manufacturer of SAF to import an intermediate fuel into the UK, process it at a SAF plant and claim the benefits the RCM would offer. The legislation has got to be absolutely categoric: that cannot be allowed to happen.

I would like the Bill to say very explicitly that any certified fuel that is a component of SAF has to be manufactured in the UK and that only the feedstock can be imported. Of course, there will be times when we buy biowaste from other European countries—that is perfectly reasonable. But you cannot be allowed to produce a three-quarters-finished fuel that you just adjust, turn into SAF at the end and claim that that should benefit from the revenue support mechanism. I would only countenance the feedstock as being imported, and hopefully, as we see the move towards urban municipal waste and even sewage turned into fuel, even that will not be necessary.

It is really important that we have that in the Bill, because courts do strange things. They interpret laws in different ways, sometimes in ways that those in Parliament do not expect or do not want to be the case. We have got to have absolute certainty on that in primary legislation. I mention this now to the Minister ahead of Committee to give him advance warning that I really want to explore this in detail.

I believe the Bill to be essential to the UK, benefiting from a new industry that we have ourselves mandated as essential to one of our most important and oldest sectors. It makes no sense to tell airlines to buy SAF but then ignore the opportunity to produce it here and let other Governments incentivise their own investments and industries instead.

I am very glad that both the last Government and this one accepted the intent behind that amendment two years ago, and I look forward to seeing the Bill pass into law. Our job in this House is to make sure it leaves no loopholes and then to encourage the Government to get on with the secondary legislation, so that contracts and the constructions can begin as quickly as possible.

13:35

[Lord Berkeley (Lab)]

My Lords, I support the Bill. I am not often known to be supporting aviation, but this is the first time there has been a serious attempt to reduce its carbon emissions. At the same time, it can be used also to help the millions of households across Britain that actually do not have access to gas. I spoke about this in a debate on the energy Bill earlier this year and I declare an interest as the owner of a house that does not have gas, so we have to use oil.

There are 1.7 million homes in the UK, serving about 4 million people, that are off the gas grid and rely only on heating oil. They will be suffering at the present time, when it is really cold. They are mostly in rural community areas, where alternatives such as heat pumps work sometimes but not always.

It has come out of the recent debate that HVO, hydrotreated vegetable oil, is a renewable fuel that can cut emissions from home heating by up to 88% compared with kerosene, which is used at the moment. It works as a drop-in replacement—you just tip it in the tank. I do not know, because I have not tried it. The reason I bring it up again this morning is that HVO is a by-product. It is only about 30% of the output from SAF and, as SAF production goes up, we can increase the domestic supply of HVO.

Ministers have rightly said that HVO will play a vital role in our aviation decarbonisation journey, and I certainly agree with that. But it looks as if the SAF mandate will accelerate that growth from what I think is about 2% of jet fuel demand today, rising to 10% in 2030 and 22% in 2040. That is enough HVO to provide a 66% or so blend of heating oil, which will sort out the decarbonisation needs of most off-grid homes. Especially at this time of year when it is really cold, this is a benefit not only for the aviation industry but for people who live in the countryside or cannot connect to alternatives.

We need the right mechanism, as other noble Lords have spoken about. Section 159 of the Energy Act 2023 gives the Government power to create a renewable liquid heating fuel obligation, which mirrors what the Labour Government did with the transport fuel obligation last time. I was really pleased, therefore, to read an announcement from the Government on Tuesday this week about a consultation on this. The industry that provides SAF and other similar material, working with their off-grid customers, has built up a considerable bank of evidence and data to show that this policy will actually benefit both consumers and the environment. I hope now that the consultation will allow things to move forward at pace.

I was interested to read that the Irish Government recently confirmed their intention to implement a renewable heat obligation, confident that their feedstocks are available to supply their off-grid homes. That is terribly important, as the noble Lord, Lord Grayling, referred to. If there are enough feedstocks, the market will work.

This is an opportunity to deliver a win-win: cleaner skies and warmer homes. I hope that my noble friend the Minister will discuss this with his new ministerial colleague, the noble Lord, Lord Whitehead—who was introduced today and has a lot of experience—confirm the Irish Government’s conclusion and commit to implementing Section 159 swiftly following the consultation.

On that basis, I hope we can have a win-win solution for aviation and home heating.

13:40

[Baroness Jones of Moulsecoomb (GP)]

My Lords, I welcome the right reverend Prelate the Bishop of Chester. I was absolutely delighted to hear him remind the House that there is no spare planet. Quite honestly, the rate at which we humans are trashing our planet suggests that we actually do think we can go to Mars, or something spectacular like that, and still live a good life. However, I point out that if we destroy this very beautiful planet, or make it increasingly less beautiful and diverse, our lives will be utterly constrained as well.

I like to say something nice about the Government occasionally, if I possibly can. I noted the Minister’s statement at the start that this Bill aims for a greener, cleaner future for aviation. That is a very noble aim, but I am afraid it is impossible unless we radically rethink how we are going to deal with it.

About 25 years ago, when I was on the London Assembly, we assembly members and the mayor, then Ken Livingstone, had a presentation by Heathrow representatives. They promised—this is 25 years ago, remember—that Heathrow could become sustainable within a few years. They claimed it should be given permission to expand because it would soon be polluting less.

It took us a couple of years, but the mayor and the assembly soon realised that Heathrow had lied. It still lies about expansion and pollution. It lies about how important it is to the economy and about how much public subsidy it gets. The truth is that the aviation industry cares about profits, not the environment. You can no more have sustainable aviation than you can have a crocodile with a conscience; it just does not exist.

There is absolutely no techno fix for the pollution that aviation causes. The Royal Society worked out that to reach net zero for aviation fuel—is this what we are snappily calling “jet zero”?—we need at least half the UK’s agricultural land to grow the raw materials. That would be over two-thirds if farmers only grew rapeseed.

That means less wheat, barley and fodder for livestock. That also means higher prices for cereals and food. We already have food inflation due to floods in some areas and droughts in others. Last year, the 2025 UK harvest was the second worst on record. If the Government want farmers to grow jet fuel instead of food, prices in the shops are going to rise in order to keep the planes flying.

As we enter the era of climate crisis impacting on world food production, our country will have less farming land but will want more of it devoted to support the oxymoronic idea of sustainable aviation. In the past 25 years, the UK has lost 771,000 hectares of farmland, contributing to a 12% fall in food self-sufficiency. That decline is about to get worse with the disastrous planning Bill the Government have passed.

I love the effort going into expanding renewable energy and battery storage, but as the Climate Committee has pointed out, that does not stop aviation becoming the number one contributor to emissions in the next few decades.

This Government have lost all claim to be a green Government, with their attack on nature in Britain and their decision to expand aviation. The go-ahead for the expansion of London City Airport, Luton, Gatwick and Stansted means an extra 51 million passengers per annum. If the Government add Heathrow to that total, that is an extra 65 million passengers. If all those extra flights result in either extra emissions or extra farmland taken up growing jet fuel, that means rising fuel prices and more public subsidy.

Of course, the reality is that we will not switch two-thirds of our farming land to jet fuel. The whole Bill is greenwash, designed to provide political cover for aviation expansion and bigger profits. The real solutions are to tax private jets and the ultra-frequent flyers, to stop short-haul flights, and to make train journeys cheaper and more reliable. The solution is less flying, not this fiction of sustainable aviation.

A noble Lord mentioned “flight shaming”; I am not trying to do that. It is understandable that families want to go on holiday once a year, but as the noble Earl, Lord Russell, pointed out, 70% of flights are taken by 15% of the population, which suggests that those people are grabbing their unfair share of the pollution that we can each expect to produce. Therefore, I ask the Minister: does he approve of making train journeys cheaper and more reliable, and putting a tax on private aircraft and frequent flyers?

I said to the owners of Heathrow 20 years ago—much to their annoyance, “If you want to show how environmental you are, then go ahead and fix the major problems of noise and air pollution and stop ruining the climate. Once you’ve done that, then, and only then, can we have a conversation about expansion of airports and of aviation”. I am so disappointed that this Government cannot see that. I recognise that they feel the need to explain that aviation can go on just as it has in the past, but that simply is not true.

13:46

[Lord Harper (Con)]

My Lords, I declare my interest as a non-executive chair of RVL Aviation.

I too congratulate the right reverend Prelate on his excellent maiden speech. Before he started speaking, I wondered whether he was going to set out the Church of England’s policy on sustainable aviation. I was pleasantly surprised by the excellent content of his speech and look forward to his further contributions in the House. The bit I will particularly remember is his injunction to be “kindly present”, which we should all strive to do. If I ever require someone to provide a reference for me, I will think of the noble Lord, Lord Raval, who spent most of his speech, rather than talking about the Bill, saying fantastic things that the right reverend Prelate would have been too humble to have said himself. He painted a rich picture of the right reverend Prelate’s skills, and I look forward to his future contributions.

The noble Baroness, Lady Jones, will not be surprised to learn that I disagreed with almost every word of her speech. On flying, she referred to the ability of people to go on holiday. We had a very interesting test case during the pandemic, when, in effect, we told people—albeit not for this reason—that they could not fly. Listening to constituents then as a Member of Parliament made clear to me the breadth of reasons why people value aviation. The right reverend Prelate the Bishop of Chester touched on some of them, including aviation bringing people together and enabling people to see friends and family around the world. It is not just about holidays; it is about bringing people together.

I also do not share the noble Baroness’s distaste for frequent flyers. Most of the people who do frequent flying are those involved in business, in global investment and in growing both the British and the global economy, which is essential to generate the wealth that we will need to green the economy and to make it more sustainable. We will get public acceptance for a lot of this only if we also make people better off, so it is incredibly important that we support flying and enable more people to fly. I want people who currently do not have the opportunity to fly, both in the United Kingdom and globally, to have the chance to do so.

Where I do agree with the noble Baroness is that we absolutely need to do that sustainably. It will be done by the use of technology. Before I move on to the subject of the Bill, it is worth me saying that a range of technologies are available. When I was Secretary of State, I was surprised by the unanimity across the aviation industry—airlines, airports and the aerospace sector involved in developing technology and manufacturing planes—on the importance of sustainability and decarbonisation. We never had any arguments with the industry or had to push it in this direction; it was already there and moving at pace. I found that incredibly encouraging.

Innovative companies based in the United Kingdom, such as ZeroAvia, are working on the technology around hydrogen fuel cells, which will be available in the future. I will discuss SAF in a moment, but there are also companies working on electric planes. There is also the important work that the Government are doing on airspace modernisation, which we kicked off when I was Secretary of State; that will also make a contribution. To get to net-zero aviation, we will also need to use—for the bit you cannot abate with plane technology—carbon capture and storage, and I know that a great deal of work is going on in that space, too.

I was very pleased to see the Government carry on our Jet Zero Council, which they now call the Jet Zero Taskforce—the renaming is a minor detail. That brings together industry, government, academia and, importantly, representatives from the Climate Change Committee, who provide helpful advice. They therefore learn about where the technology has got to, to inform the advice that the Climate Change Committee then provides to the Government. That is very welcome.

On sustainable aviation fuel, my noble friend Lord Grayling referred to the VS100 flight that Virgin Atlantic put on; it was funded by Virgin Atlantic but also supported by a contribution from the taxpayer because of a competition run by my predecessor. That flight took place in November 2023 and captured enormous public interest and attention. It was one of the rare occasions that I was able to do the morning broadcast round standing in front of a plane at Heathrow Airport—a great backdrop. It also had a good response from broadcasters, who found the whole thing very interesting and who did great explainers for the public on some of this technology; they wished us well with the endeavour, which is not something that broadcasters usually did to Ministers doing the morning broadcast round. It captured attention not just in Britain but around the world. When I went, shortly afterwards, to the climate change conference, COP 28, I was able to speak about that flight, which was a very good example of Britain leading the way in this area and demonstrating the value of technology.

We then started developing and consulting on the SAF mandate, which, in effect, provides the demand side of the equation for sustainable aviation fuel. I am very pleased again that, with the present Government, there has been enormous continuity in policy in this area.

On the supply side, the Minister referred to the excellent work being done by the Aerospace Technology Institute, which I also support. As has been mentioned, including by my noble friend Lord Davies of Gower, the capital cost of the domestic production of sustainable aviation fuel has been supported from the advanced fuels fund. I think the third round of that took place recently; the first round happened when we were in government. I would be interested if, in his winding-up speech, the Minister could provide us with an update on where the development of those plants has got to and when we might see more. My noble friend Lord Grayling suggested one timeframe for that, as did my noble friend Lord Davies. If the Minister gives us an update on progress in this area, it would be helpful if he also sets out something that my noble friend Lord Grayling also touched on, which is the value that the Government place on domestic production of sustainable aviation fuel.

There is a national resilience case for that, because again we saw during the pandemic that countries, regardless of the contractual obligations that businesses had, very much protected their domestic supply of this sort of fuel. We can quickly find that our reliance on getting this from overseas rapidly dries up. Having some domestic resilience is very important, and I would be grateful if the Minister could set out the Government’s view.

The specific purpose of the Bill is the revenue certainty mechanism. My noble friend Lord Grayling touched on this, and I clearly remember what I might term his rebel amendment to force the pace. It was good that he provoked that debate. I must confess that, when I was Secretary of State, I took quite a bit of persuading about the need for the revenue certainty mechanism. I will say a few words about that, because it will be helpful in posing some questions to the Minister, both here and when we are in Committee.

When the industry and my noble friend were lobbying for this, I was clear that I wanted to understand what the market failure was that we were trying to fix with the revenue support mechanism. We have ended up with a clear enunciation of it in the Explanatory Notes for the Bill. In his opening remarks, the Minister touched on this and talked about how the need to develop first-of-a-kind technology, which is not currently in existence, requires a significant amount of capital and is very high risk.

The caveat is that, when I had some round-table discussions with some of the investors, both here and in the United States, they understandably quite liked the idea of some guaranteed demand through a mandate. They also quite liked the idea of guaranteed pricing through a revenue certainty mechanism. I gently pointed out to them that they have to take some risk in this process in order to justify the return. The trick here is not to remove all risk, but to get the risk to the level of comparable investment projects, so that we make sure that we get appropriate levels of investment. But we must guard against what has happened in some of the rest of the energy sector, with very long-run contracts guaranteeing returns to investors that are higher than are strictly necessary, with the costs being paid by the consumer.

It is important that, when the detailed work is done, we get the balance right between securing the investment in domestic SAF production, minimising the cost to the consumer and getting the length of the contractual terms right. I do not pretend that that is easy, but it will be important to do it. In Committee, I think we will be discussing how to design the levy obligations on the fuel suppliers. My noble friend Lord Grayling touched on some of the detailed questions, such as how the levy interacts with the UK’s emissions trading scheme, the CORSIA scheme that has been set up internationally and the EU scheme, particularly as the free allocations for aviation under the emissions trading scheme expire.

Some argue that payments under the emissions trading scheme should be used to fund sustainable aviation fuel plants, rather than creating yet another obligation. I would be interested if the Minister set out how he and the Government see those schemes interacting with each other to ensure that consumers do not pay more than once.

My final point, which was also touched on by my noble friend Lord Grayling, is about the composition of sustainable aviation fuel and the international dimension to this. It is quite right—I agree in principle with what my noble friend Lord Grayling said—that we should not be using land that could be used for food crops to produce SAF. But there is one thing that we need to be realistic about, which maybe we should not have to but we do.

There is a big lobby in the US, which my noble friend touched on, that wants to use corn ethanol for SAF. Normally, I would be very much against that. The only argument in favour of it is whether it may be necessary to engage the United States Administration, who are not enormously well disposed towards sustainability and net zero, about what international agreements we may need to have with them, because it is really important in this area to keep the United States Administration broadly aligned. Given that aviation is by definition an international industry, it will be quite difficult to decarbonise the industry if the United States is heading in a different direction. Therefore, I would be interested to know what discussions the British Government are having with the United States Government about trying to keep them in this space and what sorts of discussions are going on with fuel providers. The only argument for using food crops for this would be that if by doing so we could keep the United States in this space.

However, in summary, I strongly support aviation and strongly support making it more sustainable. That will be done not by stopping people flying but by using technology—all the technology. Sustainable aviation fuel is the technology solution that is going to be available first—it is available now. The Virgin flight that I referred to demonstrated that you can have a 100% sustainable aviation fuel flight that works. It is a drop-in fuel with existing technology, and the revenue certainty mechanism that is enabled by the Bill, if the design of it is correct—we will test some of that in Committee—will help get that domestic production up and running. With those caveats, I support the Bill and look forward to further debate in Committee with the Minister and, I suspect, a number of the noble Lords who are here today.

14:02

[Viscount Trenchard (Con)]

My Lords, I add my congratulations to the right reverend Prelate the Bishop of Chester on his entertaining and informed speech. He should moonlight and take a second job on the Climate Change Committee.

It is a great pleasure for me to follow my noble friend Lord Harper, who rightly stressed that we should continue to lead the way in developing new technologies. Perhaps the Government could pay more attention to the absurdly high level of electricity costs in this country and the high levels of taxation.

I thank the Minister for introducing the Bill today. I have been a frequent flier for most of my working life and still travel regularly overseas, especially to the Far East. So I declare my interest as set out in the register, especially in connection with advising Japanese companies and British companies with regard to their Japanese business.

My noble friend Lord Grayling knows a great deal about this subject and made a compelling speech. The rapid adoption of SAF is still broadly supported by the Conservative Party, but I believe the sands have been shifting on the whole question of how quickly and at what cost businesses and individuals should be compelled to adopt a net-zero and clean energy agenda. In particular, if the larger carbon dioxide emitters, such as China and developing countries in Africa and Asia, are not imposing similar constraints on market forces in their countries, logic suggests that we should not do so either.

It seems to me that the effect of the Bill is to distort the market for sustainable aviation fuel. I suspect that the cost of this distortion will be borne ultimately by consumers. The Bill is about the creation of a revenue certainty contract, which will, in effect, insulate the quango which will be created as the counterparty from market risk. I am very sceptical about the Government’s claim that the net cost per passenger of implementing the revenue certainty mechanism will be between minus £1.50 and plus £1.50 per passenger. How can this be possible if the cost of the SAF itself is going to be more like £10 per passenger? In any event, ticket prices have soared beyond our wildest expectations over the last few years, so whether the cost of the RCM amounts to one cup of coffee or 100 cups of coffee is not really relevant.

I am not certain that forcing an increase from 2% to 22% of the SAF component of aviation fuels over the next 15 years is likely to save the planet. Can the Minister tell us whether the Government will interfere with airlines’ freedom to refuel their aircraft in other jurisdictions at will, including those that either have not imposed any mandate for inclusion of SAF or have imposed a less onerous one? I am not sure that the performance in miles per gallon of cars using E10 fuels is not slightly inferior to that of cars using E5 fuel, and I ask the Minister to tell the House what evidence there is that fuel economy and, crucially, safety are not at all impacted by the quite steep and burdensome mandate imposed on an already challenged aviation sector.

My noble friend Lord Davies of Gower in his interesting speech encouraged me to be more positive about SAF and to recognise its benefits and its importance. But he did point out that the Government’s mandate will be difficult to achieve without diverging from HEFA-based SAFs, and there is doubt about whether second- or third-generation SAFs will work well. There are more than 160 ships powered by small nuclear reactors, and the noble Lord, Lord Ravensdale, rightly drew attention to nuclear power as a potential source of power for aircraft. In particular, he pointed out that high-temperature gas-cooled reactors enable the production of hydrogen at scale, and hydrogen technologies are already capable of powering aircraft. Airbus plans to have commercial hydrogen aircraft in service by 2035. Unfortunately, the Government’s hydrogen strategy does not recognise the role of nuclear in producing hydrogen at all. I ask the Minister why this is the case. Our Japanese friends are disappointed that we are moving so slowly with their project to develop high-temperature gas-cooled reactor technology with the National Nuclear Laboratory and believe that Poland may be a better partner than we are likely to be.

Can the Minister tell the House about the counterparty? He is going to have a great number of powers to direct it. How many people will it employ, and what does he expect will be its annual cost of operation? The Bill is designed to enforce a piece of industrial policy. Is the Minister certain that the counterparty will be well placed to manufacture SAFs competitively in this country, given our very high energy costs? Surely, if either the taxpayer or the consumer is going to have to pay for the cost of the counterparty and its activities, it follows that the legislation should require the Government to monitor costs and that the counterparty should be required to prioritise British technologies. Can the Minister tell the House why the Government declined to accept a perfectly reasonable and sensible amendment to require transparency over the effect of any revenue certainty contract on ticket prices, on both a one-year view and a five-year view?

I note that Jonathon Counsell of IAG, in his evidence to the Public Bill Committee in another place, raised the question as to whether the Government’s estimate of plus £1.50 to minus £1.50 really included all elements of the counterparty’s costs. If the Government did not like the amendment moved by my right honourable friend Richard Holden, could the Minister not undertake to bring forward the Government’s own amendment to achieve the same purpose? It is beyond doubt that the public and the consumer are entitled to know that the costs of this new foray into industrial policy will be strictly monitored.

How will the Minister ensure that the counterparty will ensure that any contract leading to the establishment of a new factory will prioritise the use of British technologies? We would certainly welcome the Minister telling the House how we can ensure that new factories will prioritise the use of British technologies. I look forward to hearing the Minister’s winding-up speech and to working with other noble Lords to improve the Bill, which is absolutely necessary.

14:10

[Viscount Hanworth (Lab)]

My Lords, the carbon content of fossil fuels has been accumulating over eons by the removal of carbon dioxide from the earth’s atmosphere via biological processes of photosynthesis, depending on chlorophyll and powered by sunlight. Such processes are highly efficient in their use of energy but they are far too weak and gradual to remove from the atmosphere the quantities of carbon dioxide that have been emitted by burning fossil fuels.

Capturing this carbon dioxide requires artificial processes that are far less efficient than the biological processes and far more consumptive of energy. Only by expending a large amount of energy that could be supplied by nuclear fission, and possibly in the long run by nuclear fusion, can there be any hope of cleansing the atmosphere of its excess carbon dioxide. According to a recent analysis, about 3% of carbon emissions are due to aviation. This figure is rising. We have heard that it is about 7% of UK emissions. Jet aircraft consume high-octane kerosene, which is refined from petroleum. Each flight powered by hydrocarbons adds to the burden of atmospheric carbon dioxide. If global heating due to carbon dioxide is to be addressed, something must be done to staunch the carbon emissions of aviation.

The problem is that there is no viable means of powering long-haul aviation other than kerosene, which has an unequalled energy density. Moreover, the technology of jet turbines, which has developed over the past 80 years, is not easily replaceable. Electric batteries or hydrogen fuel cells can be used in short-haul aviation, but their weight penalty precludes their use in long-haul aviation. Hydrogen, which has been used to power space rockets, has been proposed as an alternative for aviation fuel. Hydrogen has a very high energy content per mass, which is significantly greater than that of gasoline, but it has a low energy density per volume, meaning that it requires a large space to store it, even when compressed or liquefied. Liquid hydrogen has an energy content of about 5.6 megajoules per litre, whereas gasoline has about 32 megajoules per litre—almost six times as much. To use hydrogen to power aircraft would require a technology radically different from the current aviation technology, which would take a long time to develop. Its efficiency in transporting passengers would be severely limited by the storage requirements of the fuel.

If we are to sustain the present aviation technology, we need to develop sustainable aviation fuels, or SAFs. The ultimate requirement for such fuels is that they should emit to the atmosphere no greater quantities of carbon dioxide than are removed from the atmosphere for the purpose of creating their carbon feedstock. At present, so-called sustainable aviation fuel, which forms a very small proportion of the total supply of fuel for aviation, depends on a carbon feedstock that originates in biomass. Such aviation fuel cannot be relied on to reduce significantly the net emissions of carbon dioxide. They can have a beneficial effect only if the net supply of biomass can be increased to cover their use.

There are three cases to consider. First, the carbon feedstock might be grown for the purpose without displacing any other processes, but this is unlikely to happen. Secondly, the feedstock might be freely available, such as materials that would otherwise be consigned to landfill. Finally, and at worst, the production of the feedstock could displace other activities, such as the growth of foodstuffs.

Only in the first case, where there might be a net increase in photosynthesis, could there be a subtraction from atmospheric carbon dioxide. In the other cases, the emission of carbon dioxide from burning the fuel would be more rapid than if it had resulted from the natural decay of the feedstock, which might gradually add carbon dioxide and methane to the atmosphere.

It should be observed that wood, unless it is burned, will lock away carbon for many human generations. Therefore, forestry products should not be used as a carbon feedstock for synthetic fuels. Sustainable aviation fuel will deserve its name only if its carbon content can be removed directly from the atmosphere via the so-called technology of direct air capture.

This Bill has the ambition of stimulating the production of sustainable aviation fuels. It proposes to do so via minor financial interventions modelled on those that intend to encourage investment in renewable means of generating electricity.

The Bill itemises three levels, or generations, of SAF production. The first-generation SAFs are made from hydrogenated esters and fatty acids derived from oils or fats, such as used cooking oil. The second-generation SAFs are to be made from waste sources, including so-called municipal solid waste. The third-generation SAFs, also known as power-to-liquid aviation fuel, are to be made by combining hydrogen produced by electrolysis and carbon monoxide, which can be produced from captured carbon dioxide.

Regarding the first generation of SAFs, hydrogenated esters and fatty acids—commonly described as chip fat, because that is their major source—are already pre-empted to produce biodiesel. There is a good deal of mystery and doubt surrounding the second generation of SAFs. Their primary feedstock, which is described as municipal solid waste, is poorly defined, and different processes will be needed to cope with different categories of waste. A website of the British company Johnson Matthey, which is proposing to build plants in the US and Germany to produce second-generation SAFs, mentions a variety of sources for the carbon feedstock, including agricultural residues, forestry biomass, captured carbon dioxide, and the ill-defined municipal solid waste.

At the heart of the second generation of SAFs is the venerable Fischer-Tropsch process, which was invented in Germany in 1925 and used extensively in Germany during the war to create synthetic fuels using coal as the predominant carbon feedstock. The process generates hydrocarbons from syngas, which is a mixture of carbon monoxide and hydrogen. The syngas will be the product of a gasification plant, which must be specific to the nature of the primary feedstock. If this process were to take its carbon dioxide from captured industrial emissions then it would emit carbon to the atmosphere that might otherwise be sequestered in the ground. The conclusion of this critique is that the only sure way of reducing aviation emissions would be to capture the carbon directly from the atmosphere. In that case, the Fischer-Tropsch process would continue to be used to synthesise the fuel.

The Bill appears to envisage a gradual transition between the three generations of SAF production, and it imagines that this can be achieved by financial incentives that could be structured by the Government. There would be no other government intervention and the Government would bear no costs. The costs would be covered by levies on the aviation industry and maybe by the suppliers of hydrocarbon fuels.

This is a weak proposal for addressing a crisis. The Bill has been inherited from the Conservatives, and it bears the marks of their social and economic philosophies. One might have expected a more interventionist approach from a Labour Government. One is reminded of how an early post-war Labour Government sought to revolutionise the supply of power to industrial and domestic users by creating a completely new industry: the nuclear industry. A similar endeavour would be required to create a sustainable aviation fuel industry, but there is little indication that this will be forthcoming.

14:19

[Baroness Bloomfield of Hinton Waldrist (Con)]

My Lords, I speak today in strong support of the Sustainable Aviation Fuel Bill, a measure that is not only timely but essential if the UK is to maintain our leadership in clean aviation, deepen our energy security and strengthen our competitiveness in a rapidly changing global landscape. I welcome the Minister’s opening speech, in which he confirmed the Government’s desire to encourage the many different technologies being developed to produce SAF, and I am grateful for the letter we received yesterday, following the all-Peers session on the Bill last week.

May I also take this opportunity to apologise to the right reverend Prelate the Bishop of Chester, and to the other five noble Lords whose contributions I missed, owing to having to lead my own debate in the Moses Room in Grand Committee? I look forward to reading their contributions in Hansard. I declare my interest as the unpaid chair of the advisory board of Eq.Flight, a government-backed project seeking to harness the power of nuclear energy to deliver SAF at scale. Its power-to-liquids technology is known as third generation.

Aviation remains one of the most challenging sectors to decarbonise. Even as new technologies and aircraft efficiencies develop, the industry will continue to rely on liquid fuels for many years to come. Sustainable aviation fuel provides the most scalable way to cut emissions, but this transition will not happen without clear long-term signals; industry needs confidence, stability and a durable policy framework—exactly what this Bill is designed to provide. A critical part of this transition is long-term certainty. Projects of this scale cannot proceed on short-term signals alone; they require the revenue certainty mechanisms that give investor confidence over the lifespan of the asset. Without stable, predictable support, the capital simply will not flow, the UK will miss the opportunity to build these industries here at home, and UK aviation will support jobs abroad instead of on UK soil. A clear RCM framework is therefore vital if we are to attract investment and give industry the confidence to build. It is what allows companies to commit, communities to benefit, and supply chains to grow with confidence.

We must also recognise the distinction between what can be delivered now and what must be delivered over the long term. In the near term, bio-based feedstocks are essential; they are proven, available and capable of delivering real emissions reductions today. However, bio-based feedstocks are ultimately finite; they cannot meet the total future demand of global aviation. The long-term solution is power-to-liquids—synthetic aviation fuels produced using clean energy and made from nothing more than air and water. These fuels offer potential deep decarbonisation of tailpipe emissions and can mitigate other greenhouse effects such as contrails. To achieve this, they require large quantities of firm low-carbon power, which is where the UK has a unique strategic advantage.

In the decades ahead, advanced nuclear technologies will be critical to producing the clean electricity, the hydrogen and the high-temperature heat needed for sustainable aviation fuel at scale. The UK’s positive and forward-leaning nuclear policy means we are exceptionally well placed to become a world leader in nuclear-enabled sustainable aviation fuel; but for this to happen, we must give nuclear investors the long-term certainty they require. Advanced reactors by their very nature demand longer revenue certainty mechanisms if they are to deliver affordable, sovereign clean energy for the industries of the future. The Government must ensure that consistency between technologies is maintained, but the absence of a defined carbon intensity for nuclear-derived SAF in the SAF mandate creates some uncertainty and therefore additional risk for investors. This barrier to the use of nuclear energy for SAF production risks the UK missing out on investment and the jobs that would inevitably follow investment in nuclear-derived SAF projects.

Globally, the potential for sustainable aviation fuel is now widely understood, and competition to become a world leader is intensifying. Countries and regions are moving quickly to secure the investment, the skills and the supply chains that will anchor these new industries for decades. The European Union’s ReFuelEU initiative provides strong market signals and long-term clarity for SAF deployment across Europe. If the UK is to keep pace—and indeed to lead—we must provide the same level of long-term certainty. A clear RCM framework is therefore vital if we are to attract investment and give industry the confidence to build.

Domestically, sustainable aviation fuel production can underpin a new generation of green industrial hubs, creating skilled jobs and strengthening economic resilience across all corners of our country. The aviation sector may be the final consumer, but the industrial benefits will be broad and enduring. The transition to sustainable flight will not be achieved with a single measure, but this Bill is a cornerstone, providing the certainty required to unlock investment, encourage innovation and build the infrastructure that will power aviation for decades to come. If we get this right, we will not only decarbonise one of our hardest-to-abate sectors: we will secure thousands of future-facing jobs and reaffirm the UK’s position as a world leader in clean aviation.

14:25

[Baroness Pidgeon (LD)]

My Lords, I congratulate the right reverend Prelate the Bishop of Chester on his excellent maiden speech and his commitment to sustainability and rail, which is music to many of our ears in this House. I look forward to working with him in the months and years to come.

As we have heard today, the Sustainable Aviation Fuel Bill aims to encourage investment in sustainable aviation fuel in the UK by creating a mechanism to guarantee a certain level of revenue. The Bill provides for a guaranteed strike price, guaranteeing price for a producer selling SAF over a defined period. The GSP will be funded via a levy on the aviation industry, specifically through a variable levy on all aviation fuel suppliers over a set period. This legislation should help the industry meet its requirements under the SAF mandate, introduced in January this year, which specifies that at least 10% of all jet fuel used in flights taking off from the UK from 2030 must be made with sustainable fuel, rising to 22% by 2040. This is clearly an area where the UK is trying to lead the way in decarbonising the aviation sector.

However, it should be noted that aviation, with all its benefits in connecting people and businesses, was responsible for almost 30 million tonnes of CO₂ in 2022, equivalent to about 7% of the UK’s total emissions. As I understand it, even as emissions from other sectors decline, aviation’s share is projected to rise to 16% by 2035. This is not compatible with our net-zero targets. Sustainable aviation fuel is not a silver bullet, but it is a step forward to help us in the challenging environment that other noble Lords have described.

We on the Liberal Democrat Benches welcome these steps to decarbonise our aviation industry, including investment in sustainable aviation fuels. However, we see SAF as just the first step; we want it to offer a real low-carbon alternative. We believe that the Government should set out how they will go beyond securing investment in SAF and ensure that, longer term, this measure complements rather than detracts from investment in zero-carbon flight technology. We want to see greater innovation, research and development to make the UK the world leader in zero-carbon flight. SAF should be a springboard for that objective rather than a final destination, helping the UK transition to truly climate-friendly options such as battery-electric platforms and hydrogen-fuelled models as these technologies develop. There is a lack of clarity about what level of zero-carbon flight the Government are aiming for, if any, so perhaps the Minister can advise.

It is hard to square an objective of net-zero aviation by 2050 without measures alongside SAF to cut emissions and make climate-friendly flight a reality, and it is hard to look at the decarbonisation of fuel use in aviation while this Government seem intent on expanding airports such as Gatwick and Heathrow, to name just two, leading to many more flights.

There are a number of areas that we will be probing further in Committee. There are some concerns about the levy and the need to ensure that there are no loopholes, that progress is monitored and published and that we are aligned with our European and global neighbours or even ahead of them. Looking at international examples, the EU’s ReFuelEU aviation regulation requires a minimum blend of 2% SAF in 2025, rising to 70% by 2050; it focuses far more on both fuel suppliers and airlines; and, as we heard from the noble Lord, Lord Grayling, it is considering its own revenue support mechanism. Singapore and Thailand’s mandates started a 1% blend in 2026. Japan and South Korea are considering mandates starting some way off, in 2027 and 2030. In China, there is a SAF mandate at 2% that increases to 15% by 2030. Elsewhere, India and Brazil are considering SAF mandates. In the US, while there is no mandate, there is government support, as we have heard, to boost production, in the form of tax credits and other incentives. While there is no consensus on the route map for sustainable aviation fuel and how to support its growth, in developing this mechanism, what international examples have the Government considered to help shape their approach and the Bill before us today?

The levy on fuel producers is not necessarily the wrong approach, but key details are missing and could have unintended consequences if regulations are poorly designed. Leaving the mechanism to be determined later provides useful flexibility for a new and emerging industry. However, assurances are needed on how the mechanism will be designed. One issue that has been raised by industry and by other noble Lords today is that the levy is based on historical market share, which could cause problems. It is not clear if new market entrants might avoid paying the levy if they have no prior market share. Perhaps the Minister can clarify.

Another important issue I have picked up from talking to producers such as Neste is that, although industry in general supports the creation of a revenue certainty mechanism as a means to strengthen investor confidence and unlock the significant investments required for SAF production, there is concern that a level playing field would be guaranteed internationally. There is a strong feeling that revenues of the levy should not be used to support production of SAF that is subsequently exported. This should be about developing and supporting our own UK industry and needs. The levy should be focused on ensuring SAF supply at an affordable price within the UK. Since the UK and EU SAF mandates, I understand that we have seen an increase in the cost of SAF. This mechanism should help with the supply of SAF within the UK and help to ensure a stable price.

I have also been talking to operators that use SAF, for example DHL. In 2024, DHL used 73,000 tonnes of SAF in its own fleet, which is 3.5% of their total fuel share. This is in addition to investing in its fleet to decarbonise and in its ground-handling equipment to move to fully electric. We need to ensure that all operators are looking to decarbonise their whole operations and are not just relying on SAF to tick the green box, in effect.

A final issue that has come up in discussions and been raised by many noble Lords today, including my noble friend Lord Russell, is a concern that the levy will filter down and potentially cost passengers and airlines significantly. Can the Minister explain what assessment the Government have carried out and assure the House that passengers will not be significantly penalised? The combination of a long-term mandate and the proposed revenue support mechanism clearly offers a high degree of regulatory certainty, which is crucial for attracting the significant capital investment needed for SAF production in the UK. I hope the Minister can reassure us on the important points raised today and as we move forward to Committee.

14:33

[Lord Moylan (Con)]

My Lords, what is one to say? The easy part is to start by joining other noble Lords in congratulating the right reverend Prelate the Bishop of Chester on his entertaining and interesting maiden speech, and to welcome him and the many contributions he will no doubt make to your Lordships’ House in the future.

When the Labour Party, the Conservative Party and the Liberal Democrats, even without the support of the Green Party, all agree in supporting a measure, who can withstand them? Some might call it groupthink; others might see in it the spirit that defeated fascism in Europe. But here we are. We have huge support for this Bill from all quarters of the House, but I am afraid that it is the job of the Official Opposition to express a degree of scepticism.

Our debate has ranged very widely indeed, whereas the Bill has a very narrow focus. Many have spoken of it as if it were a net-zero measure. I dispute that. The net-zero measure was the SAF mandate that was put in place, as the Minister said, before Christmas last year, in November, which mandated airlines to use a certain quantity of SAF in their fuel, increasing every year over a period and set out in a statutory instrument. That was certainly a net-zero measure.

However, few noble Lords were open in saying that the Bill is not a net-zero measure as such but an industrial policy measure; in fact, it was really only my noble friend Lord Grayling who was explicit about that. He was explicit also in saying that he supported that industrial policy, which says that not only do we have to require SAF to be used by airlines in this country but we have to be the producer of that SAF. He gave reasons: he said, “Why would you want to use foreign producers? Why would you want to import your SAF?” But there are answers to that.

I am told that there is no future in being an old-fashioned Thatcherite and believing in markets, and that people like me are terribly out of date. However, the noble Baroness, Lady Pidgeon, made clear that SAF mandates are not confined to Britain and the European Union; there are countries all over the world with SAF mandates. She mentioned Thailand and Singapore, and I am sure there are many others as well. SAF is a global business. There is an argument that you might be able to import your SAF more cheaply and have a more efficient market if you were not insisting on producing it all yourself. None the less, the Conservative Party when in power and the Labour Party today have decided on that as a matter of industrial policy.

So what can possibly go wrong, even though it is hard to see what comparative advantage the United Kingdom has as a producer of SAF? The noble Lord, Lord Ravensdale, pointed to one element that seemed pretty damning of our comparative advantage—our very high electricity costs by international standards. He pointed out that this the production of SAF is an electricity-hungry process, but that none the less has to be ignored and overridden.

The Government have decided to be a leader in this uncertain field, and it is uncertain. I think we have agreed that there are three stages of SAF. There is HEFA, which the Government do not want to subsidise, as I understand it, even though, as again the noble Lord, Lord Ravensdale, pointed out, the Bill appears to be drafted so that they could. We need to examine that more closely in Committee. Assuming that the Government do not want to subsidise HEFA, that leaves us with non-HEFA SAF, but the processes for producing non-HEFA SAF are highly uncertain and some of them are first of a kind. We do not even know that they are going to work, but we are putting in place a revenue certainty mechanism so that investors can find out, for practically no risk, whether they are. This is going to be of advantage to the national economy.

Beyond that, as the noble Viscount, Lord Hanworth, said, there is a power-to-liquid option, but the Government do not appear to believe that it is worth investing in that at the moment, even though it is being pursued in the United States with the support of tax credits and, as I understand it, with a large plant in Texas.

Anyway, having decided that this is our industrial policy, we have to find a way of subsidising it. The Treasury has discovered this wonderful thing, the contract for difference, which is a form of subsidy that means that they do not have to shell out any money, because the cost of the subsidy is passed on to the consumer. Contracts for difference have given us the very high electricity costs to which the noble Lord, Lord Ravensdale, referred earlier, which are apparently crippling the process on which we are embarking. So we are to have not a subsidy but a contract for difference, and we are to set up a counterparty that will be able to work that out. It is going to have the skills to negotiate with the hard-faced lawyers sent by the investors to get, as my noble friend Lord Harper said, absolutely that price which offers an appropriate level of reward for the very low level of risk the investors are taking, but not a penny more. Our negotiators will be able to manage that and land it to perfection, and they will have the resources to do that. And so we go on.

Noble Lords have raised a whole series of questions, which I suspect will form the basis of our discussion in Committee. I will add a few myself. Can the Minister clarify whether the Government have made an assessment of the compatibility of the revenue certainty mechanism with the non-discrimination requirements of the WTO’s Article III.4 of the General Agreement on Tariffs and Trade, particularly in relation to the differential treatment between qualifying SAF and imported non-qualifying non-fossil aviation fuels such as HEFA? Also, will he indicate—I assure him that I do not necessarily expect him to answer these questions at the Dispatch Box, though it would be very impressive if he did—whether the Government have assessed whether the RCM would constitute a subsidy for the purposes of the WTO Agreement on Subsidies and Countervailing Measures, and whether any risk of countermeasures or formal dispute settlement from other WTO members has been identified?

I am sure there are further questions, which I can bring up in Committee, but for the moment, there we are. We stand solidly behind the Bill, but we see a large number of holes in it. We are far from convinced that it will do the job that the Government have said it will set out to do. Whether it can be done at a price of £1.50 per ticket seems to be something else that is worthy of exploration—as is what that figure actually means. Since the mandate increases every year, at what point does the £1.50 come in? Surely, the cost per ticket would rise over the course of time as the mandate requirement rises. We will explore both how it was calculated and what it means but, for the moment, we look forward to hearing what the Minister has to say in response to what has been a lively and well-informed debate.

14:42

[Lord Hendy of Richmond Hill (Lab)]

My Lords, I thank all noble Lords who have engaged in today’s lively debate on the Bill. I have listened with much interest to the excellent points raised across your Lordships’ House, and I will now attempt to answer some of the questions. Of course, we can explore many of the issues in greater detail in Committee. In the meantime, I will follow up as soon as I can on some of the issues that I cannot answer now, but I am grateful for such wide, general cross-party support for this important measure.

First, I should compliment the right reverend Prelate the Bishop of Chester on his maiden speech. He said that sustainability matters; I am so glad that he did, and that he said it in English, because he might have been able to say it in Welsh and I would not have been able to respond. The Government and I are grateful for his support of a vital sustainability measure for air transport, which is essential for the nation’s wealth and defence. The only other thing I should say to the right reverend Prelate at this point is that I am sorry about his train service. I will speak to him separately about the trains to Chester.

As I said, I am grateful for the support of many noble Lords who have spoken. The noble Lord, Lord Davies of Gower, was supportive. The points that he and many others made and the questions he asked were all about making early progress. The Government are pursuing the Bill now, as we did with the SAF mandate, in order to get on and do this, because getting on and doing this is absolutely what we seek achieve. The noble Lord referred to the net effect of this on the price of airfares, as a number of other noble Lords have done. Our best estimate is plus or minus £1.50—we are confident on that—but I am happy to explore that further in Committee. We do not believe it is plus or minus £10. We believe that we have, at least for the moment, explored the cost that would fall on air passengers.

A number of points made by the noble Earl, Lord Russell, were about progress, and this Bill is evidence of the Government making progress. Like other noble Lords, he referred to the point of the first tranche and subsequent tranches. We of course need to move beyond HEFA feedstuffs, which is the point of the further tranches of the revenue support mechanism. The noble Earl also referred to the sustainability of UK plant, which is why the Government have put £63 million into the advanced fuel fund: for the very purpose of ensuring that there are plants in this country which can produce sustainable aviation fuel and that the plants themselves are sustainable.

The noble Lord, Lord Ravensdale, referred to competition in due course. The Bill includes the opportunity for the Secretary of State in due course to run tenders or auctions as a means of developing this market.

The noble Lord, Lord Raval, talked about waste and foodstuffs. We will, as we go through this Bill, have regard to its overall effect on the provision of sustainable aviation fuel.

I am grateful to the noble Lord, Lord Grayling, for his detailed and compelling speech on this subject and for his great interest. He talked about not allowing crops to be made into SAF. We have committed to publishing a call for evidence by the end of this year on the use of crops in the SAF mandate. The aim is to improve the evidence base on crop-based SAF production, following suggestions from some stakeholders that certain types of crops could be used to increase SAF supply without compromising our approach to sustainability. But we will get information provided through that call for evidence, and we will consider what we find out.

The noble Lord, Lord Grayling, referred particularly to the use of data and how the market price is determined. The counterparty will be responsible for determining the market and should do so by using data that suppliers submit to the SAF mandate reporting system. Our live consultation seeks views on whether the assessment period should use volume data from an earlier period, or—since he suggested that is not sensible—uses forecast volume data. We will have more discussion about that in due course, I am sure. He also made a very strong point about the support being used only for production in the United Kingdom. We intend to support only eligible SAF plants in the UK; I am sure we will discuss that further. It is a strong point and I will consider it as we get to Committee.

The noble Lord, Lord Berkeley, talked about cleaner skies and warmer homes. I am aware of the consultation on alternative heating solutions, and we are working with our colleagues in DESNZ to move those forward.

The noble Baroness, Lady Jones, does not agree with this at all. We have discussed the points she was making about aviation before. This is a move towards net zero. We are trying to make aviation more sustainable, as it is not going to stop overnight and is important for the economy of the country. The mandate will save some net additional 54 million tonnes of CO₂. On the noble Baroness’s other point about frequent flyers, last year the Government altered air passenger duty which does have an effect on more frequent flyers.

I am grateful to the noble Lord, Lord Harper. He made some substantial points. The noble Lord referred to a flight that used 100% sustainable aviation fuel; I believe he was a passenger on it. If I may, I will try to respond in detail to the points that the noble Lord made before Committee stage.

The noble Viscount, Lord Trenchard, is perhaps not so supportive, though in the end I think he said he was. But what we are doing is important. We should be trying to move into a market that self-evidently can be a success for British industry, if we approach it properly. Government intervention, as justified by a number of noble Lords this afternoon, is the only way to do it. The noble Viscount is very sceptical of the effect on pricing for passengers; again, I have no doubt that we will discuss this in Committee and afterwards. Of course, he wants safety not to be compromised; none of us does. It is only right to point out that another noble Lord on his Benches was on a flight wholly powered by sustainable aviation fuel and I doubt whether the noble Lord would put himself at risk: I hope he would not. We are absolutely committed to safety. We are also committed to the fuel economy, which he mentioned.

The noble Lord, Lord Ravensdale, referred to nuclear and hydrogen power. The Government have clearly not set their mind against any solution. The significant funding put towards investing in technical solutions and the way in which the SAF process is being developed encourages other solutions and will encourage British industry to look particularly towards these solutions in the longer term. We will, of course, prioritise UK technology. This is the point and it is a good thing to do.

My noble friend Lord Hanworth is also probably not supportive—not because he does not agree with the general principle but because he somehow thinks, despite all we are doing to be at the forefront of global action, including the £63 million we are putting into the advanced fuels fund, that somehow this is not enough and that there should be some red-blooded approach. I contend that this is a pretty red-blooded approach from the Government. Significant sums of public money have been put into it, and we believe that it is the right thing to do.

The noble Baroness, Lady Bloomfield, referred to the nuclear option. SAF produced using nuclear energy is and will be eligible for the SAF mandate. We have provided funding to support the development of this technology through the grant funding programme of the advanced fuels fund. We are clearly on a journey and I note the noble Baroness’s proposition that it will need longer-term support. Although the Bill is limited to a term of 10 years, the support term is not so limited. I hope the noble Baroness will note that this is one of the reasons why.

The noble Baroness, Lady Pidgeon, made some strong points. As I have said, we are on a journey. In Committee, we can discuss the consistency of the trajectory of that journey with the EU and other countries that have set themselves different targets. Of course, it is not the only measure: zero-emission flying is and could not be just about SAF. To that end, we have talked about airspace modernisation, which is something the noble Baroness knows about. We have looked at funding of up to £2.3 billion over 10 years to extend the Aerospace Technology Institute which was announced in the modern industrial strategy in June to look at low-emission and zero-emission aircraft. We are looking at reducing aviation emissions through schemes such as the UK Emissions Trading Scheme on carbon pricing. We are also seeking to address the non-CO₂ impacts of aviation. The noble Baroness is correct, of course, in looking at everything to do with carbon reduction in flying, not just aircraft fuel and technology but the operations surrounding aircraft. She mentioned the activities in that respect of DHL, which is a major user of aircraft.

Lastly, the noble Lord, Lord Moylan, for whom I have huge respect, appears to see a conspiracy between all the parties here to do something which he does not seem to support, which is to have an industrial policy that gives British industry the chance to develop something new in the world and to develop jobs and processes which will lead to a bigger economy. He is not in the same place as some of his colleagues on his own Benches on that and I think that he is wrong, because this is not only an industrial policy but a step towards net zero. He mentioned power-to-liquid, and we have invested in that in the advanced fuels fund. He asked a couple of very detailed questions about the World Trade Organization, and I would be delighted to write to him with the answers, supposing that I was unable to provide answers from the Dispatch Box just now.

Once again, I thank all noble Lords who participated in the debate today and I welcome the support of the many who spoke in favour of the Bill’s measures. The Bill will kick-start the UK SAF industry, attracting investment and creating jobs. By addressing the market and investment uncertainty in SAF production, it will enable the UK to lead the way to greener aviation. I beg to move.

Bill read a second time and committed to a Grand Committee.