Sustainable Aviation Fuel Bill

Lord Grayling Excerpts

Report stage
Tuesday 10th February 2026 Lords Chamber

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

My Lords, I thank all noble Lords for their extensive engagement between Committee and Report. Amendments 1, 2 and 4 in my name will ensure that the Secretary of State can enter into revenue certainty contracts only where the supported SAF is produced at a facility in the United Kingdom. This will provide the industry with a clear signal of support. I hope that this measure reassures noble Lords that I have considered the contents of the amendments tabled in Committee by the noble Baroness, Lady Pidgeon, the noble Earl, Lord Russell, and the noble Lord, Lord Grayling. I thank noble Lords for their constructive engagement in reaching this position. I urge noble Lords to support the inclusion of these amendments in the Bill. I beg to move.

[Lord Grayling (Con)]

My Lords, I apologise to the Minister and the House that I was unable to be here in Committee because of a family crisis. I am very glad to be here today and to welcome these amendments. I have no intention of moving my own amendment since the Minister has addressed my concerns. The important thing was to ensure that nobody could game the system: that we knew that we were supporting UK manufacturing and not somebody playing a fast one on us by shipping mostly complete fuel to our country, polishing it up a bit and claiming it was British. The Minister has done that with these amendments and I very much welcome them. I am grateful to him and I support them.

[Earl Russell (LD)]

My Lords, I am pleased to see the noble Lord, Lord Grayling, back in his place. On behalf of these Benches, I also thank the Minister and the Government for bringing forward these amendments. These important issues were raised in Committee. The Government have listened to the concerns that were raised and we welcome the amendments that have been brought forward. We are grateful that the Government have listened and we are delighted to accept them.

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[Lord Ravensdale (CB)]

My Lords, I remind noble Lords of my interest as a chief engineer working for AtkinsRéalis. For my Amendment 7 in this group, I have simply retabled my amendment from Committee. As a brief reminder, we have targets in the SAF mandate —coming back to what noble Lord, Lord Moylan, said about power to liquid—and an escalating percentage of sustainable aviation fuel needs to be power to liquid. That is clearly set out in the SAF mandate. This amendment is trying to ensure coherence between the SAF mandate and the projects given support under the revenue certainty mechanism.

This comes back to what the Minister set out about support for UK production. The percentages in the SAF mandate could simply be met by importing power to liquid fuel, so it is important that we set out the ambition for the industry to meet in producing all that fuel, which is already legally required under the SAF mandate, in the UK, aligning that with the earlier government amendments. I recognise that setting this out in the Bill may be going too far, but I would welcome the Minister’s comments on how this could be set out in the allocation framework documents to give industry that steer on power to liquid fuel and the expectations for producing it in the UK.

My Amendments 14 and 16 are similar to those I tabled in Committee, and I thank the noble Lord, Lord Moylan, for signing them. I reflected on the Minister’s responses at that point, but I did not hear any compelling reasons why HEFA sustainable aviation fuel products should be included in the scope of the Bill. As the noble Lord, Lord Moylan, said, my amendment and his Amendment 15 are very similar and aim at the same thing. Mine deals more with the base product, using established definitions, and his encompasses the totality of HEFA products.

I welcomed meetings with the Minister’s team of officials. The outcome was that the main rationale for retaining HEFA in the Bill is that that recognises that this is a fast-developing market and it is important to retain that flexibility in primary legislation. I accept that, but I still find it hard to imagine a scenario where the Government want to subsidise HEFA using the revenue certainty mechanism. The whole point of the legislation is to help pump-prime those new industries, not to support the well-established industries that we have to provide HEFA fuel.

The Government are taking broader powers than they need under the legislation, so there is a risk that, as we go forward, subsidies could be given outside that intent. However, I hope that the Minister will be able to say something substantive about this in his remarks, on the exclusion of HEFA, and I look forward to hearing what he has to say in that regard.

[Lord Grayling (Con)]

My Lords, I rise briefly to speak in support of the amendments from the noble Lord, Lord Ravensdale, on crops, and to share many of the concerns raised about HEFA. I declare my interests on the register as an adviser to AtkinsRéalis—there are a lot of us here today.

My concerns are that, first, I do not believe that we should be using crops to make fuel. In a world that does not have enough food and where biodiversity is under threat, where deforestation is happening in areas of the world that provide extra land for agriculture, I do not think that there is any justification for growing food and turning it into fuel. I ask the Minister please to exclude crops. The United States is permitting them, and the European Union is not, and I think that we should fall on the side of avoiding the use of agricultural crops. Agricultural waste is a different thing —the residue from crops, such as straw and corn husks. Agricultural waste is one thing, but actual crops is another, and we should not be using them.

On HEFA, we are where we are, but we have to exercise extreme care, because the truth is that there is not enough used cooking oil in the world to fill the supposed need for that used cooking oil. All too often, the suspicion is that somebody is dumping a chicken wing into a tub of virgin palm oil and saying that it is HEFA—so HEFA is something that we need to move away from as quickly as possible. In any case, we depend on imports from the Far East for it, which may not be sustainable going forwards. Our focus should really be on biowaste and municipal waste and on the technologies that offer a really good path for the future —but let us not use crops and let us be extremely careful with what we do with HEFA. I have a lot of sympathy with what my noble friend Lord Moylan and the noble Lord, Lord Ravensdale, have said. It is far from clear that this is a genuine product that has the full potential to do what is necessary.

[Lord Harper (Con)]

My Lords, before I start, I draw attention to my entry in the register as non-exec chair of RVL Aviation, which is in the aviation sector but not involved in the production of sustainable aviation fuel.

I strongly support this move to make sure that we do not include food crops. I have one caveat, which I raised in Committee, and I wonder whether the Minister can update the House. My noble friend Lord Grayling drew attention to the different position that the United States has taken about including food crops. My starting point, as his, is that we should not include food crops. The only caveat that I raised in Committee was that if, in doing so, that enabled us to ensure that the United States continued to support the development of sustainable aviation fuel, given the importance of the United States in the international aviation sector, there might be a case for that. I would be interested to know whether the Minister can update your Lordships on any discussions that have taken place with the United States. If it is not necessary to do that, I strongly support the amendments that are there to make sure that we rule out food crops because, as my noble friend Lord Grayling said, using land to grow crops for food is what we should be doing, and we have seen, in the renewable energy sector, what can happen when you have policy that then drives behaviours that you had not intended, which have outcomes that are environmentally not welcome.

The second point that I raise is that I support the amendments to rule out the use of the revenue certainty mechanism for subsidising HEFA. As my noble friend Lord Grayling said, it is important that we move away from that and develop the new technologies, as my noble friend Lord Moylan said from the Front Bench. The danger of allowing subsidy of things that we are trying to get rid of is that you never get rid of them; any subsidy that there is should be used for the development of new technologies and processes. That is the rationale for having a subsidy regime in the first place. Setting that framework is very welcome.

My final point is on power-to-liquid technology. My noble friend Lord Moylan set out his view that that technology is probably not yet at a point where this Bill would be of any use. My starting position and his is that you have to justify carefully the need for subsidy, so it would not be a bad thing, if that technology is some way away from development, to force the Government to come back to Parliament to rejustify subsidy for power-to-liquid. That would be very welcome. If the Minister can update the House that providing subsidy to develop the technology and get it into production would have a much nearer-term outcome than my noble friend suggested, I might think again. However, in the scenario that my noble friend Lord Moylan set out, his amendments would be very sensible and helpful in testing the Government and forcing them to put on record the state of that technology.

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Moved by

[Lord Grayling]

8: Clause 6, page 4, line 19, after “contracts” insert “in respect of sustainable aviation fuel manufactured in the United Kingdom”
Member’s explanatory statement
This amendment seeks to ensure that the levy is raised for the purposes of manufacturing sustainable aviation fuel in the United Kingdom. Connected with another amendment in the name of Lord Grayling, it seeks to prevent the government from diverting the levy funds to other broader aviation or climate-related policies.

[Lord Grayling (Con)]

My Lords, I will speak to a series of amendments that I tabled. I have given the Minister advance notice, and I hope he is going to be able to reassure me on them. I will take them in turn.

Amendment 8 is simply to try to avoid the Government pulling a fast one, raising money from air passengers and spending it on something completely unrelated. I am looking for a cast-iron, on-the-record assurance from the Minister that that cannot happen under the terms of the Bill. We know that on occasions government departments try to slip things under the counter, and I am simply seeking absolute assurance that that will not happen in this case. Amendment 9 basically seeks to achieve the same thing.

Amendment 10 addresses what is still the crucial operational point for this legislation: where and how do you actually apply the levy? The Minister knows that I have had serious misgivings, as have many people, about the plan to try to apply a mechanism that relates to market share in the previous year, to do it the year after and the rest, which I think would be completely unworkable and, of course, distorts the market if you have new entrants or people leaving the market.

The one thing we do not want to do is to end up undermining the existing producers of aviation fuel, which are carrying an extra cost. We do not want to have them closing and going elsewhere because we have not got this right. I remain persuaded that the way to do this is to levy a charge at or around the time of delivery—the time at which it is delivered from the refinery or the terminal to the airline. I appreciate that it may be something you do one month in arrears, looking at the previous monthly invoice accordingly. I do not have a problem with that, but I have a problem with anything looser than that.

I am looking to the Minister to explain tonight how this is going to work. I know the Government are still working on all the details, but we cannot have some abstruse mechanism that tries to refer back years in the past. We need something current and relevant that reflects changes in the marketplace and applies the costs in a timely way to those producing the fuel, so that there is no distortion of the marketplace.

Amendments 17 and 18 are really about the timing of the legislation. We know that we are maybe four or five years away, I hope slightly less, from the first significant SAF plant being operational in this country. We cannot have a situation where the levy starts to be applied now and is just piling up in the background with nothing to spend it on. I am looking for an explanation from the Minister as to exactly how the commencement of this legislation will work. I have proposed in these amendments that it should be six months before the first manufacturing facility comes on stream—the Minister may have an alternative suggestion—but we cannot have a situation where commencement is imminent but the operation of the Bill is years away. Again, I am looking for assurance and explanation from the Minister on this, so that we know we are not charging air passengers today for something that is years in the future. I beg to move.

[Lord Moylan (Con)]

My Lords, I have Amendment 11 in this group, which substantially coincides with Amendment 10 in the name of my noble friend Lord Grayling. I will just take a minute to explain, in my perhaps rather more simple terms, what mischief these amendments seek to address. I gave some idea of the mechanism when we spoke on the last group. It will work like this: contracts will be entered into by a counterparty and a fixed price will be guaranteed under a contract for the difference. That means that if the prices are below a certain price, the counterparty will collect money by way of the levy, and if they are the other way around, it will pay out to ensure that the producer receives a fixed price. We know that economically, ultimately, the levy will be paid by the passenger on the flight, but who is going to be charged the levy?

The Government have decided—we are not disputing this—that the levy should be charged at the highest point in the supply chain, which is the producers of standard aviation fuel, essentially kerosene. They have to mix in the SAF to the required amount, whichever type of SAF it is, and they should be the ones that will pay the levy if a levy is required—that is, if prices are such that a levy has to be paid. We do not object to them being the levy payers, but how is the levy calculated and then applied to them?

The Government’s proposal is that the levy should be calculated a year in arrears and then applied to them as a charge which they have to pay in arrears at that point according to the market share that they had in that year. That is all very well, you might say, and very convenient from the Government’s point of view, because at that point they know exactly how much they have to charge, so there will be no difficulty and no question of having the wrong charge paid and having to make up bits later, or of the counterparty being out of funds by a penny. They will know exactly by the end of the year what should be charged and they will distribute it to the producers according to their market share during that year, which will also be known by that point.

The difficulty for the producers is that they will not know during the year in which they are selling the fuel what they should be charging the airlines to cover the cost of the levy. It is accepted that they should charge the airlines, because that is the way it trickles down to the passenger. They will not know during the year how much levy they are going to have to pay at the end of the year, so they will not know how much they should be charging per litre of fuel that they sell.

They would prefer, as it is easier for them and avoids this complexity, if they were told a price per litre which they should charge. The charge of the levy in addition to the base kerosene fuel could even be apparent on their invoices. Of course, if the Government were to do that, it would expose the counterparty to some financial risk—I see that—because they would have to work on the basis of estimates. They would have to estimate the prices during that period and therefore would be exposed to some financial risk. I imagine that, behind the Minister, there is a middle-ranking official in the Treasury saying, “You cannot take any financial risk that will fall upon the Government or any entity associated with the Government”.

What the Government are proposing is fundamentally unworkable, because the only way the producers can handle this is to protect themselves by overcharging. They will overcharge to compensate themselves for the levy, and so the transparency of the levy travelling through the chain of command, so to speak, down to the ticket payer will be obscured. The producers leave one in no doubt when one speaks to them that this is the only mechanism they will have. There is a real point of workability about the Bill which has not been addressed.

I imagine the Minister will respond by saying, “Oh, but we are having a consultation”. This is a futile protest, but I want to raise this point of protest as I have the opportunity: would it not have been better if the Government had done the consultation and then brought forward the legislation? Why is it that we have to have the legislation before we know the results of the consultation with the industry, so that we do not actually know what is workable? I suspect the Minister will say that, but I am afraid it is not satisfactory that we are asked to pass this legislation with that important question of workability still outstanding. I may be wrong, and it may be that the Government can explain that it is perfectly workable, but nobody has been able as yet to establish what that workable solution is.

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[Lord Hendy of Richmond Hill (Lab)]

My Lords, I thank noble Lords for this debate. Amendments 8 and 9, tabled by the noble Lord, Lord Grayling, seek to address how funds from the levy are used. I am happy to reassure the noble Lord from the Dispatch Box that money raised through the levy will be used only to support eligible SAF plants in the United Kingdom, and that that is already set out in the Bill.

Clause 6 restricts the costs incurred by the counterparty under the revenue certainty contracts and in carrying out its functions under the Bill. Under this clause, the levy funds will be used only to meet the cost of the revenue certainty mechanism scheme. It is important that the counterparty is able to recover its costs, which include the cost of administering the contracts, the levy and the payment of surpluses.

Amendment 10 intends to ensure that there is a specific mandatory point at which the supplier becomes liable to pay the levy. The Government agree with the intention of the amendment but believe that it is unnecessary because Clause 6(7) already provides that a person becomes liable to pay the levy at the same point when they become liable to an obligation under the SAF mandate.

On how individual levy contributions are calculated, it is important that the Bill provides sufficient flexibility to ensure that final levy design decisions deliver our design principles, including simplicity, solvency, affordability and fairness. The Government are currently reviewing responses to their recent consultation on the detailed design of the levy and engaging with stakeholders to deliver these objectives. I remind noble Lords that the regulations made under Clause 6(1), to set out how the levy will work, will be subject to scrutiny under the affirmative procedure, which will give Parliament the opportunity to continue to consider the approach.

Amendments 17 and 18, tabled by the noble Lord, Lord Grayling, seek to prevent the levy being imposed until a domestic sustainable aviation fuel producer is approaching readiness to receive payments under the Act. I reassure the noble Lord that the purpose of the levy, as set out in Clause 6, is to meet the costs of payments made by the counterparty to SAF producers and to cover the counterparty’s administrative costs. The costs of payments under RCM contracts will be insured only once eligible SAF is being produced and sold by producers who have entered into RCM contracts, which is the outcome sought by these amendments.

The Government are currently reviewing responses to their recent consultation on levy design. Some stakeholders have expressed a desire to build up a reserve fund prior to the first producer payments, which could help smooth out the costs of the scheme and help manage risks of underforecasting required payments. As the Government consider their response to the consultation, it is important that the Bill retains a degree of flexibility around levy design, which will be set out via secondary legislation and will be subject to parliamentary scrutiny.

Amendment 11, tabled by the noble Lord, Lord Moylan, intends to introduce a standardised rate for the levy. We are currently reviewing responses to our recent consultation on the detailed design of the levy and continue to engage with stakeholders to help inform the drafting of levy regulations. Within the consultation, we sought views on the publication of a forecast levy rate, expressed in pence per litre, which could help provide greater transparency for the supply chain.

The Bill as drafted does not specify a particular mechanism and allows the Secretary of State to consider a range of options for calculating the levy paid by individual companies. It is important that the Bill retains a degree of flexibility around levy design, which will be set out via secondary legislation and will be subject to parliamentary scrutiny. Therefore, I do not consider the amendment to be necessary.

To reassure noble Lords, the Government are live to the potential impacts of different levy designs and recognise industry’s desire for certainty and transparency, while ensuring fairness and affordability for the consumer. We recognise that the levy must be dynamic and responsive to the changing market, while ensuring that the counterparty has funds to make payments under the scheme. But, to be clear, this levy will not be used to generate unnecessary funds and will raise sufficient money to cover only the counterparty’s costs under the revenue certainty scheme.

Although final decisions will be informed by the consultation, we are exploring options that deliver this and many of the proposals, and options set out in that consultation could help provide greater certainty and transparency. As I have said, the levy regulations will be subject to the affirmative procedure, which will allow further parliamentary scrutiny. I hope noble Lords will note the steps the Government have taken in the levy design and that they therefore will not press their amendments.

[Lord Grayling (Con)]

My Lords, I am grateful to the Minister for a detailed explanation of the situation. I am greatly reassured by what he said. What matters in all this is that we provide the right balance. This is something the airlines are calling for, but we do not want it to unduly penalise fare payers, and to end up with disinvestment in conventional aviation fuel. I am reassured by much of what the Minister said, but I am looking to him and his colleagues to ensure over the coming months that that balance is properly found, so that we do not end up with legislation that has unintended consequences.

The Minister made a point about the reserve. I proposed six months because I believe it essential to have a short period of reserve building, but it must be short—it cannot be year after year. That was the point of my amendment. I am reassured by what he said, and I shall watch with interest what the Government do, but in the meantime, I beg leave to withdraw my amendment.

Amendment 8 withdrawn.

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That does not seem to me a very joined-up approach. On the one hand, the Liberal Democrats are arguing that my noble friend Lord Moylan’s quite modest amendment—to have transparent information in a very consumer-friendly way about the impact on ticket prices—is very difficult to do and very complicated, but, on the other hand, a Liberal Democrat colleague is suggesting a much more expansive form of reporting and proposing that the Government should do that. Perhaps there has been a lack of joined-up communication on the Liberal Democrat Front Bench. I am really confused, given the two diametrically opposed positions they have taken on the Bill, which is not welcome, because I think that, just as we are, they are broadly in favour of having more sustainable aviation. It is odd that they have taken two diametrically opposed positions on two different amendments in two subsequent groups on the Bill. I fear, therefore, that I will not be able to support the amendment if the noble Baroness presses it to a Division and seeks to test the opinion of the House.

[Lord Grayling (Con)]

My Lords, I rise both to support what my noble friend Lord Harper has just said and to add a caveat. I have great respect for the noble Baroness, Lady Pidgeon, and I find we agree on a lot of things, but it worries me more broadly—and this is not specifically just about this amendment—that when one passes an amendment like this, one creates huge bureaucratic demand. If we look at the practicality of what will be needed, as my noble friend Lord Harper has just described, we are talking about putting together, in effect, an inspectorate, because that is what this would entail—an inspectorate to talk to airlines, an inspectorate to talk to producers, and an inspectorate to have a pretty close watch on the flow of feedstuffs, the supply chain of feedstuffs and the sourcing of feedstuffs.

What we are looking to achieve here is to build a UK industry so that we do not simply end up buying SAF from abroad. The truth is, right now, the limited amount of SAFs used in this country are coming from United States and potentially elsewhere. We do not want that to happen; therefore, we want to create as investor-friendly an environment as possible in the United Kingdom. That is what this Bill is all about. It is what the purpose of the revenue certainty mechanism is, and I am very glad that the principle behind the Bill has attracted cross-party support. To try to put together now a mini-inspectorate—and maybe not that “mini” an inspectorate—to look at all the things covered by this amendment would cost taxpayers’ money and push up the cost of the revenue certainty mechanism.

We talked earlier about how the funds would be used. Certainly, the funds would be eligible to be used for the monitoring of all this, so that is an extra cost on the revenue certainty mechanism and an extra cost ultimately therefore to airline passengers. It is an extra level of complexity for investors, putting a whole range of bureaucratic requirements on them. And, of course, for government, it opens the doors to judicial review. Very often, a broad-ranging amendment that seeks reports and clarifications ends up in the courts, being used by somebody who has a particular point to prove against government. It opens the door to too much activity within the courts and not enough freedom for government to get on with the job. That would be a negative step for the legislation, given that we all want this to happen, want it to work well and want the investment to flow in the country. To create a monitoring mechanism on this scale would not in any way be the right thing to do.

As my noble friend Lord Harper rightly pointed out, simply monitoring the impact on the cost of an airline ticket is one thing, but covering the range and dimensions of activity in this amendment would create too much extra cost and too much complexity and it risks being a deterrent to investment in the UK. So, with apologies to the noble Baroness, I cannot support her amendment.

[Lord Moylan (Con)]

My Lords, perhaps I may welcome the noble Baroness, Lady Pidgeon, to this debate. She is much missed. Normally, when there is legislative matter that calls the noble Lord, Lord Hendy of Richmond Hill, to the Dispatch Box, there is a well-established team that assembles opposite him, consisting of me in my humble capacity and the noble Baroness. It has been a puzzle to me in the course of this afternoon why she appears to have been elbowed aside by the dour but noble Earl, Lord Russell, whose mantra appears to be “Mr No” throughout, whereas now that the noble Baroness, Lady Pidgeon, has landed, if I may say that, at this very late stage in the debate, we find that she is here with her customary positivity and proposals for something useful that the Government might do.

The noble Baroness’s proposal is that the Government might usefully produce a report which tells us what the effects of this measure in front of us are. It would not be an easy report to assemble, and I am sure the Minister will explain its impossibility. It would, however, be no less easy for the Government to produce the report I was asking for, to say what the effect would be on ticket prices, but, as my noble friend Lord Harper so clearly explained, that was ruled out completely by Mr No sitting at the other end of the Bench. It has been most entertaining and instructive this afternoon listening to what the Liberal Democrats have had to say, but we are now in a position where splits within the Liberal Democrats are apparent. I say this to offer some consolation to noble colleagues on the other side of the Chamber to know that it is not only the Labour Party that is riven by dissension and uncertainty about the future and that these qualities can be found among the Liberal Democrats as well. I am delighted—