Sustainable Aviation Fuel Bill

Earl Russell Excerpts

Report stage
Tuesday 10th February 2026 Lords Chamber

[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.

[Lord Moylan (Con)]

My Lords, I wish only to congratulate my noble friend Lord Grayling on his amendment and, further, on having persuaded the Government to table alternative amendments that have the same effect as his. We have no objection to those amendments.

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[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.

[Earl Russell (LD)]

My Lords, this second group concerns different aspects of the operation and scope of the revenue certainty contracts. We appreciate the good intentions to influence the mix of technologies and feedstocks supported by this scheme, but we cannot support these amendments, each of which in a different way would introduce arbitrary restrictions that, while well intended, would risk upsetting the balanced, technology-neutral framework that is central to the Bill’s success. They would remove flexibility and could have serious unexpected consequences. The technological framework itself will attract the broad range of investments that will enable the rapid scaling of UK aviation fuel production. It is the creation of the revenue certainty mechanism that will attract investments, which are the literal fuel to bring the technologies we need.

I will address each amendment in turn. Amendment 3 from the noble Lord, Lord Moylan, would introduce a new subsection prohibiting revenue certainty contracts from providing payment for a PtL sustainable aviation fuel. I understand the concern that PtL technologies are still maturing and often come with higher upfront costs, but a statutory exclusion is too blunt a guillotine instrument. It would deny Ministers any flexibility to support promising PtL projects as costs fall and technologies advance, sending an unhelpful signal to developers and investors that this entire pathway is off limits for UK support. Such rigidity would involve diverting PtL investment to other jurisdictions. The Bill as drafted already provides the Government with tools to shape pathways through allocations criteria and contract design without foreclosing future opportunities.

Amendment 7 from the noble Lord, Lord Ravensdale, would take exactly the opposite approach, requiring the Secretary of State to direct the counterparty to offer minimum volumes of PtL contracts from 2028 onward, increasing annually to 2040. While the objective of accelerating PtL development is commendable, setting the number of strict time-fixed statutory quotas in the Bill would be equally problematic. It would commit the Government to contracting many time-fixed volumes whether or not sufficient viable PtL projects were ready, creating a risk of uneconomic awards or unfulfilled obligations on many occasions. As others involved in financing such large-scale projects know, they are often delivered slightly behind time as supply chains can be overrun. Building so many rigid volumetric obligations into the statute would create legal and commercial uncertainty and could crowd out credible SAF pathways. The Government’s more flexible approach, using competitive tenders and market readiness to guide allocation, remains a more practical and adaptable route.

Amendment 14 in the name of noble Lord, Lord Ravensdale, seeks to define “relevant crops” as starch-rich crops, sugars, oil crops and main crops, adopting the same definitions as used in the Renewable Transport Fuel Obligations Order 2007. Amendment 16, in a similar vein, would exclude from support any sustainable aviation fuel derived from such crops.

I fully recognise the environmental concern to avoid diverting crops into fuel production, but legislating directly for this exclusion via statutory definition risks unintended consequences; for example, capturing advanced biofuels that use a mix of waste and feedstocks or deterring innovation where crop residues are responsibly utilised. The same aims can, we feel, be better achieved through policy guidance, sustainability criteria and a certification process already envisaged under the Bill, rather than through rigid statutory exclusion. As drafted, these amendments are overly prescriptive and would constrain technological evolution and government flexibility and discourage investment.

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[Lord Harper (Con)]

My Lords, my noble friend Lord Moylan set out the challenge—the thing you have to justify—to put the revenue certainty mechanism in place. It was certainly one of the things that I grappled with, and challenged the industry on, when I was the Secretary of State for Transport and we were developing the beginnings of this policy. As my noble friend said, the SAF mandate sets out some guaranteed demand for the industry producing sustainable aviation fuel. The challenge I always put to those thinking about investing in producing the technology was exactly the challenge that the noble Lord, Lord Moylan, set out: if you have guaranteed demand, what is the barrier to producing that product?

We discussed this in Committee. The logic is that, for some of these products, it is new technology that requires significant upfront capital investment, and the judgment is that, if you compare it to other similar sorts of investments that these investors are making, the risk is higher than with those other investments. Therefore, if you do not do something to close that gap, you will not see the investment in the technology, particularly here in the United Kingdom, where we want to see the production take place, at least in part, if for no other reason than resilience.

What you are really dealing with is closing the gap between the risks involved in producing SAF and the alternative products that those investors could invest in. I do not think, therefore, that you need an open-ended contract. You need to put some limits around it. I am sure that the Minister will have some responses on what those limits should be, but a very obvious one would be to have a time limit, so that investors have some certainty: they have guaranteed demand and a period when they will get a guaranteed price. That should enable the risk premium to be reduced and enable the investment and production to take place.

If we start from the assumption that it certainly does not need to be an infinite period and should therefore be fixed, the debate is therefore just about what the length of that period should be. Now, the Minister may want to come back and say that the 10 years proposed by my noble friend is the wrong number or limitation period, in which case I would be happy to listen to the arguments that he makes about an alternative period, but I do not think that the right answer is that it can be any length at all, with no cap on it. I would be much more comfortable if we put a cap on it.

Again, if, at some point in the future, there was a clear justification for changing it, there would be nothing to stop this or a future Government coming back to Parliament to change the position. But I do not want to see open-ended contracts in place, particularly since we have legislated for there to be guaranteed demand. So I strongly support my noble friend’s amendment, unless I hear a very good counter case from the Minister.

[Earl Russell (LD)]

My Lords, I am responding to Amendment 6 in this group, which seeks to cap the length of revenue certainty contracts to a maximum of 10 years. On the face of it, this might appear to be neat and disciplined but, in practice, we conclude that it is both arbitrary and unduly restrictive.

The noble Lord spoke about the need to control costs and we agree with that. It is also important, as we discuss this, to recognise that the Bill covers a range of technologies and huge investments going into them, but it may also include emerging technologies. Ten years is not derived from any settled evidence about what different SAF projects will require; it is simply a round number that seeks to be written into this primary legislation.

Some plants with high upfront capital costs and long asset lives may need longer-term revenue support to be financed at all, particularly in the current high interest rate environment. Others, especially later or more standard projects, could be perfectly viable on shorter contracts, which I am sure is the Government’s intention for many of the projects that will be considered. However, a single statutory ceiling takes no account of any of that diversity in these emerging markets. It is not really for us to know more than the Government and their officials, as they have details that we do not.

This amendment is also restrictive because it removes one of the Government’s key design levers. The ability to adjust contract length between technologies and over time, in response to costs and market maturity, is fundamental to achieving value for money. If we fix 10 years in the Bill, any future Government who judge that a 12-year or 15-year term is necessary to secure a first-of-a-kind project would be unable to do so without further primary legislation. This rigidity could also play into commercial hands, encouraging developers to structure bids around fixed terms in ways that actually undermine the very affordability that is spoken about.

While the intention is understandable, imposing an arbitrary timeline would remove the flexibility and pragmatism that any evidence-led scheme requires. It would, in effect, ask the Government to negotiate with one hand tied behind their back. We do not believe that this amendment is helpful in this emerging market, but we do think it is important that contracts are reviewed. On that, I ask the Minister, in the context of reporting later on, whether the length of caps that are imposed under the Bill is something that he would be prepared to include in the reporting information that will be made available.

[Lord Hendy of Richmond Hill (Lab)]

My Lords, Amendment 6 would require that the Secretary of State set a maximum contract term for revenue certainty contracts before exercising the regulation-making power in Clause 6. I draw noble Lords’ attention to the overall intention of the Bill, which is to generate a new and growing United Kingdom industry that, I hope—contrary to what the noble Lord, Lord Moylan, said—will be financed in the United Kingdom as well.

We are currently consulting on the detailed design of the revenue certainty mechanism. The consultation provides the rationale behind the indicative heads of terms, which sets out the framework for principal terms and conditions that could be included in a revenue certainty mechanism contract. As highlighted in the Government’s continuing consultation, we propose a 15-year term for all contracts. This aligns with the expected 10-year to 15-year debt repayment period that SAF producers will encounter. It is important that this flexibility is retained and not restricted by detailing a contract length in the Bill.

Final decisions are subject to the continuing consultation, which will inform the detailed design of the full terms and conditions of revenue certainty mechanism contracts. In answer to the question posed by the noble Earl, Lord Russell, I am sure that we can find a reporting mechanism that sets out the actual length of those contracts. I therefore respectfully ask the noble Lord, Lord Moylan, to withdraw Amendment 6.

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[Lord Harper (Con)]

My Lords, briefly, I support my noble friend Lord Moylan’s amendment. It is very important, particularly when we come on to later groups and are talking about the ultimate impact of this—which is that it will, in effect, fall on to the end consumer, as all taxes do—that we make sure that this is as simple and straightforward a process as possible, so that we can explain to people what we are doing, why we are doing it and what the cost is. That is always to be welcomed in policy-making.

Further, this should be workable and straightforward for aviation fuel producers. They are the ones that we have chosen to put the mandate on, in giving them the legal responsibility to produce sustainable aviation fuel and blend it with their regular fuel. The current structure transfers the level of financial risk to them. I agree with my noble friend Lord Moylan, in that I suspect that behind this—the Minister can tell us that we are wrong if we are—is the Treasury wanting to make sure, not entirely unreasonably, that there is no risk to the taxpayer. However, in doing so, all that has happened is that the risk has been moved on to the fuel supplier.

As my noble friend Lord Moylan says—I have thought about this as well, and I have listened to the industry—it seems that, for the producers to deal with the risk, they will have to increase what they charge the airlines. So rather than the cost and the risk falling on the Treasury and the taxpayer, it will, in effect, still fall on the taxpayer but just in their guise of an airline passenger who will face a higher ticket price. That is not very economically sensible.

The industry is very clear that the Treasury should not be picking up the costs for this. The only sensible thing would be to have a per unit price. There would be some risk for the Treasury in the short term, but that could be smoothed out over time, and the Government are perfectly able to do that. That would be a much better solution, and I hope that the Minister can at least indicate that that is where the Government’s thinking is. If he cannot do that, I suggest that my noble friend Lord Moylan is correct that we should have done the detail before the legislation, rather than the other way around.

[Earl Russell (LD)]

My Lords, I will speak to this group of amendments that deal with the design and timings of the revenue certainty mechanisms and the levy. While I recognise that concerns around fiscal discipline, transparency and fairness lie behind them, I do not believe that these amendments are the right way to address those concerns.

We have spent considerable time talking with industry and officials, and I am thankful to the Minister’s officials for taking the time to talk with us. We note that the consultation closed on 8 January. We have reflected to officials the concerns that industry has raised with us, and we are pleased that we had the opportunity to do that. We have confidence that Ministers, officials and industry are all working together, in what is a complex space, to find practical and workable solutions that balance a number of competing agendas. Added to this, I remind the House that these mechanisms will be subject to statutory instruments under the affirmative procedure.

Amendment 8, in the name of the noble Lord, Lord Grayling, would specify that the levy under Clause 6 can fund contracts only in respect of sustainable aviation fuel manufactured in the United Kingdom. We recognise the intention here and have some sympathy for it, but we believe that the concessions already granted by the Minister in group 1 fundamentally deal with this issue and give greater assurances to the House that the levy will be used only for those purposes.

Amendment 9, also in the name of the noble Lord, Lord Grayling, would narrow the other costs that can be met from the levy to those associated with directly related administration. Guarding against drift of levy funds into unrelated processes is absolutely right, but, in our opinion, the formulation risks overtightening. It could exclude legitimate and necessary scheme-related expenditures, such as certain forms of oversight, enforcement, market-enabling activity and the reporting that we will come on to in the final group. These would be unintended consequences. The Bill already confines the levy to the purposes of the mechanism, and regulations can and should be scrutinised by Parliament, but we believe that these restrictions would be too tight.

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For both those reasons, I support my noble friend’s amendment and look forward to the Minister’s response. Frankly, I cannot see any good reason why having some transparency is not a good idea. Perhaps more in optimism than experience, I look forward to him saying that the amendment is fantastic and accepting it—or, if he cannot do that, accepting that it is perhaps not drafted as well as it might be and committing to coming back at Third Reading with a better-drafted one that does basically the same thing. I look forward to him saying just that.

[Earl Russell (LD)]

My Lords, Amendment 12, tabled by the noble Lord, Lord Moylan, concerns the potential impacts of this Bill on airline ticket prices. I entirely understand the motivation behind the amendment. Passengers and airlines deserve transparency about how the levy costs will flow through to fares. However, this transparency is already in the Bill, and this amendment is not a particularly good way to improve on it. These Benches accept that there will be reasonable and affordable costs involved in introducing a revenue certainty mechanism, which will reflect the necessary investment to drive the transition to sustainable aviation fuel. However, we cannot support this amendment, for several practical reasons.

Amendment 12 would require the Secretary of State within one year of Royal Assent to publish a report assessing the impact of the revenue certainty mechanism on ticket prices, including whether the average increase exceeds £1.50 per ticket per year, followed by further annual reports for as long as the mechanism operates. The intention is fair, but the proposed process is largely unworkable in our opinion. The mechanism will take time to design, consult on and implement. Contracts will not be allocated immediately, and levy collection will ramp up gradually as supply chains mature. Within 12 months, there would be no meaningful data to analyse, only speculative modelling. A report produced on that basis would lack credibility and offer little value to Parliament or consumers. In the early days, as required by this amendment as drafted, it would provide very little value or information at all. Moreover, the Bill and its associated frameworks already provide robust reporting obligations, so, again, this is not a choice between providing transparency through this amendment or having no transparency.

The Government will lay a report before Parliament on levy design, contract allocation, production volumes and market development. These will give Members regular insight into the performance and the cost trends associated with the Bill.

In addition, airlines, which are best placed to assess the costs passed through to fares, will report on their sustainable aviation fuel uptake and related costs under the SAF mandate and wider aviation reporting requirements. That industry-driven data will provide a timelier and more accurate picture of the real-world price effects than a separate government study could ever hope to achieve.

There are also serious practical and cost concerns. Calculating per-ticket impacts would require access to commercially sensitive data, such as flight occupancy levels, which the Government do not hold and cannot compel airlines to divulge without imposing disruptive burdens. Establishing a separate, perpetual reporting duty would therefore create unnecessary bureaucracy and expense without improving transparency.

The Government expect that airlines will readily report on the impact of the Bill on air tickets. The practical solution is to build on existing reporting channels and refine them through guidance if needed, rather than introducing an additional obligation that cannot deliver meaningful insights at the required pace.

We share the desire for transparency and recognise that costs must be visible and fairly borne for this market to work, but Amendment 12 would not be the right way to do that. The information it seeks will already be available through integrated, industry-based reporting mechanisms. Ministers and officials both expect that this will be reported. I therefore urge the House to reject the amendment and support the Government’s practical approach to these problems.

[Lord Hendy of Richmond Hill (Lab)]

My Lords, bearing in mind the diligent research of noble Lord, Lord Moylan, on sustainable aviation fuel, I have resisted repeating the general aims of the Bill, but I want to say in respect of Amendment 12 that the Government are committed to keeping air travel affordable for UK holidaymakers and UK air travellers while fostering the development of a United Kingdom sustainable aviation fuel industry.

As the noble Earl, Lord Russell, said, it will take time for contract negotiations, for sustainable aviation fuel plants to be constructed and for the fuel itself to be produced and sold before any meaningful effect on fares can be assessed. The Government’s cost-benefit analysis, from which the noble Lord, Lord Moylan, quoted, of the revenue certainty mechanism that was published last year is the most reliable estimate of the likely impact on passenger air fares over this period. Given that little has changed since that cost-benefit analysis was produced, the amendment is unnecessary, as it would merely produce the same answer. I hope my explanation is sufficient for the noble Lord not to press his amendment.