Sustainable Aviation Fuel Bill (First sitting)

Graeme Downie Excerpts

Committee stage
Tuesday 15th July 2025 Public Bill Committees

[Greg Smith]

Q That is very helpful. Before we move on to the next witness, may I probe two elements of what you said? On your last point about costs ultimately being passed to the consumer, the Government stated clearly—the Minister said it from the Dispatch Box on Second Reading—that the Department for Transport believes that any addition to, or indeed subtraction from, airfares as a result of the Bill will be no more than £1.50. Do you agree with that point?

Secondly, you have talked about advanced SAF. Does the Bill do enough to safeguard any state involvement in encouraging the right long-term technology, rather than standing up earlier technologies that we can all see might well need to be stood down in 10 or 20 years when something better has come along?

Rob Griggs: We recognise the £1.50, and we absolutely welcome the commitment through the mandate that if there were price spikes as a result of SAF policy, steps would be taken to address that. For us, it is probably a little too early to say definitively what the price impact of the RCM will be. A lot of it depends on its ultimate scope and design, as well as the costs in the 2G market and the strike price.

We have to bear in mind that ultimately it is the market price of SAF that will drive the biggest impact on ticket prices and the costs borne by the sector. With the RCM, the costs relate essentially either to paying the difference between the cost of SAF and production or to the fact that money can come back the other way. Relatively speaking, although the RCM costs are very important and we need to do everything we can to make sure that they are kept as low and as efficient as possible, they are part of a bigger picture. There are a number of factors that will determine the cost of SAF for the UK. We need to get everything right; the RCM is just one part.

You asked whether the Bill will support the advanced 2G SAFs. The UK has taken a fairly unique route with SAF and the mandate. We have the sub-mandate for advanced SAF, which is about 300,000 tonnes by 2030. We think that it could be a pretty smart move for the UK to do that, because at some point 1G SAF will become feedstock-constrained. That could happen sooner rather than later. We could put ourselves in a really good position by having a domestic advanced SAF industry producing the scalable SAFs that will play an increasingly big role.

The Bill, as written, is technology-neutral. There a number of ways in which you can do advanced SAF. When we come to the design and how projects are chosen, allocated and prioritised, we think it will be really important that this RCM supports projects that are quickly deliverable, scalable and commercially viable to help us to meet the volumes that we will need come 2030. There is nothing in the Bill that says that that cannot happen, but the design stage and how we get into the detail will matter.

Gaynor Hartnell: I agree that no amendments are necessary for the Bill. It has a fairly discrete job, which is basically to get the counterparty established and engaged and to get the levy in place. All the detail on how the revenue certainty mechanism works will come through in secondary legislation. We are very engaged with the thinking and the development on that, as we have been in the lead-up to the RCM becoming a policy of both the former Government and this Government.

It is important to get the design right. Broadly, we are happy with this. The fuel producers are agnostic as to who pays the levy. It is good to hear you note that the cost is going to be small; indeed, it could go either way. There is quite a bit of confusion between the costs of the mandate and the costs of the revenue certainty mechanism. We are keen to make sure that the differences are understood.

Paul Greenwood: I fear I may be a slightly dissenting voice, after you have just heard some comments about how everybody is very supportive. I will start with our perspective at FIUK; I will talk very much as ExxonMobil, but please feel free to challenge me on how there may be some differences in view across the members of FIUK.

Let me start by saying that ExxonMobil owns and runs a very large refinery and petrochemical complex, the Fawley refinery in Southampton, which is actually the largest producer of jet fuel in the UK. We supply about 13% of the UK’s jet market and have recently invested $300 million in a new larger pipeline from Southampton to London. I say that just to highlight the fact that we take the aviation business and the supply of jet fuel very seriously.

One thing is absolutely clear: this is very well-intentioned. We all wish to decarbonise, but I think we have to call out some fundamental flaws in the Bill. I do so with the aim of saying, “Let’s make sure that we can be really clear about what this is doing and what some of the potential unintended consequences are.”

First, I think it is important to say—this might sound slightly controversial, but I do not wish it to be—that this is not a step that will decarbonise. It is a step that will increase the production of sustainable aviation fuel. The way you decarbonise is effectively by incentivising consumption of sustainable aviation fuel, which we already do through the SAF mandate. The SAF mandate is a reasonably well-developed tool that sets a volume threshold and a buy-out price. That is a major lever that you pull as a Government to incentivise consumption. Let us be clear that this is around incentivising production.

My question is not necessarily whether the Bill is right or wrong; I just do not think it is necessary. What you want is a market that functions and sends a signal, and then production will meet that demand signal and the sustainable aviation fuel will be supplied. My question is whether the Bill is necessary.

Let us look at some of the unintended consequences. The first is that there will potentially be an incremental cost, which will be put on the fuel supplier and then, in theory, passed over to the consumer. It is important to say that although that has been put under the principle of the polluter pays, the fuel supplier in this scenario is not the polluter; it is clearly the passenger on the aeroplane or the person who is booking freight on a cargo plane. They are the ones who are causing the flight to happen and creating the consumption. Our principle should therefore be that the cost of the levy goes directly to those entities, but the way we look at it now, it is structured in such a way that it is based on the market share of the fuel supplier.

That gives us two issues. First, it is not really on the polluter; it is on the fuel supplier. Secondly, we are very concerned about whether we will have the absolute transparency necessary to be able to pass 100% of the cost through to the ultimate consumer: either the passenger on the plane or the person who books the freight. We strongly urge you to look at that mechanism and perhaps look at something like the contracts for difference supplier obligation levy that exists in the electricity sector. That is one way of asking, “What are the actual costs? What are we going to impose as a levy?” It is published, it is transparent, the supplier knows what we are going to charge, and what we charge the supplier is 100% passed through. There are a lot of mechanics I think we really need to be clear on.

It is also worth saying clearly that if we have a mechanism that we do not believe is necessary, but which is going to incur incremental costs, we will be passing incremental costs to British consumers and to an area in the UK that is clearly a global market. Having a potentially higher jet fuel cost because of the levy will have some unintended consequences. First, it makes the UK less competitive. Secondly, planes can tanker in fuel, as we all know, so if fuel is more expensive in the UK than elsewhere, people will fill up with more fuel in France, for example, before they fly into the UK, thereby decreasing demand in the UK, decreasing revenues and ironically increasing consumption because more jet fuel is being hauled around the world. I think that those are important unintended consequences that we need to take into account.

[Graeme Downie (Dunfermline and Dollar) (Lab)]

Q To pick up on an item raised by Mr Greenwood, we have heard the Government talking about how this is the first legislation of its kind in the world. What impact do the other members of the panel feel it will have on the global market for SAF, and for airlines more generally?

Rob Griggs: One of the key reasons why we support the RCM and see it as necessary is that we have a mandate that—unlike the EU mandate, for example—has an advanced subsection. We therefore require advanced SAF. At the moment, something like 85% of all the SAFs produced in the world are first-generation HEFA—hydro-processed esters and fatty acids. That is used cooking oil-type SAF; it is perfectly legitimate, but it is ultimately feedstock-constrained. The world will be drawing on more and more SAF, and at some point we will be likely to reach what people are calling a HEFA tipping point, where there just will not be enough of it.

The UK, through its policies, is focusing on second-generation advanced SAFs, which are technically more challenging and more expensive, but also more scalable. As airlines, the absolute worst-case scenario that we are trying to avoid, and that we think the RCM is really important in helping us avoid, is a situation whereby in 2030 the suppliers who are the mandated party simply cannot access through the market the advanced SAF they need to fulfil their mandate obligations. It is not being made anywhere at the moment. A lot of HEFA is being made, but not advanced SAF.

We need advanced SAF here in the UK. The US is making some advanced SAFs, but they have feedstocks that are not for our mandate—they are often crop-based. Without the RCM driving the production of advanced SAFs, we are concerned that we simply will not be able to access it. If that happens, the buy-out price kicks in for the suppliers, which is likely to be passed on to airlines.

The worst case scenario is that, in 2030, the mandate essentially fails because there is high buy-out, all the cost gets passed on to airlines, there are no SAFs, which means no decarbonisation, and then we are unable to claim our SAF against the emissions trading scheme obligations, for example. To be clear, we do not think that the RCM should cover all mandated volumes of advanced SAF; there needs to be competition. It should be there to get those first plants built, and to provide a quantity of that mandate—potentially a substantial quantity, but part, not all, of it.

If we can get a competitive scheme, where the market for advanced SAF is becoming competitive, and the RCM helps to get some of those first difficult plants built, the UK could be in an advantage position, because the global market for SAF, at some point, will need to expand into the advanced SAF area, and the UK could have got a head start on that through our approach. That is the upside of what we are doing, notwithstanding the challenges of getting it right.

Gaynor Hartnell: The question was about the impact on global supply. I think Rob is absolutely right that the UK’s policy is unique. It is very much envied. I have been at many conferences where the greenhouse gas basis, versus it being volumetric, was lauded. The existence of the RCM is envied by SAF developers in other jurisdictions. It is already having an influence globally by being visible in doing this special seeking-out of waste-based SAFs, which are incredibly challenging to develop. These projects are very complicated, which is why the RCM is totally necessary; I disagree with Paul Greenwood about that.

Paul Greenwood: Let me build on the question of necessity. To be clear, I know that everyone is trying to do the right thing here, but the reason this is being called for, for entities in the marketplace, is because it is very difficult to manufacture things in the UK, and that is because energy costs, carbon dioxide costs and labour costs are incredibly high. It is very difficult. Not very long ago, we used to have six refineries in the UK; one of them was shut down for operations and another has gone insolvent. There are four refineries left, so it is very difficult to manufacture things effectively in the UK at a profitable level.

What the Bill does is say, “Because of that problem, we’re going to incur more costs in a niche, new business, and we’re going to input that cost on to the existing fuel suppliers, which are already struggling to survive.” We need to be clear about what problem we are trying to solve. Effectively, I think this is a distraction. We need to look at the core fundamentals that are impacting our manufacturing base in the UK, because that is the primary struggle that we have.

[Luke Taylor]

Q Thank you for joining us. I think we are in a slightly unusual position, in that we are all competing to try to make slight improvements to legislation that we all agree is necessary and positive. My question is about the source of the funding for the RCM. The Government made it clear that their preference is that it comes from a levy on users. An alternative, which we see in other jurisdictions, is that it comes from ETS sources, which would slightly more directly couple the emissions component to the consumption. The intention to not predicate the source of funding on the money being provided is clear. Do any of the panellists have an opinion on those two options and the path that the Government have taken for the funding source?

Gaynor Hartnell: There are really only two options for the levy: airlines or aviation fuel suppliers. A large part of why aviation fuel suppliers were chosen may have been because, administratively, they are the obligated party when it comes to the mandate. They are expected to pass the cost of the mandate through to airlines—their fuel customers. They would be expected to pass the cost of the levy to airlines, or indeed, if the levy actually brings in money—these are very small balances of money in comparison with the balances to do with the mandate—they would be expected to pass those costs back to the customers. The aim is to deal fairly with a fairly small amount of money. It is not the additional cost of the sustainable aviation fuel; it is just the cost of levelising and stabilising it, which is a sliver in comparison.

Rob Griggs: For us as airlines, the funding is a critical issue about fairness and accountability. As Gaynor said, the understanding is that the levy will be on the supplier. The issue for us is that we understand that the costs are likely to be passed through to airlines. We just want to make sure that that is transparent. We have seen through the early stages of the mandate that there is some concern that excessive compliance fees are perhaps being put on to the SAF. Voluntary SAF seems to be a lot cheaper than mandated SAF and there is not necessarily a clear reason for that. We want transparency in terms of how the levy is passed through.

As Gaynor said, in theory, if the market price for SAF is high—if there is relatively little of it—it is likely that the suppliers will actually pay into the counterparty. We want to make sure that if money is essentially being paid back to the counterparty from the producers, that money does not just go to the suppliers and sit there. There should be a transparent mechanism, however it works, through which that money then comes back to airlines and airline customers. It has to work both ways, essentially.

How do you do that? We have looked at ETS for a long time. You are right that in the European Union, the emissions trading scheme funds are used: for example, to help to close the price gap on SAF. We are not doing that, which has competitiveness implications for UK SAF, separate to the RCM. Of course there are ways to make sure that it is a two-way street.

Paul Greenwood: We have to recognise that if the desire is to pass the cost on to the passengers, the airlines and the people who are shipping freight around the world by plane, then we should put the charge on them. That is the most direct way of doing it. There are charges now that are put on airlines and on freight directly. There is no reason why you cannot do this as well. I do not buy the argument that it is a relatively small amount of money, therefore we should just put it on to the fuel suppliers and they should deal with it. I do not think that is right. I certainly do not agree with the idea that this is because “the polluter pays”—that is erroneous and a false statement.

We do not know how much this will be, because we do not know how many projects there will be, what the costs will be, or how the CFD mechanism will go. We do not know what the cost of this will be. I support what Rob is saying: if this is something imposed upon us, I do not wish to profit from it but I do want to pass 100% of it on to the consumer of my fuel. The only way I can do that is if I know what it is ahead of time, so that I can bill them the exact amount of money so they pay the exact amount. At the moment, this legislation talks about market share, but market share moves and changes. Therefore it is a very imprecise way of doing that.

Ours is a very fine margin business. If you get this wrong, you will make the UK a less attractive market. We have to understand that fundamentally people will do different things around their molecules. One data point worth remembering is that about 70% of the jet fuel consumed in the UK at the moment is imported. Effectively, we rely on people bringing jet to market to sell it profitably. If they are uncertain around the cost of that jet fuel, they will potentially look to sell it into different markets, which can lead to energy security and market dynamic issues. There are unintended consequences here that need to be thought through very carefully.

--- Later in debate ---

[Luke Taylor]

Q Thank you all for joining us. The evidence that you have given so far has been very helpful. There was a question earlier about waste hierarchy and the availability of waste feedstocks as one source of raw fuel or raw material for some of the second-generation SAF. Is enough being done across Government, in a holistic way, to ensure that the goals of the SAF mandate, the RCM and this Bill are achieved? Is enough being done to ensure that the things that are needed—waste feedstocks, the reforms to planning and energy production for eSAFs—are in place? What is going to hold back what we are trying to achieve in this Bill, and what needs to be done elsewhere?

Jonathon Counsell: That is a really strong point. There is a key question about the waste hierarchy, which Gaynor spoke to. Currently, waste going to SAF is treated the same way as incineration or energy from waste, but the analysis is clear that we can get twice as much energy capture from producing SAF than from producing energy from waste. We feel that you are getting a lot more bang for your buck from using waste to produce SAF than from other things, which we think should be reflected in aviation being prioritised in the waste hierarchy.

On renewable energy, last year the Sustainable Aviation road map made it quite clear that 3G SAF—where you basically electrolyse water to get hydrogen and you capture CO₂ from the atmosphere—is going to take a lot of renewable electricity. We are going to need a lot more of that within the UK if we are going to support a domestic power-to-liquid market.

Luke Ervine: In addition to that, we need to think about other areas of SAF, when we talk about SAF having a nominal value associated with its ability to reduce greenhouse gases. We are working alongside the Department for Energy Security and Net Zero and the Department for Business and Trade to understand how carbon can form part of the solution, and decarbonising the SAF that we are producing is also key. We are also working side by side with the Treasury to understand what the revenues from the ETS look like.

That has been quite successful in the last few years, especially since the advent of the jet zero taskforce, which was a really key turning point. I think we are going to continue in that vein to work cross-departmentally and across industry to work through some of these finer details. I think it has been very useful to be part of the Jet Zero Council; we are actually a co-chair, alongside Mike Kane, of the jet zero taskforce. Carrying on in that vein is very important and useful.

Lahiru Ranasinghe: This also enables us to reduce our dependence on used cooking oil imported from elsewhere in the world as a feedstock for first generation SAF. A strategic move towards 2G and 3G also gives more flexibility and capability for the market to scale up in the long-term, and allows it to use waste products from the UK, as opposed to having to ship it in from China or south-east Asia.

[Graeme Downie]

Q You alluded to this earlier, but have you done any work with your customers—either passenger or freight—on how much they care about SAF specifically, or sustainability more generally? If you were not working towards the kind of targets that you are, do you think that would impact customer choice? Do you see this as a competitive advantage between yourselves, or globally as well? Also, to pick up on something that Jonathon mentioned earlier, do you think there is enough in this legislation on what needs to happen after, if it is passed, to encourage the necessary investments, particularly in third-generation SAF and beyond that?

Jonathon Counsell: On the customer perspective, we did a lot of surveying of our customers, and it is no surprise that there was a bit of scepticism about offsets and all the history with those. When it comes to SAF, I think there is general recognition and support: people think, “You burn a lot of fuel, so it just makes sense that you are trying to find a lower carbon fuel.” There is a lot more acceptance of that. We have always offered voluntary schemes for our customers to offset their emissions. We provide offsets, carbon removals and SAF. The uptake is very low, but SAF is proving quite popular, so I think there is greater acceptance of SAF as a solution for aviation than some of the others.

What I will say is that corporates have gone gangbusters—if I can use that technical term—on SAF, and we do something called SAF Scope 3. A lot of the big corporates set very ambitious net zero targets by 2030, particularly professional services firms such as consulting firms, banks and law firms. When they do their carbon footprinting, a huge proportion is from their flying activity, so they come to us and say, “I want to address my carbon emissions”, and we can offer them SAF. We can sell the carbon attributes as what they call a Scope 3, and that has literally taken off. Most of the SAF that we bought last year came with a SAF Scope 3 deal from a corporate. That is fantastic, because we can use that revenue to reinvest and buy more SAF. From a corporate market, there is definitely very good acceptance of the power of SAF to reduce our emissions.

[The Chair]

May I say that we want full answers, but we have three other Members who want to ask questions? We have 11 minutes left.

Luke Ervine: I agree with Jonathon; the corporate world is where we see most support for SAF, particularly in cargo companies. They are very mature in the way that they think about SAF, largely because they have clients—as freight forwarders, they have clients—that demand CO₂ reductions. That is corporates and cargo.

We recently undertook a survey. I cannot remember, off the top of my head, what the split was, but a large proportion of our passengers really valued the ability to buy SAF—less so carbon credits; they relished the ability to buy SAF. In terms of competitive advantage, we are all working with the same levers, and there are not many of them in the aviation industry. We have invested in those fleet transitions to cleaner, more efficient aircraft. We are 82% transitioned into new NEO—new engine option—fleets at the moment, and we will be 100% by 2028. There are competitive advantages in this space, but we are all dealing with the same basic levers in order to drive our customer base and attract customers in.

Lahiru Ranasinghe: We probably have a slightly different customer base from the two airlines here. A large proportion of our travellers are people who travel once a year, or once every couple of years, on their holidays.

Generally speaking, we have asked customers, and they care about sustainability, and about easyJet and the airline becoming sustainable, but it is not something that those who travel infrequently engage with frequently enough for it to be a consideration. Also the question about SAF, for example, is a complicated one. I completely agree on the corporate side, but on the average customer side, it does not feel like a competitive advantage right now.