Sustainable Aviation Fuel Bill (First sitting)

Paul Kohler Excerpts

Committee stage
Tuesday 15th July 2025 Public Bill Committees

[Chris Vince]

Q Yes—I recognise that there are a lot of benefits of SAF, but I am wondering how the Bill can help that along.

Gaynor Hartnell: I think it is worth mentioning some of the environmental benefits specifically of producing SAF in the UK. They are focused on the second generation—that is, SAF that comes from waste. We have problematic waste to deal with in the UK, and it is better in terms of the proximity principle if we deal with our own waste domestically. There are various different feedstocks that the SAF mandate is seeking to encourage that have not traditionally been used, so it is aiming to expand the feedstocks to things such as end-of-life tyres. We currently export a lot of that waste to India, and we have heard in the news about the devastating environmental and health impacts that that has. If we deal with our own waste domestically, that is an environmental benefit; we will import somewhat less, but the aviation fuel we use at the moment is largely imported.

The main benefits of producing the SAF in this country are economic. The Government have realised that and they support it as part of their growth agenda, which it plays to.

Paul Greenwood: To round that out, if you listen to Rob’s comments, which I thought were very insightful, about the complexity of this and the need to ensure you get the right projects, with the right feedstock, at the right size and with the right basis, that to my mind is classic market distortion. Fundamentally, you are intervening in a market and saying, “I’m going to decide what is going to happen in this marketplace and I’m going to incentivise it to happen with a tariff.” The best way to do that is effectively to set a very clear demand signal, which happens through the SAF mandate, and let the market go and work that.

I do not buy into this idea that the market is incapable of supplying second-generation SAF; I had breakfast this morning—not because I was coming here today—with an Asian supplier who I deal with, who let me know that they had taken a final investment decision on a second-generation SAF plant in Asia that will be starting up in 2028. These things are happening; the market is responding. You are deliberately intervening in the marketplace with very good intentions, but it will distort that market signal. There is no doubt about it.

[Mr Paul Kohler (Wimbledon) (LD)]

Q Mr Greenwood has made a compelling critique of the basics—“We have a mandate; why do we need the RCM? There might be unintended consequences.” I know you disagree with him, but I would like to hear why you disagree with him.

Gaynor Hartnell: These projects are first of a kind, pretty much. This waste-based stuff is not being produced at scale anywhere in the world yet. It is very challenging to build one of these projects. There are numerous risks. You have Philip New coming later to give evidence; he has written a report on that, so you could ask him what those risks are. This addresses the showstopper risk if you like, which is the revenue certainty that a SAF producer can rely on when going to a bank and asking to borrow the millions or billions of pounds that it costs to build one of these projects.

In the UK, we now have many precedents of other large-scale projects that are driven by environmental requirements, from renewable electricity generation to carbon capture and storage. Those various different projects are all supported by some sort of equivalent to the contracts that will be let under this revenue certainty mechanism, whether it is a contract for difference for electricity or whatever. It is par for the course. We are not asking for this just because everyone else gets it so we should get it too. There is a competition for capital, among other things. If there are supported projects in terms of revenue stability, it will be easier for the capital to flow to those projects. This is a new mechanism. We are seeking new types of SAF production pathways. It is incredibly complex, and it is necessary.

Underlying all of this, the SAF mandate creates a market for greenhouse gas certificates, and the price of those certificates will be variable. It is very much built on a preceding policy—the renewable transport fuel obligation for road transport. That was just a demand mechanism without any accompanying equivalent to this revenue certainty mechanism. We import 85% of our road fuels, and we are not doing a very good job, I must say, given the opportunity, at preserving those early movers of projects that were built in the early days. Getting project funding is challenging, and it is not made easier by the fact that we have some early movers that are not managing to keep their renewable fuel projects going. I am talking about the bioethanol producers.

Rob Griggs: I agree with what Gaynor says. Ultimately, UK SAF projects are competing for investment against other renewable projects across the UK economy that have similar types of support—CFDs for energy and hydrogen and other types of things. In some way it is levelling the playing field a little for SAF compared with other forms.

I am here representing airlines; I am not representing producers. We want and we need SAF, and we want it as cost effectively as possible. We have seen all the evidence, given the nature of our mandate, its design, the global market and the work of Phil New that Gaynor referenced, which specifically asked that question: you have a mandate; why do you need an RCM? Everything suggests that given all those dynamics, without some form of revenue certainty you will not get that investment in the first-of-a-kind plants that we need to prove out the technology and get that initial set of volumes on a really aggressive timeline for 2030.

As airlines, on balance, we want the system to be competitive. We expect there to be imports as well as domestic production, but we think that without that UK 2G supply kick-started by the RCM, we will struggle and then we risk the buy-out. That is why we support it. On top of that, if it goes right, you get a UK industry better for your security, and jobs domiciled in the UK. It is a win-win, notwithstanding that as airlines, that is not necessarily our primary goal, but it is a huge benefit, so why not support it?

[Mr Kohler]

Q And issues such as tankering?

Rob Griggs: We think it is probably too early to say. We need to keep an eye on that and whether there are unintended consequences of the way that this is set up. It is one to monitor.

[The Chair]

We have six minutes left and two other Members want to ask a question. Mr Greenwood.

Paul Greenwood: I would take a look historically at the energy industry, which is a trillion-dollar industry. We have risen to the challenge of any technology that has been set and have managed to move from leaded gasoline to unleaded gasoline, and from high-sulphur fuel oil to low-sulphur fuel oil. New technologies come in all the time. We have the capability to deliver those if the market signals are right. I see no reason at all, as I look around the world, why sustainable aviation fuel, second generation, would not be the same.

--- Later in debate ---

[Alice Macdonald]

Q I want to pick up on the monitoring point. For example, say a consumer feels that they have had to pay a little more for a flight that is more environmentally friendly; how soon would you be able to quantify whether that mechanism had had an effect? In a year’s time, would you be able to say that it has meant that the carbon has been decreased by x amount?

Jonathon Counsell: Definitely. All SAF has to be independently assessed for its life cycle emission savings. Before we purchased it, we have to prove that, and as I said, get an independent authority to test the life cycle emissions. We will be able to declare publicly, of any SAF that we use, the independent assessment of its life cycle savings.

Lahiru Ranasinghe: If you look at the mechanics of how it works for meeting the mandate, there is a minimum threshold that we set when buying compliant fuel. In this case, compliant fuel is kerosene: fossil-based kerosene blended with SAF. When we pay for the supply, we get the product transfer documents, which have the sustainability criteria associated with that specific batch of SAF. At that point we can very accurately calculate the emissions saving. In terms of planning, we have to set a range, because there is some variation depending on the pathway and the SAF provided. Building on what my colleagues here have said, there is an opportunity for the UK both in home-grown production and up and down the value chain in the development and export of the technology and the financing and trading of SAF in the longer term. We have what is seen as a gold standard for sustainability criteria, especially going to 2G SAF and the conversion of waste into usable fuels, which addresses multiple issues at the same time and is something that we can export to the rest of the world.

[Mr Kohler]

Q Mr Counsell, I would like to quiz you on your first point. Given the premium on SAF, the mandate is going to cost far more than the RCM?

Jonathon Counsell: Yes.

[Mr Kohler]

Q The RCM is all about increasing the ability to produce, which will surely bring down the market price. Is not the RCM, in fact, an investment to cut your costs in the long run?

Jonathon Counsell: We support the RCM: it is a critical mechanism and you will not get 2G plants funded in this country without it. We spent the last five years talking to investors who said that the mandate is not enough. The mandate creates demand; it does not create investment. If you have a mandate on its own, all your SAF will be imported. The RCM unlocks the investment to get the plants built—so it is absolutely an investment, but the issue for airlines is that we are paying for the SAF and also paying for our carbon emissions. If we then pay for the derisking of the infrastructure, we are double-paying.

The EU ETS first established that the key principle is that money is recycled to help decarbonisation of those sectors that fund it. It is not taxpayers’ money. Aviation puts £500 million into the UK emissions trading scheme. That money is supposed to come back to support the decarbonisation of aviation. None of it does. All we are saying is, is that not a perfect opportunity to use some of that aviation money to support the costs that are coming back to us through the levy? Then we would not be paying twice. Instead, we would be paying for the levy, but through the UK emissions trading scheme.

[Mr Kohler]

Q To your point on the RCM, the money you put into the RCM will bring down your overall costs, because the premium on SAF will go down, will it not?

Jonathon Counsell: Absolutely—we hope that eventually, as you scale up SAF supply, the cost will come down. Will it ever come down to jet fuel levels? I do not think it will, because of the factor cost element. I agree with Paul Greenwood, who said earlier that one of the disadvantages we have in this country is high energy costs. We are doing SAF contracts with SAF suppliers in the US, where their energy costs are one third of those in this country, so we are at a disadvantage.

On 2G SAF, however, I think we have some real advantages: we have some sites, we have expertise and we have feedstock, both waste biomass and municipal solid waste. We put 20 million tonnes of municipal solid waste into landfill; we even ship 5 million tonnes of it to Europe. That is energy. We should be using it to make SAF. Those advantages can overcome the energy disadvantage in the short term. Hopefully we will sort out that energy disadvantage, but as we scale up those plants that SAF price should come down. It is an investment, but we do not want to double-pay for it.

Luke Ervine: Just to add and clarify, I think Luke Taylor asked a question earlier about ways to pay for the SAF mandate. We have always been very clear about paying twice through things such as the ETS scheme. We would love to see those revenues used to reinvest in the decarbonisation of the aviation industry. Given the economic value it returns and the Government’s growth agenda, we believe that creating a SAF industry also creates jobs and a lot of economic prosperity. The Sustainable Aviation report in 2023 estimated that the UK SAF industry would create about 60,000 new jobs by 2050 and about £10 billion gross value added by the same time. There is a benefit here for the UK economy as a whole purely in terms of the SAF industry, and using some of the taxes we currently pay to fund the RCM would be very helpful.

Lahiru Ranasinghe: I do not have much to add to what has already been said, but the cost of SAF means that the cost of fuel will go up in the long run, even with the RCM. In our minds, the RCM is something that unlocks production, as opposed to something that brings the cost down. The primary role we see for it is in getting production up so that supply can meet demand in the short run. Ultimately, though, we will have higher costs because of SAF, especially as eSAF and power-to-liquid comes in, and those costs will have to be passed through.

We are doing a huge amount to try to be as efficient as we possibly can; that is where the investments in aircraft and how we operate come in. As they say, the best energy is the energy you do not use, and in that way we are trying to manage our costs in the same way we have for the past 30 years, but I completely agree that we have to be wary of adding on to the costs we are already paying in the name of sustainability, both right now and in terms of meeting the mandates.

[Lewis Atkinson (Sunderland Central) (Lab)]

Q Building on the point Mr Ervine made about the potential wider economic contribution of SAF, I am particularly interested in the jobs. We have heard that 70% of existing fuel is imported, and therefore a significant part of your economic supply chain is essentially providing economic benefit overseas. Could you say a little more about—if we get this off the ground, as it were—how far you think that value chain and economic benefit will shift into the UK from imports? In particular, could you talk about the potential regional economic benefits of SAF, as opposed to being concentrated on London and the south-east?

Jonathon Counsell: From our modelling and analysis, we still want to have the flexibility to import SAF, because there is a global market there and we do not want to put ourselves at a competitive disadvantage by saying that all mandated SAF has to be produced in the UK. We still want access to imported SAF, particularly 1G SAF; we do not think the UK has much competitive advantage in producing 1G SAF. We think roughly 50% feels about right, and you have to compare it around that. Our view is that, of the mandated SAF, approximately 50% should be produced here in the UK—but, as I said earlier, not all of that will need the revenue certainty mechanism.

One of the key points that I want to make is that the revenue certainty mechanism is for those plants that cannot get funding: they are early stage, first-of-their-kind technology, and cannot get tracker funding because it is perceived to be too high risk by the investment market, and they cannot get that revenue certainty through any other mechanism, so therefore they rely on this mechanism. We think that roughly half of that 50% will need the revenue certainty mechanism.

A good example is LanzaJet in Teesside, the speedboat project that I mentioned earlier. That does not need the revenue certainty mechanism because we at IAG are providing the company with a long-term committed take-or-pay offer. We are giving the revenue certainty to LanzaJet, so that project does not need it; but other projects do, typically including the municipal solid waste projects that take black bag waste. They are at a very early stage, using less mature technology, and they are massively capital intense projects. They definitely need the revenue certainty mechanism, so we must ensure that it is targeted.

As Luke said, we think that by 2030 there could potentially be 10,000 extra jobs in the UK from that UK production. We can share a piece of analysis that we did through Sustainable Aviation that showed what that looks like for each region of the UK. We think there is certainly potential to build plants in Wearside, Teesside, Humberside and south Wales; if we get the policy right, we think there could be up to 14 plants within the next 10 years, which will deliver £1.8 billion in GVA by 2030.

However, the big prize will come in 2050: 60,000 jobs and £10 billion in GVA. We are creating a new energy industry for the UK. I have to congratulate the Government: we have potentially the most powerful package of SAF policy in the world, with the mandate, the revenue certainty mechanism and the advanced fuels fund. Taken together, they mean that we are the envy of the world and we have a huge chance to be a world leader on SAF production.

Lahiru Ranasinghe: To add to that, it would also enable UK aviation to grow. Our estimates are that each aircraft based in the UK supports around 400 jobs and £27 million of GVA. We have over 150 aircraft in the UK as it is, we have three aircraft going to a new base in Newcastle shortly and we absolutely intend to continue with the growth in the UK. By having the RCM unlock SAF production and SAF supply, that opens the doors to us to continue growing, while also decarbonising. That is a massive part of the economic benefit that the RCM helps to unlock, beyond the obvious effects of supporting jobs and production on the ground in the SAF industry.

Luke Ervine: Just to add a note on benefits, it is important to recognise the cost of not having the RCM. We have spoken a lot today about the buy-out. The UK is unique in its ambition to have a 2G SAF mandate, so the cost of not having the RCM is important. If we do not have it, we pay buy-out, and then we are going to lose out regionally to other areas, such as Europe and the US, that do not have those 2G SAF mandates, so it is important that we recognise that there is a cost of not having the RCM.