EU to subsidise high volume of greener aviation fuel to boost airline demand

The European Union has offered to subsidize airline purchases of more than 200 million litres of sustainable aviation fuels to encourage carriers to swap kerosene for cleaner alternatives, Reuters calculations show.

The calculations, based on European Commission data, suggest that the subsidies could trigger a significant boost to airline demand for sustainable aviation fuels (SAF), given the volume equates to about 15% of global SAF production. 

Global SAF output last year totaled 1.3 billion liters, according to airline industry association IATA.

The EU has earmarked revenue from the sale of 20 million carbon emissions permits to help airlines to cover the price gap between conventional kerosene and more expensive SAF on flights within Europe.

Reuters calculations showed these subsidies would cover purchases of up to 216 million liters of e-fuels - synthetic fuels made using captured CO2 emissions - or as much as 2.6 billion litres of biofuels.

The EU subsidies cover up to 6 euros per litre for e-fuels and 0.5 euros per liter for biofuels.

Aviation is among the hardest sectors to decarbonize, with zero-emission aircraft not expected this decade. 

Sustainable fuels, which have net-zero emissions or lower emissions than fossil fuel kerosene, can help to reduce air travel's carbon footprint in the near term. However, SAF costs three to five times more than traditional jet fuel and makes up only 0.3% of global jet fuel supply. 

Airlines have warned that EU targets to use more SAF are therefore impossible to meet, though a Boston Consulting Group report this year found that the sector is investing only 1%-3% of revenue or budget allocation in SAF. 

The EU requires 2% of fuel made available at EU airports to be SAF in 2025, rising to 6% in 2030.

Airlines must buy permits from the EU carbon market to cover their emissions from European flights. Until last year, the EU gave airlines most permits free of charge, but it is now phasing out free permits to drive faster emissions reductions.

(Reporting by Kate Abnett Additional reporting by Joanna PlucinskaEditing by David Goodman)