Sustainable Aviation Fuel: SAF Production, Policy, and Investment Outlook

Introduction

Sustainable aviation fuel represents the aviation industry's primary decarbonization pathway, and it is rapidly becoming a meaningful area of energy banking deal flow. Unlike ground transportation (where electrification provides a viable alternative to fossil fuels), commercial aviation has no near-term alternative to liquid hydrocarbon fuels for long-haul flights. This makes SAF, a drop-in replacement for conventional jet fuel produced from renewable feedstocks or synthetic processes, the critical technology for reducing aviation's carbon footprint. SAF production reached approximately 1.9 million metric tons in 2025 (double the 1 million metric tons produced in 2024), but this still represents only 0.6% of global jet fuel consumption, highlighting the enormous scale-up challenge.

For energy bankers, SAF sits at the intersection of downstream refining, renewable diesel economics, and policy-driven investment mandates. The same feedstocks, production technologies, and incentive frameworks that drive renewable diesel also apply to SAF, but with different economics, different policy mandates, and a different demand profile.

Seven ASTM-certified pathways exist for producing SAF, but three dominate current and near-term production.

HEFA-SPK (Hydroprocessed Esters and Fatty Acids, Synthesized Paraffinic Kerosene)

The most commercially mature SAF pathway, using the same hydroprocessing technology that produces renewable diesel. HEFA converts lipid feedstocks (used cooking oil, animal fats, vegetable oils) into a kerosene-range product that meets jet fuel specifications. HEFA SAF has the lowest production cost among certified pathways (approximately $1.45 per liter, or roughly $5.50 per gallon), but still costs more than double the price of conventional jet fuel. HEFA currently accounts for the vast majority of global SAF production.

Alcohol-to-Jet (AtJ). This pathway converts ethanol or isobutanol (produced from corn, sugarcane, or cellulosic biomass) into jet fuel through dehydration, oligomerization, and hydrogenation. LanzaJet's Freedom Pines facility in Soperton, Georgia became one of the first commercial-scale AtJ plants when it began production. AtJ costs have declined meaningfully, with some producers achieving costs of approximately $2.10 per liter after LCFS credits, but the pathway remains more expensive than HEFA without significant credit support.

Fischer-Tropsch (FT). This pathway gasifies biomass or municipal solid waste into synthesis gas (CO + H2), then converts the syngas into liquid hydrocarbons through Fischer-Tropsch synthesis. FT-SAF has the most favorable carbon mitigation cost (approximately $459 per ton of CO2 equivalent avoided) and can use a wide range of waste feedstocks, but the capital cost of gasification facilities is substantially higher than HEFA or AtJ plants.

Government mandates are the primary demand driver for SAF, because the current price premium over conventional jet fuel (2-5x) means airlines will not voluntarily purchase SAF at scale without regulatory requirements or sufficient incentive structures.

EU ReFuelEU Aviation. The European Union's ReFuelEU regulation mandates minimum SAF blending percentages at EU airports: 2% in 2025, ramping to 6% by 2030, 20% by 2035, and 70% by 2050. The mandate includes sub-targets for synthetic e-fuels (power-to-liquid SAF) starting at 1.2% in 2030. HEFA can satisfy 100% of the SAF mandate through 2026, but its eligible contribution decreases over time (71% in 2030, 35% in 2040), forcing the development of non-HEFA pathways.

US incentives. The US approach relies on tax credits rather than blending mandates. The IRA's Clean Fuel Production Credit (Section 45Z) provides up to $1.75 per gallon for SAF (reduced to $1.00 per gallon under the "One Big Beautiful Bill" reconciliation legislation enacted in July 2025) for producers meeting prevailing wage requirements. Combined with RFS RIN credits and state LCFS credits, the total US incentive stack can significantly narrow the gap between SAF and conventional jet fuel pricing, though it does not fully close it for most pathways.

The SAF market's fundamental challenge is the gap between production costs and what airlines can economically absorb. At current levels, the SAF premium translates to approximately $3.6 billion in additional fuel costs for the global airline industry in 2025. As mandates increase, these costs will either be passed through to passengers (estimated at $2-8 per ticket for intercontinental flights at current SAF blend rates) or absorbed through airline margin compression.

For energy bankers, SAF creates advisory opportunities in several areas. Project finance for new SAF production facilities requires structuring around policy-dependent cash flows, feedstock supply risk, and offtake agreements with airlines. Feedstock competition with renewable diesel producers (who use the same HEFA technology and the same lipid feedstocks) is a critical constraint that bankers must evaluate when underwriting SAF economics. Airline corporate procurement programs, where carriers sign long-term SAF offtake agreements (often structured as "book and claim" arrangements where the SAF is physically delivered to one airport but the emissions reduction is credited to the airline's overall operations), create contractual frameworks similar to power purchase agreements in the renewable energy space.