March 4 (Bloomberg) — The U.K. government released a consultation paper on March 3 detailing how it will support the green fuel industry and provide market certainty for sustainable aviation fuel (SAF) producers. This is part of the UK government’s plan to drive decarbonization of the aviation industry and promote economic growth.
As SAF is still a nascent industry, the government proposes to address the current market uncertainty by introducing an industry-funded price guarantee (i.e. Revenue Certainty Mechanism, RCM). The core objective of this mechanism is to ensure that producers receive a stable revenue stream even if SAF prices fluctuate, which in turn will help airlines and consumers reduce costs. To fund the RCM, the government proposes to impose a variable tax on aviation fuel suppliers.
The implementation of the RCM will provide the necessary stability in the green fuel market to support the continued production of SAF, which in turn will contribute to the aviation industry’s decarbonization goals. The mechanism is designed to be similar to the successful model used by the UK in the renewable energy sector, and is intended to boost domestic SAF production, attract more investment, and promote green jobs.
The UK government says the measure is primarily designed to address price uncertainty in the SAF market, particularly in the early stages, and to help scale up early-stage technologies, while ensuring producers have a fair chance in a competitive market. The government will continually monitor the impact of the measure and may manage the liability by setting support volumes and price limits.
The proposal will also limit cost increases and ensure that consumers (particularly vacationers) are not exposed to significant price volatility. Cost increases are expected to be in line with routine changes to flight fares.
In addition, in January this year, the UK introduced the Sustainable Fuels Regulations, which require aviation fuel sources to progressively move towards sustainability to ensure market demand and drive domestic production, and the implementation of the RCM will complement these regulations to further drive the SAF industry.
As part of the UK’s Transformation Plan, the RCM will not only help achieve net-zero emissions, but will also attract significant investment in the SAF industry, create green jobs and promote innovation. UK Aviation Minister Mike Cain said, “We are committed to paving the way for green flying while protecting consumers.” Airlines and related industries also actively support the RCM and look forward to the mechanism to promote the long-term development of the industry.
The consultation will run until March 31, and the SAF RCM Bill is expected to be tabled in Parliament in the spring.
