EU policy stifles short-term SAF supply growth: OMV

Bad policy design limits the incentive to grow output of sustainable aviation fuel before the end of the decade, an official at Austrian refiner OMV said in an interview.

Sudden jumps in the EU's mandates for SAF uptake, as opposed to a gradual increase over the years, mean growth is likely to flatline ahead of big deadlines, holding back potential growth in the market, Nicole Löschl, advisor for SAF at OMV, told Platts, part of S&P Global Commodity Insights.

The bloc's ReFuel EU Aviation scheme came into effect in 2025 and stipulates that SAF must make up 2% of SAF put into planes at EU airports in 2025. This percentage then jumps to 6% in 2030, 20% in 2035, and 70% in 2050.

"The mandate could have been more supportive for the industry if the European Commission had opted for a step-by-step approach, gradually increasing the SAF blending requirement year over year until reaching 6% in 2030," Löschl said.

Both OMV and Dutch storage firm Royal Vopak said in the summer that the biofuels market is currently oversupplied but that as mandates get stricter, demand will lift.

"The 2% target for 2025 appears to be largely met, making it challenging for European producers to identify meaningful market opportunities before 2030. With the market expected to remain oversupplied until at least 2029, this creates uncertainty around near-term demand and complicates investment planning," Löschl said.

A progressive annual increase would better align with the pace at which new production capacity comes online, helping to balance supply and demand more naturally, she said. Maintaining the 2% level for four consecutive years makes it difficult for new projects to reach final investment decision, as it limits early market visibility and investor confidence, Löschl added.

SAF comes at a significant premium to conventional jet fuel. Platts last assessed SAF on a CIF basis in Northwest Europe at $1,797.50/mt May 27, 175% higher than jet fuel cargoes. That premium has declined from 203% when the SAF assessment was launched in September 2023.

ETS at odds with ReFuel EU

ReFuel EU Aviation, which is up for review in 2027, and the EU Emissions Trading System were developed in parallel by different teams, industry experts said, producing additional complications for industry players.

Under ReFuel EU, there is a flexibility mechanism that allows fuel suppliers to average SAF blending obligations across EU airports until 2035 to support the gradual scale-up of SAF production, as announced Feb. 28.

SAF is more easily provided at larger airports and so this flexibility mechanism should allow SAF provision to be built out to smaller airports too.

However, the ETS works on the basis of emissions reduction, not volumes of SAF, and for airlines to be able to claim an emission reduction, they need to have physically uplifted that SAF at a particular airport or to a particular aircraft.

OMV interprets the flexibility mechanism under the ReFuel EU Aviation regulation as being applicable within national borders, meaning SAF blending targets must be met within each country, not averaged across airports in different countries.

"That is the safe way of interpreting the flex mechanism, because it was not clearly outlined in the regulation itself," said Löschl.

Löschl also emphasized the need for alignment between the EU ETS and ReFuel EU rules, "I believe the EU ETS should be aligned with the flexibility provisions outlined in the ReFuel EU regulation. Without this alignment, airlines will be forced to source physical SAF wherever they can find it, which undermines the intended flexibility mechanism."

While both ReFuel EU and the EU ETS are compliance-driven systems, Löschl pointed out that the real potential for scaling SAF lies in the voluntary market. "This is where book-and-claim becomes interesting -- especially for voluntary SAF purchases that go beyond the mandate. Higher flexibility in terms of book-and-claim would be desirable," she said.

Currently, OMV faces limitations in supplying voluntary SAF. If an airline does not have a direct fueling contract with OMV, voluntary SAF volumes cannot be sold. "This is one example where a book-and-claim mechanism makes sense," Löschl said.

Reflecting carbon intensity

There have been calls within the industry to shift toward pricing SAF based on its actual carbon intensity, rather than relying on an assumption of a given percentage of GHG savings, such as 80%.

OMV's SAF achieves approximately 90% greenhouse gas savings, so the company supports a move toward a carbon intensity-based pricing model.

However, with the latest update to the EU's Renewable Energy Directive, or RED III, approaching implementation, it seems unlikely that such a change will be reflected in the near term, Löschl said.

"We are eager to see a system that recognizes the value of greenhouse gas savings," she said. "For airlines and freight forwarders aiming to pass on Scope 3 emissions reductions to their customers, the actual tons of CO2 equivalent savings matter. One ton of SAF with higher GHG savings delivers more CO2 equivalent reductions -- and that translates into greater value and business potential for the airline or freight forwarder," she said.

The revised Renewable Energy Directive, known as RED III, entered into force in November 2023. Member states had 18 months to transpose the directive into national law, with a deadline of May 21, 2025. However, traders expect delays in member states making this into law.