Today, sustainable aviation fuel (SAF) generally costs between 2 and 5 times more than fossil jet fuel. Bringing down the costs of SAF via strategies including public and private investment, market measures, and cost sharing is crucial for building widespread support for its deployment. This piece explores both the challenges and opportunities for bringing down the cost of SAF.

Although SAF can be made from many different materials and conversion processes, all of them are currently costlier than fossil jet fuel. The European Union Aviation Safety Agency estimated that the average production cost of SAF in 2024 ranged from €1,461 per tonne (for biofuels) to €7,695 per tonne (for e-fuels). We calculate that this is a cost premium of 2.1–10.6x compared with fossil jet fuel by converting fossil jet production costs from the International Energy Agency, reported in U.S. dollars per liter, into equivalent units. While e-fuel costs should come down when they arrive on the market around 2030, they are expected to remain far above the current price of fossil jet fuel.

The cost of SAF is primarily driven by the cost of its feedstock. For example, virgin vegetable oil is more expensive than the kerosene it is displacing. Making waste-based SAF with high cellulosic content is expensive due to inefficient supply chains for sourcing raw material and the enzymes needed to break down feedstocks into “drop-in” fuel. E-fuels, meanwhile, require high quantities of renewable electricity to produce renewable hydrogen (i.e., hydrogen produced via electrolysis using 100% renewable electricity) and extract diluted carbon dioxide from the atmosphere.

Risk of investment

It takes up to 5 years for SAF projects to reach final investment decision—a critical stage during project development that indicates whether projects are ready to move forward to construction—and many projects fail before this is achieved. Earlier this year, consulting group BCG found that fewer than 30% of SAF projects globally have reached final investment decision. Often projects come apart due to technology “valleys of death” during the transition between the demonstration and commercialization stages. This can be the result of poor project financing, mismanagement, or unforeseen technical barriers. SAF projects require significant funding and investor backing, particularly when constructing first-of-a-kind (FOAK) facilities. If funding support fluctuates (as it has with the recently revised 45Z tax credits in the United States), if producers cannot secure long-term offtake agreements, or if governments and other investors do not provide sufficient loan support, SAF projects may fail before final investment decision.

Fulcrum BioEnergy, which broke ground on a plant in Reno, Nevada, in 2016 and filed for bankruptcy in 2024, serves as a cautionary tale for FAOK facility deployment. The project failed in part because plant managers did not prepare for technical challenges similar to those that arose during a previous high-profile gasification project, the project failed to meet overly optimistic production deadlines, and representatives overstated progress that cost them the trust of investors. An expert retrospective assessment of this case suggests that greater transparency, improved risk management, and the use of third-party assessments could help future FOAK projects move from the development to commercialization stage.

From a financial perspective, investing in “advanced” SAF pathways requires a combination of “technology push” and “market pull” to overcome the “valleys of death” and reach commercialization. As of now, regions such as the United Kingdom and European Union have put SAF mandates in place with penalties for non-compliance; these are examples of a market pull. However, airlines have criticized the high cost of SAF purchases and called on regulators in these regions to review the timeline and trajectory of mandates amidst rising prices. Additionally, rather than being part of the technology push, the fossil fuel industry appears slow to act.

Market mechanisms

The United Kingdom has offered more than £200 million in upfront grant funding to second-generation SAF projects via its Advanced Fuels Fund, a form of technology push. This is paired with its SAF mandate and revenue certainty mechanism, which will take effect by the end of 2026; both act as a “market pull.” The revenue certainty mechanism allows SAF producers to enter into a 15-year contract with a counterparty to set a fixed guaranteed strike price (GSP) on fuel production. When the market price of SAF falls below the GSP, producers are reimbursed by the UK government for all financial losses below that price. When the market price is higher than the GSP, producers must return any profits above that price. We illustrate this cost sharing relationship in Figure 1 (below).

Figure adapted from UK House of Commons Library.

The UK revenue certainty mechanism is funded by a levy on aviation fuel suppliers that covers the cost of SAF payments and administrative overhead for the counterparty. This is a promising example of a policy that can be efficient, provide longer-term investor certainty, and be paid for in-sector. Other proposed funding mechanisms such as a double-sided auction can help minimize the costs of operating the scheme by introducing an auction on both supply (SAF producer) and demand (SAF offtakers).

Airlines and individuals downstream of the fossil fuel supply chain can also share in the costs of supporting aviation sector decarbonization. Airlines can enter into offtake agreements with SAF producers to meet company-level sustainability goals or partner with businesses to procure voluntary SAF via Scope 3 certificates. When these emissions reductions are properly tracked and accounted for in registries, they can be an effective way for customers to mitigate the costs of SAF procurement at any location around the world.

Regarding individual consumers, a 2022 ICCT study found that a levy rising from $0 per flight on a passenger’s first flight of the year to $177 on their twentieth flight could be used to generate $121 billion in annual revenue that could be used to pay for developing the SAF market. This would also help shift the burden from infrequent flyers to frequent flyers who are typically located in high-income countries.

While airlines and the private sector have taken small steps by engaging in offtake agreements and voluntary SAF purchases, successfully bringing SAF to market will require participation from all parties with penalties if any delay action. As I explored above, governments can ensure the largest financial contributions come from fossil jet fuel suppliers while designing cost-sharing mechanisms to offset these added costs. This follows the “polluter pays principle” where parties most responsible for pollution are the ones tasked with cleaning it up.