The aviation sector is undergoing a major transformation with the implementation of ReFuelEU Aviation (RFEUA) in January 2025. This regulation mandates fuel suppliers to ensure the supply of Sustainable Aviation Fuel (SAF) at European airports. While the initiative aims to reduce emissions and accelerate aviation decarbonization, it also introduces new economic and operational challenges for airlines.
As fuel suppliers pass on compliance costs, airlines must navigate pricing pressures, certification complexities, and supply chain constraints. Ensuring a fair and transparent SAF market is crucial for achieving sustainability goals while maintaining economic viability.
VURDHAAN remains engaged in this transition by supporting airlines in understanding SAF compliance, emissions accounting, and regulatory alignment, helping them strategize for a cost-effective and sustainable future.
Understanding ReFuelEU Aviation
RFEUA sets out a gradual SAF blending mandate, requiring increasing percentages of sustainable fuels in aviation fuel supplies. The primary objectives include:
- Reducing aviation emissions by increasing SAF usage.
- Ensuring consistent SAF availability across EU airports.
- Creating a structured regulatory framework for SAF certification and compliance.
Though the regulation places the SAF supply obligation on fuel providers, the financial burden ultimately falls on airlines, impacting ticket prices and operational budgets.
Challenges in SAF Access and Pricing
Despite regulatory ambitions, the reality of SAF availability and pricing in Europe presents significant challenges:
1. Limited Competition in Fuel Supply
Fuel supply at European airports remains highly concentrated, with over one-third of EU airports relying on three or fewer fuel suppliers. This limited competition gives suppliers pricing power, allowing them to impose high compliance fees on airlines.
2. Disproportionate Compliance Surcharges
Rather than offering direct SAF contracts, fuel suppliers often apply a “ReFuelEU compliance fee”, which can be twice the market price premium of SAF and four times the price of conventional aviation fuel (CAF). This cost inflation creates uncertainty for airlines, as there is no assurance that the SAF quota will be met, nor that airlines will receive proper sustainability documentation.
3. Challenges in Fuel Contract Negotiations
Historically, airlines have managed jet fuel costs through self-supply programs and strategic partnerships. However, the anti-tankering provision in Article 5 of RFEUA, requiring airlines to uplift 90% of their annual fuel needs at individual airports, reduces their flexibility to negotiate better contracts and avoid excessive pricing.
Financial Impact on Airlines
The compliance fees and limited competition in SAF supply could result in significant additional costs for airlines. A survey conducted by IATA found that:
- The average compliance fee for 2025 equates to twice the market premium for SAF.
- At current fuel demand levels, a “fair” surcharge of €25 per tonne would already add €1 billion in extra costs for airlines in 2025.
- However, with an average quoted surcharge of €50 per tonne, airlines could face €2 billion in additional annual fuel costs.
These inflated costs do not necessarily correspond to the actual cost of SAF production or logistics, raising concerns about supplier pricing practices and market transparency.
Potential Solutions for a Fairer SAF Market
To ensure that RFEUA delivers its intended environmental benefits without excessive financial burdens, several mechanisms can be explored:
1. Flexible SAF Compliance Mechanisms
Article 15 of RFEUA introduces a flexibility mechanism to reduce compliance costs for fuel suppliers and streamline SAF logistics. However, clear implementation guidelines are still needed to ensure cost efficiency and fair pricing.
2. Centralized SAF Accounting and Registries
A robust SAF accounting system could allow airlines to use SAF purchased through offtake agreements to fulfil RFEUA mandates without unnecessary buy-sell transactions. This would increase market efficiency and reduce costs.
3. Cross-Border SAF Flexibility
Currently, fuel suppliers must meet State-specific mandates, limiting the ability to optimize SAF distribution across Europe. A cross-border compliance system would allow suppliers to allocate SAF more efficiently, reducing unnecessary logistics costs and emissions.
Aligning SAF Incentives with EU ETS
Under the EU Emissions Trading System (EU ETS), airlines receive carbon reduction credits for using SAF, with 20 million free allowances allocated to support SAF uptake between 2024 and 2030.
However, SAF eligibility under EU ETS requires physical delivery of the fuel to the airport. This creates an inconsistency where fuel suppliers can meet their obligations flexibly, while airlines must ensure on-site SAF availability to claim incentives. Aligning RFEUA and EU ETS regulations could create a more effective decarbonization framework.
The Role of Non-European Airlines and Dual Conformance
Many international airlines operating in Europe are not covered by EU ETS. This creates a disincentive for them to purchase SAF, as they cannot claim its environmental benefits under the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).
Implementing a dual conformance system—where SAF batches are certified under both EU RED (Renewable Energy Directive) and CORSIA—would allow non-European airlines to benefit from SAF investments, increasing overall demand and market stability.
Conclusion
ReFuelEU Aviation is a milestone regulation in the push for sustainable air travel, yet market inefficiencies and pricing challenges threaten its effectiveness. Without clear guidelines on compliance flexibility, transparent pricing, and SAF accounting, airlines could face billions in unnecessary costs, impacting their ability to invest in long-term sustainability solutions.
By addressing competition barriers, aligning regulatory incentives, and enhancing cross-border flexibility, stakeholders can create a more balanced and effective SAF market—ensuring that aviation decarbonization remains a shared and achievable goal.
Download PDF Here: Access to SAF in Europe- Effects of ReFuelEU Aviation (RFEUA)