Executive Summary

The aviation sector accounts for 2%-3% of global carbon emissions. As other sectors accelerate their low-carbon transitions, aviation’s share of emissions is projected to rise significantly. Sustainable Aviation Fuel (SAF), a low-carbon alternative to conventional jet fuel, can reduce carbon emissions by up to 80% throughout its full life cycle and has become one of the key pathways for the global aviation industry to achieve carbon neutrality goals. However, the global SAF industry faces challenges such as immature technologies, limited feedstock supply, and high costs. In 2024, global SAF production was approximately 1 million tons, representing only 0.3% of jet fuel consumption, and its price was 2 to 3 times that of conventional aviation fuel.

Major economies have implemented varied policy measures to foster SAF industry growth. The European Union (EU) and the United Kingdom (UK) employ blending mandates, market mechanism and fiscal incentives, requiring aviation fuel suppliers to gradually increase the SAF blending ratios. The United States (US) emphasizes fiscal subsidies, offering tax credits to SAF producers and funding research and development. Singapore plans to introduce a dedicated SAF levy and a centralized procurement fund for SAF, alongside mandates for waste oil recycling in the food service sector and the establishment of cross-border biomass supply chains. International experiences demonstrate that leading economies leverage policy mixes to address bottlenecks in the SAF industry's early stages.

For China, accelerating SAF development is strategically vital. In terms of decarbonization, a 5% SAF blending ratio could reduce annual CO₂ emissions by 6.7 million tons, supporting China's "dual carbon" targets for 2030 and 2060. The global SAF market holds immense potential, with demand projected to exceed 360 million tons by 2050. China is advantageously positioned to capitalize on this, thanks to abundant supplies of used cooking oil, agricultural and forestry residues, and renewable energy resources, which underpin key production pathways such as Hydroprocessed Esters and Fatty Acids (HEFA), Alcohol-to-Jet (AtJ), and Power-to-Liquid (PtL). Additionally, the SAF industry can advance the circular economy by integrating renewable sectors.

However, China's SAF industry remains in its infancy, trailing global leaders. During pilot phases, the price of SAF once exceeded RMB 20,000 per ton, several times the cost of conventional jet fuel and notably higher than SAF price in EU and the US.  While domestic capacity has expanded, the lack of stable demand and a market-driven pricing mechanism impedes industry development. Consequently, elevated costs and profitability challenges burden all participants across the supply chain and end-users.

Given China's strengths in SAF, policies should prioritize reducing the "price premium" over conventional jet fuel to enhance market viability. The core challenge is insufficient demand, which limits scaled production, inflates unit costs, and impedes technological advancement. Cost breakdown analysis indicates that economies of scale could yield significant long-term reductions, particularly for e-fuels (PtL pathway). Preliminary estimates suggest that once cumulative PtL-based SAF production surpasses 1.6 million tons, costs could approach those of traditional jet fuel.

Accordingly, the research team recommends demand-side interventions to ensure market uptake and enable scaled production, alongside establishing a market-based pricing mechanism to sustain the entire SAF value chain. Drawing from international best practices, we propose the following policy recommendations.

First, integrate SAF into China's 15th Five-Year Plan (2026–2030) and mandate minimum blending shares. Develop and issue the "China Sustainable Aviation Fuel Industry Development Plan (2026–2035)" with explicit blending mandates to stimulate demand. For example, a 2% mandate in 2026 would generate annual demand of approximately 800,000 tons, rising to 2.65 million tons at 5% by 2030, laying the foundation for scaled production.

Second, pass the price premium to passengers via SAF surcharges. For a 2% blending mandate, airlines would face an additional RMB 8 billion in costs based on current prices and consumption. Fully passing this to passengers equates to roughly RMB 11 per traveler—a modest burden. Design a market-based mechanism, piloting voluntary surcharges on international routes to the EU and UK, with tiers based on flight distance. To encourage participation, introduce a complementary green credits system: passengers paying the surcharge earn credits redeemable for accelerated membership upgrades, mile redemptions, or airport lounge access, fostering a cycle of "green travel, credits earned, benefits enjoyed."

Third, incorporate SAF into government green procurement system. Require civil servants and state-owned enterprise employees to pay a dedicated SAF surcharge on business flights, integrated into total costs alongside airfare and standard fees. Upgrade public procurement systems to automatically calculate and itemize this as a "SAF Green Procurement Surcharge" within travel budgets and reimbursements. This demonstrative public consumption can spur broader market demand.

Fourth, establish long-term procurement agreements and market-based pricing mechanisms.  Promote direct offtake agreements between buyers and producers to secure stable pricing. To mitigate cost fluctuations (e.g., prices of used cooking oil), adopt practices like the UK's Revenue Certainty Mechanism (RCM). Longer-term, allocate a portion of carbon pricing revenues from allowance auctions to a dedicated fund subsidizing producer returns. This framework would balance cost-sharing across the value chain through transparent, stable procurement.

Fifth, enhance supply chain efficiency. Accelerate mass balance adoption to reduce costs and infrastructure retrofits. Harmonize regional tax policies to eliminate disparities. Implement phased airport upgrades, prioritizing dedicated SAF storage and refueling at sites near production facilities and major hubs, enabling efficient blending and integration with minimal specialized infrastructure.

Sixth, develop internationally aligned SAF standards and certification systems. Expedite China's domestic standards and certification frameworks, ensuring alignment with global benchmarks. Formulate rigorous quality and environmental criteria covering the full SAF lifecycle, in line with international aviation decarbonization needs. Deepen engagement with global bodies to influence standard-setting, facilitating domestic enterprises' access to international markets.

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