Sustainable Aviation Fuel Bill

Lord Berkeley Excerpts

2nd reading
Thursday 20th November 2025 Lords Chamber

[Lord Berkeley (Lab)]

My Lords, I support the Bill. I am not often known to be supporting aviation, but this is the first time there has been a serious attempt to reduce its carbon emissions. At the same time, it can be used also to help the millions of households across Britain that actually do not have access to gas. I spoke about this in a debate on the energy Bill earlier this year and I declare an interest as the owner of a house that does not have gas, so we have to use oil.

There are 1.7 million homes in the UK, serving about 4 million people, that are off the gas grid and rely only on heating oil. They will be suffering at the present time, when it is really cold. They are mostly in rural community areas, where alternatives such as heat pumps work sometimes but not always.

It has come out of the recent debate that HVO, hydrotreated vegetable oil, is a renewable fuel that can cut emissions from home heating by up to 88% compared with kerosene, which is used at the moment. It works as a drop-in replacement—you just tip it in the tank. I do not know, because I have not tried it. The reason I bring it up again this morning is that HVO is a by-product. It is only about 30% of the output from SAF and, as SAF production goes up, we can increase the domestic supply of HVO.

Ministers have rightly said that HVO will play a vital role in our aviation decarbonisation journey, and I certainly agree with that. But it looks as if the SAF mandate will accelerate that growth from what I think is about 2% of jet fuel demand today, rising to 10% in 2030 and 22% in 2040. That is enough HVO to provide a 66% or so blend of heating oil, which will sort out the decarbonisation needs of most off-grid homes. Especially at this time of year when it is really cold, this is a benefit not only for the aviation industry but for people who live in the countryside or cannot connect to alternatives.

We need the right mechanism, as other noble Lords have spoken about. Section 159 of the Energy Act 2023 gives the Government power to create a renewable liquid heating fuel obligation, which mirrors what the Labour Government did with the transport fuel obligation last time. I was really pleased, therefore, to read an announcement from the Government on Tuesday this week about a consultation on this. The industry that provides SAF and other similar material, working with their off-grid customers, has built up a considerable bank of evidence and data to show that this policy will actually benefit both consumers and the environment. I hope now that the consultation will allow things to move forward at pace.

I was interested to read that the Irish Government recently confirmed their intention to implement a renewable heat obligation, confident that their feedstocks are available to supply their off-grid homes. That is terribly important, as the noble Lord, Lord Grayling, referred to. If there are enough feedstocks, the market will work.

This is an opportunity to deliver a win-win: cleaner skies and warmer homes. I hope that my noble friend the Minister will discuss this with his new ministerial colleague, the noble Lord, Lord Whitehead—who was introduced today and has a lot of experience—confirm the Irish Government’s conclusion and commit to implementing Section 159 swiftly following the consultation.

On that basis, I hope we can have a win-win solution for aviation and home heating.

Sustainable Aviation Fuel Bill

Lord Berkeley Excerpts

Committee stage
Wednesday 10th December 2025 Lords Chamber

[Lord Moylan (Con)]

My Lords, for the convenience of the Committee, I rise to move Amendment 7 in the name of my noble friend Lord Grayling. While I am on my feet, I congratulate the noble Earl, Lord Russell, on his demotion to a mere barony. I assure him that it will pass, and his family will be able to resume their Earl-like status, I hope for many generations to come.

I wish to speak to my Amendment 11 in this group. I will try to put this in language that I understand—that is, fairly simple language. The levy has to be allocated. If the contracting party has to make payments to the producers of SAF, it will fund this by a levy, and the levy will be applied high up the supply chain; it will be applied to the producers of fuel. The people who produce aviation fuel will be adding a certain amount of SAF to their kerosene—an increasing amount each year—before then selling it to the airlines. As I understand it, that is the mechanism.

The question is: among the competing producers of aviation fuel, how is the levy to be allocated from one period to the next? I will assume for the sake of simplicity that the allocation period is a year. There is no necessity that it should be a year—it could be done six-monthly or monthly—but the Minister can say whether the Government have a clear intention about that.

My understanding is that the Bill envisages that the allocation will be based on market share. Market share can be measured only in retrospect. You can know what a company’s market share was last year or in the last six months; you will not necessarily know what its market share will be for the year to come. But, of course, companies are selling aviation fuel in the year in which they are acquiring market share, so they will not know what their levy is until the end of the year, or period, in which the levy is allocated to them, according to their market share. It will be impossible for them to have a clear notion of what they should be adding to the price of the fuel to compensate themselves for the levy. It is envisaged that they should compensate themselves for the levy through adding to the price of the fuel and selling it on, which is how the airlines and ultimately the passengers pick up the cost.

This is presented by the industry—to me, at least, and maybe to other noble Lords —as a very serious practical difficulty. The tendency will be to overcompensate and add more to the price of fuel than is strictly necessary to cover a levy which companies can only vaguely guess at. I accept that their market share is unlikely to jump wildly from one year to another. That does not happen in mature businesses; I do appreciate that. But the levy is quite sensitive even to modest adjustments in market share from one year to another. To get an accurate price to pass on to the customer, relying on retrospective market share is simply not going to cut it and the result may well be that customers end up being overcharged.

It would be better if the counterparty were able to calculate the levy on a transparent pence-per-litre basis. Another point of capital importance is that this could then be added to invoices so that anyone buying aviation fuel—which would normally be airlines, of course—would see clearly on their invoice how much had been added in respect of the levy. There is a suspicion in the industry, which I am sure the Minister wants to dispel, that the Government would rather obscure the additional cost of the levy, and that a system whereby it was written plainly on the face of an invoice would be unwelcome to them.

It would be useful if the Minister were to dispel that view, but I will leave aside that issue. Even if it were not a consideration, there is the important practical consideration of how this will be calculated by companies which will not know what their levy is going to be. This is an extremely serious issue about the implementability of the Bill. It is bound to come back on Report, because the Bill will not work unless this is sorted out; at least, it will not work in the way that the Government intend.

With that, I recommend my Amendment 11. I will be interested to hear what the Minister has to say about it.

[Lord Berkeley (Lab)]

My Lords, I will speak mainly to my noble friend the Minister’s Amendment 20. This is perhaps an odd order in which to speak on these things, but it does enable my noble friend to respond to me after I have spoken rather than before; I am sure that he would welcome that.

I want to talk about the relationship between sustainable aviation fuel and the production of renewable liquid fuels that could be used in home heating. I raised this at Second Reading and highlighted what I thought was a key point. The production of sustainable aviation fuel, particularly through the HEFA process, generates hydro-treated vegetable oil—HVO—as a by-product. In fact, HVO accounts for around 30% of the output—a significant quantity, I believe.

In the consultation on alternative heating solutions published a couple of weeks ago, the Government rightly acknowledged the role that HVO could play in decarbonising off-grid homes. I declare that my home is off-grid and relies on oil. Indeed, the Government highlighted that it would be the most cost-effective option for consumers of all the options considered. However, the consultation still questioned the feedstock availability of the fuel. What really pleased me was that, in the last few days, a Written Answer has been given to a Member of Parliament in the other place. It states:

“As of the 1^st of January 2025, a market for low carbon fuels for use in aviation and road transport has been supported under two separate schemes”—


the SAF and the RTFO. It continues by saying that targets under both these mandates

“are set considering global availability of feedstocks and competing demands between transport modes and across sectors of the economy”.

It basically says that there is enough material for both aviation and home heating. I think that is a major step forward.

When my noble friend comes to discuss his Amendment 20, I hope he will include a consultation with me, a few colleagues and our noble friend Lord Whitehead, the Minister for Energy Security, to discuss the significant benefits of working together for these two uses given that we have this Bill and a DESNZ consultation. I hope that this is just the right time to have such a discussion because it is a sensible strategic step towards meeting our decarbonisation goals.

--- Later in debate ---

[Lord Berkeley (Lab)]

My Lords, following up on the question from the noble Lord, Lord Moylan, about the £1.50, I may be missing something, but if that is a cost to UK airlines for passengers leaving or arriving at UK airports, do we add that to a similar cost which might be applied by France, Germany or Timbuktu? They may have different costs in creating SAF, if they ever get round to doing it. The noble Lord mentioned cabbages. Well, if you are flying to Russia, you probably get lots of cheap cabbages there and you can turn those into SAF. I think we need to know what the total cost is going to be for this particular journey, whether it is £1.50 or £10 or whatever.

Sustainability is fine, but we had a Question today about the Drax power station and wood chips. If you look at some of the consultancy reports on how those wood chips are made, you will see that most of the trees seem to have many years of life left in them, but we do not worry about that, apparently. A bit more detail from my noble friend the Minister would certainly give me a bit of comfort.

[Baroness Pidgeon (LD)]

My Lords, I shall talk about Amendment 19 and the impact on airline tickets, which I think is really important. At Second Reading, a number of noble Lords raised the impact on passengers, and it goes to the whole theme of our discussion this evening, which has been about transparency at every level of the Bill.

We should talk, maybe outside the Chamber, about what sort of comprehensive report we could produce on the impact of this legislation, whether that is the direct impact on the passenger, through the price of their ticket, or in all these other areas we have been discussing today. There is a cost as we transition to the greater use of SAF through the revenue certainty mechanism, and it is really important that passengers and the whole industry understand the true cost of the Bill, so I will be interested in the Minister’s response to the points that have been raised.

Sustainable Aviation Fuel Bill

Lord Berkeley Excerpts

Report stage
Tuesday 10th February 2026 Lords Chamber

[Lord Moylan (Con)]

My Lords, Amendment 6 requires, perhaps by way of introduction, a few words on the structure of the subsidy and how it actually works. Bear in mind that prior to all this, as I said earlier, a sustainable aviation fuel mandate was put in place by statutory instrument some 15 months ago which guarantees the demand for the product. There is a guaranteed demand: in simplistic terms, it is like saying that everybody in the country has to eat half a pound of chocolate every day.

If that were to be the Government’s policy and they put that in place, you would expect chocolate factories to spring up. Existing chocolate factories might expand; new chocolate factories would come into existence. So, what is the problem? Why is it that putting the demand in place is not sufficient? Why do you need to go further? Why are factories and investors not producing this stuff for which you have put in place a mandatory and growing demand over the years ahead? I do not know the answer to that.

The Government have decided that putting the demand in place is not enough. To satisfy our somewhat rapacious foreign investor friends, they also need to be given a guaranteed price for the product. Not only is half a pound of chocolate going to be eaten every day, but you will have to guarantee the price in order to get the chocolate factories to work.

That is what the Bill does. It is not about putting the demand in place—that exists—it is about guaranteeing the price, and the way to do that is to provide some form of subsidy. Of course, a direct subsidy out of the coffers of the Treasury is almost unaffordable in our current circumstances, but it is also unnecessary because the Government have, as we know, discovered in the field of wind farms and solar panels the device of the contract for the difference.

A contract for difference is a way of guaranteeing a price, and it is done by putting in place a counterparty—separate from the Government, but essentially a government glove puppet—which will enter into contracts with these foreign investors to guarantee them a price. They will negotiate the strike price, but on what basis they will negotiate it, what skills they will bring to negotiating it, how they will be certain they are not going to be given the runaround and end up with a very adverse price—none of these things is put in place or explained to us. They will end up with a contract, which will be in place for a number of years. The effect of the contract will be to increase the price of the fuel. The increase in the price of the fuel is very likely to find its way through to ticket prices. So this Bill has an indirect but none the less fairly ineluctable consequence: it will increase air fares.

When you ask the Government by how much air fares will go up—and we are going to do that later, in group 5—they say they have done an assessment and it will be, per year, which I think means cumulatively every year, £1.50 up or £1.50 down. They do not know. It is a fairly small amount and fairly neutral, but it is almost impossible to discern how they reach that conclusion, or to find it very credible, because airlines are complaining that the HEFA they have to buy already, because the mandate is in place—and they were buying it even before the mandate came in—is turning out to be very expensive indeed compared with standard aviation fuel.

It is wrong that Parliament and the Government should burden future generations for unnecessarily long periods with these additional costs of travel and subsidies. Therefore, I propose that any contract entered into strictly by the counterparty—not by the Government but under the direction of the Government—should have a term of no more than 10 years.

Clause 1(7) of the Bill—I drew attention to this in the last group—envisages a sunset clause after 10 years. It is extendable under Clause 1(8), as the Minister said, but it has a sunset clause in it. That, however, is not a limitation on the length of the contracts that might be entered into during that 10-year period. You could quite lawfully enter into a contract with a life of 100 years within that 10-year period. There should be some limit put on that, because these costs will fall not on oldies like us, whose flying days are passing, but on young people over the rest of their lives and their careers. There may well be no justification for it by then. Who knows, by then we may well be paying people to produce a fuel but life has moved on and the fuel is not necessary. Yet we will have to buy them out of that, and that will fall on air passengers. So, a10-year limit on the contract should be quite enough for any foreign investor to start up this process and get it going. They have a guaranteed price for 10 years and after that they should be on their own. That is what the substance is of this amendment, which I beg to move.

[Lord Berkeley (Lab)]

My Lords, this is a very interesting amendment, because a revenue certainty contract, as the noble Lord, Lord Moylan, said, is wonderful for the suppliers. It presumably links in not just the price but the volumes—which may change from year to year —and the sources. The noble Lord opposite mentioned the issue of Drax and where that material comes from every year. Would there be a 10-year guarantee price for that? As the noble Lord, Lord Harper, said, any old agricultural product that was edible could be covered as well. And we have not yet discussed the worry that many people have about the number of trees and everything else being cut down in the Amazon basin, which could also be covered by this. So, a revenue certainty contract is pretty difficult and this amendment is a good start in at least limiting its scope and time.

[Lord Harper (Con)]

My Lords, my noble friend Lord Moylan set out the challenge—the thing you have to justify—to put the revenue certainty mechanism in place. It was certainly one of the things that I grappled with, and challenged the industry on, when I was the Secretary of State for Transport and we were developing the beginnings of this policy. As my noble friend said, the SAF mandate sets out some guaranteed demand for the industry producing sustainable aviation fuel. The challenge I always put to those thinking about investing in producing the technology was exactly the challenge that the noble Lord, Lord Moylan, set out: if you have guaranteed demand, what is the barrier to producing that product?

We discussed this in Committee. The logic is that, for some of these products, it is new technology that requires significant upfront capital investment, and the judgment is that, if you compare it to other similar sorts of investments that these investors are making, the risk is higher than with those other investments. Therefore, if you do not do something to close that gap, you will not see the investment in the technology, particularly here in the United Kingdom, where we want to see the production take place, at least in part, if for no other reason than resilience.

What you are really dealing with is closing the gap between the risks involved in producing SAF and the alternative products that those investors could invest in. I do not think, therefore, that you need an open-ended contract. You need to put some limits around it. I am sure that the Minister will have some responses on what those limits should be, but a very obvious one would be to have a time limit, so that investors have some certainty: they have guaranteed demand and a period when they will get a guaranteed price. That should enable the risk premium to be reduced and enable the investment and production to take place.

If we start from the assumption that it certainly does not need to be an infinite period and should therefore be fixed, the debate is therefore just about what the length of that period should be. Now, the Minister may want to come back and say that the 10 years proposed by my noble friend is the wrong number or limitation period, in which case I would be happy to listen to the arguments that he makes about an alternative period, but I do not think that the right answer is that it can be any length at all, with no cap on it. I would be much more comfortable if we put a cap on it.

Again, if, at some point in the future, there was a clear justification for changing it, there would be nothing to stop this or a future Government coming back to Parliament to change the position. But I do not want to see open-ended contracts in place, particularly since we have legislated for there to be guaranteed demand. So I strongly support my noble friend’s amendment, unless I hear a very good counter case from the Minister.

--- Later in debate ---

[Baroness Pidgeon (LD)]

My Lords, there has been a lot of consensus at each stage of this Bill. The Government have shown that they are willing to listen and make amendments as we have debated. They have consulted the sector on different aspects of this legislation. As we have heard, this is an emerging field in terms of technology and production in the UK. That is why we on these Benches feel it is important that we have full transparency, so that we can understand how the revenue certainty mechanism is working, the impact on the sector and how we are developing this new sector in the UK. This also helps the passenger in terms of information.

My Amendment 13 asks for a report covering a number of important areas such as the volume of SAF produced in, supplied to and used in the UK; the types of SAF; an estimate of the reduction in greenhouse gas emissions resulting from the production; and the uptake and use of SAF by air travel providers. This is about ensuring that the public and industry can see the impact of this policy and the revenue certainty mechanism. It would ensure clarity about progress towards sustainable aviation fuel targets. This requirement for reporting on progress is a simple measure that we believe would help with the understanding of the Bill.

I thank the civil servants who have met my noble friend Lord Russell and me over recent weeks and listened to our concerns. I hope that the Minister will see the amendment as adding value to the Bill, and I look forward to his response. I beg to move.

[Lord Berkeley (Lab)]

My Lords, I support this amendment, which we discussed at some length in Committee. The amendments then, which other noble Lords supported, covered the relationship between the sustainable aviation fuel used for aeroplanes and the same fuel used for home heating. I declare an interest as having a boiler in Cornwall that survives very well on home heating.

Interestingly, sustainable aviation fuel produced through the HEFA process generates hydrotreated vegetable oil as a by-product. HVO accounts for approximately 30% of the output, a significant amount that should not be overlooked. HVO can play an essential role in helping to decarbonise the 1.7 million oil-heated households that are off the gas grid. Otherwise they use electricity, which is expensive.

Last month, we had a delegation from the village of Kehelland in Cornwall who have all been trying out HVO in their houses for about three years. They travelled, leaving at 2 am, to meet the Minister at DESNZ to present their response to the consultation that we discussed earlier—a 500-mile round trip shows they are pretty committed. But what is interesting is that, in describing their experience of using the fuel, they highlighted how renewable liquid fuels can cut emissions from home heating by up to 88% compared with kerosene—88% is a figure worth having. They work simply as a drop-in replacement. The Government’s consultation said that, of all those considered, this was the most cost-effective option for off-grid consumers.

However, the consultation still questions the feedstock availability for the fuel, which we discussed in earlier amendments today. It is puzzling that the DfT is confident that there is more than enough feedstock to boost SAF production by 22%. The research done by the industry, the EU Commission and the Irish Government indicates that there is enough feedstock—again, we have discussed that at length. I was pleased to welcome the Government’s confirmation in a Written Answer that the targets under the SAF and RTFO mandates

“are set considering global availability of feedstocks and competing demands between transport modes and across sectors of the economy”.

That seems to highlight that there is enough material for both aviation and home heating, so it would be a great shame if we pitted one sector against the other, rather than try to have a bit more of what you might call cohabitation in-between.

To incentivise HVO production, I believe a renewable liquid heating fuel obligation needs to be implemented—that is the solution—triggered under Section 159 of the Energy Act. That would create the necessary market mechanism, in a similar way to the SAF mandate and the RTFO, to give certainty to the industry to distribute HVO to households at an affordable price. I hope that I can persuade my noble friend when he responds to try to ensure that his department, the Department for Transport, and DESNZ are working hand in hand to ensure that we can scale up the production of sustainable aviation fuel to capture the benefits of HVO for home heating. I must not keep asking him for meetings every day, but, if he would accept, it would be very nice to have a meeting with him and our colleague the noble Lord, Lord Whitehead, the Minister for Energy Security, to discuss the benefits of this approach. The consultation closes today, so it seems to be the right time to meet.

[Lord Harper (Con)]

My Lords, I have to confess to having been a little perplexed when the noble Baroness, Lady Pidgeon, moved Amendment 13, because I had just listened to the speech of her colleague, the noble Earl, Lord Russell. I thought my noble friend Lord Moylan’s proposal simply to publish and have some transparency about ticket prices was perfectly reasonable, but the noble Earl, Lord Russell, set out a whole raft of reasons why that was entirely unreasonable, incredibly difficult, completely unnecessary, bureaucratic and costly and why we should not bother ourselves with it, and he then proceeded not to support my noble friend’s amendment. Although I disagree with the noble Earl, he made some perfectly reasonable arguments, although not ones that I agree with. I am perplexed because his noble friend’s amendment is very comprehensive and would place some really quite significant reporting requirements on the Government in a way that seems to be completely at odds with the argument that the noble Earl just made.