Renewable Transport Fuel Obligations (Sustainable Aviation Fuel) Order 2024

Lord Moylan Excerpts

Tuesday 5th November 2024 Grand Committee

[Lord Trefgarne (Con)]

I apologise to your Lordships for not being in my place when we resumed following the Division.

I have a simple question for the Minister. Can he say whether all this applies to general aviation, in particular aviation involving smaller aircraft which very often run on aviation gasoline and not the fuel that forms part of this agreement? This is important because the price of fuel is a critical part of operators’ costing, they need to know where and when they can get it and that it will be available when required. In essence, the question is, does this apply to general aviation and to smaller aircraft running on gasoline, as well as to larger ones running on turbine fuel?

[Lord Moylan (Con)]

My Lords, I am grateful to the Minister for arranging a briefing with officials so that I could better understand this complex proposal. The briefing was indeed helpful and I learned a great deal.

I find this a troubling statutory instrument not because I have any objection to the use of SAF by aircraft—indeed, I welcome that—but because of the chosen mechanism. We are still meant to be a free-market country and the normal means of market operation in this country is that, where there is a demand for something, a supply is forthcoming.

We are told that, despite the fact that SAF is estimated to cost between three times and seven times as much as standard kerosene-based fuel, there is a genuine and strong demand for it from airlines, not because they enjoy paying more for their fuel necessarily but because from their own reputational point of view they wish to do as much as they can to decarbonise the operation of their fleets. SAF is the principal technique available to them for doing that at the moment, as the noble Baroness, Lady Randerson, pointed out, so the demand undoubtedly exists. Why is the supply therefore not forthcoming? Why is it that they would have to go somewhere else to buy SAF—which is the implication of their position—when the demand exists here and we are home to major suppliers? Nobody seems to have explained this.

We have decided, despite the fact that we allegedly operate a market economy, that the Government are going to intervene so as to mandate the supply of this fuel. The means of mandating it is through this instrument —through the mandate—and that will not only oblige it to be produced but oblige it to be sold in certain quantities that will increase every year.

That addresses only the standard available type of SAF—the HEFA-type SAF that the Minister referred to. There are other, more exotic means of producing SAF not yet available, some of them perhaps even undreamt of. They will be subject to a separate mandate so that, to fulfil the mandate, it will be obligatory to produce some SAF by these alternative methods. That graph continues to grow over a period, as illustrated in the table on page 7 of the statutory instrument. What I would really like to know is: why can this not be done by the market?

--- Later in debate ---

[Lord Hendy of Richmond Hill (Lab)]

I thank all noble Lords for their contributions to this debate. I will take the questions from the noble Baroness, Lady Randerson, first. Her first questions were about the length of time that it has taken to bring this statutory instrument together.

We have engaged extensively with industry in this area. Two consultations have been completed and, in both cases, industry was generally supportive of our proposals. The most recent consultation, in March 2023, received 104 responses and the government response to this was published in April 2024. We received responses from a range of stakeholders, including fuel suppliers, airlines and NGOs, so it has been extensively consulted on. This statutory instrument replaces the previous one tabled, because there has been a change of Government; the current one was therefore tabled by the new Government.

The noble Baroness asked whether this is good SAF and what good SAF is. The Government have been clear that the mandate must deliver fuels with the highest sustainability credentials. We are therefore putting in place strict sustainability criteria that SAF must meet to be eligible under the mandate. SAF must be made from sustainable waste or residues, such as used cooking oil or forestry residues; recycled carbon fuels, such as unrecyclable plastics; or power-to-liquid fuels made using low-carbon, renewable or nuclear energy. SAF produced from food, feed or energy crops will not be allowed. We will continue to monitor the sustainability of SAF pathways to ensure that high sustainability standards are maintained.

The noble Lord, Lord Trefgarne, asked whether this applies to general aviation. I have been referred to a very complex answer, but I am not sure that I can do full justice to his question. If the noble Lord will indulge me, I will write to him fully on that.

Lastly, the noble Lord, Lord Moylan, raised some questions. He asked about the cost implications for passengers. I am assured that, although SAF will be more expensive than traditional jet fuel, it must be right that the costs of decarbonising the fuel are borne by those that produce the emissions. Providing that sufficient SAF is available, increases in average airfares will fall within the range of their annual variations, seen historically, from which it is not difficult to deduce that the effect on passenger numbers will be quite small.

The noble Lord, Lord Moylan, is correct that the guaranteed return is not in this instrument. That is why the Government have committed to a revenue certainty mechanism.

If there are any questions that I have failed to answer completely, I will write to noble Lords and the noble Baroness about them.

[Lord Moylan (Con)]

May I briefly ask the Minister something? There seem to be two guarantees going on here. Might the Minister be able to inform your Lordships about how they will interact? One is a guaranteed price mechanism. As I understand it, although I am happy to be corrected, the suppliers will be guaranteed a price for the SAF, the suppliers being the large companies that supply this type of fuel—the BPs and so on of this world. The other is a guaranteed return to the investors. The investors are presumably the people who will pay for the construction of the facilities that will produce this material, source it and so on—that is, the infrastructure required to generate it. Can the Minister say how those two guarantees interact, both legislatively and financially? Is the Minister saying that one is being legislated for in this instrument and one is to come later? Noble Lords would be interested to understand that, I think.