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Carbon Markets and SAF: Can SAF Achieve Price Parity with Jet A?

Carbon markets play a pivotal role in decarbonising the energy sector, offering a "carrot and stick" approach to incentivise emission reductions and generate capital for green projects. In aviation, one application is to provide a crucial financial incentive for the uptake of Sustainable Aviation Fuel (SAF) to meet mandates and blend targets.


Policies recognise SAF as a key tool in emission reduction. Although its tank-to-wake emissions are similar to that of conventional jet fuel, SAF has a carbon-negative production process which can result in significantly lower lifecycle emissions. This distinction makes SAF a critical component in aviation's path to net zero.


Two market-based measures dominate in Europe: the EU Emissions Trading System (EU ETS) and the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). Both are carbon market-centric, but they operate independently and have no immediate plans for integration. In fact, the EU ETS is under review for extending its scope to all flights into and out of the EU after 2026, potentially further reducing global exposure to CORSIA.


Despite their similarities, they both represent very different carbon markets – the EU ETS, associated with the act of emitting, is affected by sector wide emissions and thus demand for credits. Mandatory CORSIA participation allows airlines to mitigate their cumulative emissions and is affected by the Voluntary Carbon Market (VCM) and the ambitiousness of accepted offset accreditations.






Cap-and-trade system

Offsetting scheme

Carbon Market

Well-established, high prices

VCM - Under development, low prices

SAF Policy

Free allowances for SAF and tank-to-wake exemption

Reduced offsetting for SAF use


Flights within the EEA

International flights



Voluntary (pilot phase), mandatory from 2027

Price (June 2024)




Table 1 - the key differences between EU ETS and CORSIA, focusing on carbon markets


CORSIA and the VCM

Airlines have been heavily scrutinised for the use of carbon offsets, as a “right to pollute”.  Despite this, the first global emissions regulation, CORSIA, requires purchasing carbon offsets from the VCM, which, as the name suggests is not designed for compliance. Currently, airlines can purchase these offsets for as little as $3/t CO2, implying a lack of ambitiousness and stringency to CORSIA. Nevertheless, with growing fundamental demand for offsets, IBA Analysis expects VCM carbon prices to reach as high as $200 for aviation before 2040.  


IBA calculated the theoretical carbon price that would bring each SAF pathway in line with Jet A. HEFA requires the lowest carbon price of $520/t CO2. With extreme carbon prices required, it demonstrates the un-ambitiousness of CORSIA and its dependency on the VCM for incentivising SAF uplift. The range of prices represent the different types of SAF available, considering emissions reduction and price.



Figure 1 – the range of VCM prices at which if claimed under CORSIA, SAF will be price competitive with Jet A


EU ETS and the proposed SAF allowance

The EU ETS is a cornerstone of the EU’s strategy to reduce greenhouse gas emissions in aviation. Operating as a cap-and-trade system, it sets a limit on the total amount of CO2 emissions allowed from airlines operating within the EU. This cap is gradually reduced over time, to zero in 2026, creating a scarcity of allowances that incentivises airlines to reduce their emissions. The ETS operates through a carbon market, where airlines can buy or sell allowances based on their individual emission levels. Airlines that exceed their allocated allowances must purchase additional allowances from the market, while those that reduce emissions below their allocation can sell excess allowances. Uptake of SAF allows airlines to reduce exposure through emissions exemption.


In a bid to accelerate the adoption of SAF and mitigate the cost of removing free allowances to the aviation industry, the EU ETS has proposed a dedicated SAF allowance mechanism. Under this proposal, a reserve of 20 million allowances, with an estimated value of €1.7 billion at current carbon prices (June 2024), has been set aside until 2030. These allowances will be granted to aircraft operators based on the amount of SAF they uplift, incentivising the transition away from fossil fuels. It's worth noting that the full implementation details of this SAF allowance are still under development, with additional legislation expected in the near future.




Notable SAF types

Eligibility of price differential

EU ETS Exemption


Produced from renewable electricity




Advanced Biofuels

Derived from feedstocks listed in Part A of Annex IX of the REDII

Advanced HEFA, AtJ



Other eligible fuels

All other SAF that meets RED II sustainability criteria





Table 2 – the proposed structure of the EU ETS SAF allowance


Under the allowance, the EU are said to cover a proportion of SAF to incentivise uptake and reduce compliance costs. Additionally, all considered tank-to-wake SAF emissions are exempt from the ETS. Whilst this is expected to significantly increase SAF demand, the demand induced by the ReFuelEU mandate is for volume of SAF, instead of emission reduction, therefore you would expect to see slower AtJ and PtL demand before significant mandates are required in 2035.



Figure 2 – The SAF price that is price competitive with Jet A under a given EU ETS Price, considering SAF allowance and EU ETS exemption


There is a relationship between the price of each SAF criteria with the EU ETS carbon price that makes it price competitive with kerosene. The Other and Advanced Biofuel categories show an inelastic SAF price, whilst the RFNBO shows an elastic SAF price. At the current ETS price in June 2024 (€69), other SAF must be purchased at €1,217 for it to be price competitive with kerosene, whilst Advanced Biofuels and RFNBOs must be purchased at €1,480 and €4,770, respectively.


Relationship between two carbon markets

It's evident that carbon prices and the ambition of legislation can influence the relative cost of SAF uptake. Currently, CORSIA compliance is inexpensive, and since SAF isn't exempt, airlines are more inclined to claim under the EU ETS.


As airlines establish ambitious blending targets, the varying benefits of SAF uptake across different policies can significantly impact its adoption at regional airports. If CORSIA remains unambitious and airlines are compelled to use the Book and Claim mechanism under the ReFuelEU policy (structure to be announced July 1st, 2024), regional SAF prices could be affected. Increased EU subsidies and tax breaks for SAF, coupled with cross-exposure blend targets, may strain EU SAF supply and drive prices upwards. This highlights the importance of harmonising global emission policies and carbon markets to maximise competitiveness while effectively decarbonising aviation.


Following the implementation of the ReFuelEU Book and Claim policy on July 1st, IBA will publish a case study assessing the feasibility of meeting SAF blend targets in 2030.


IBA Group is leading the aviation emissions agenda with a dedicated ESG consulting team backed by our IBA NetZero platform, winner of the Aviation 100 Sustainability Technology Award for 2022 & 2023. If you have any questions or need support with navigating emissions policies, please get in touch

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