The government recently invited views in a public consultation on a revenue certainty mechanism (RCM) for Sustainable Aviation Fuel (SAF).
A revenue certainty mechanism is an important part of the UK Government’s SAF mandate, which was announced early this year, and would guarantee a minimum price for SAF. It’s claimed that without a RCM, the nascent SAF industry may struggle to attract private investment. However, while a RCM is seen as a necessary mechanism for the success of the SAF mandate, taxpayer’s money should not be used to fund it.This is what AEF, and a coalition of twenty other civil society organisations, said to the Government in a joint response to its public consultation. The polluter, in this case the aviation sector, should be responsible and carry the financial burden.
AEF also submitted an additional response relating to the detail of the proposed design options for an RCM. In this, we agreed that HEFA-based SAF should not be covered by the RCM as it has already overcome many of the technical and commercial challenges facing other technologies. We also continue to have reservations over some sustainability claims and supply issues relating to HEFA fuels.
We suggested that the mandate auto-ratchet (MAR) and mandate floor price (MFP) mechanisms are not favourable options as they provide less certainty for investors and can’t be targeted specifically at UK SAF production. Under the MAR, the mandate adjusts when there is an oversupply in the market, increasing demand and bringing up the price. The MFP would introduce a minimum price at which SAF mandate certificates could be sold, thereby guaranteeing a certain level of income for producers.
We are inclined to support using the guaranteed strike price (GSP) mechanism as it follows an existing, working design and has limited disadvantages. The GSP guarantees an agreed price of fuel produced to SAF producers – if the market price is lower than the agreed price, the producer is provided the difference by the administrator and vice versa.
The Low Carbon Contracts Company (a government owned private company that administers the strike price for renewable and nuclear projects), or an equivalent, appears to be the most credible approach to managing GSP contracts. We agreed that the airline sector and fuel producers are not suitable administrators for the RCM.
For more context on the revenue certainty mechanism, see our page on the UK SAF mandate.
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