Unraveling Willingness to Pay for Sustainable Aviation Fuel
A recent RMI survey shows airlines, logistics service providers, and corporate customers are willing to pay a green premium for SAF and SAFc and express preference for shorter contracts and waste-based feedstock.
As the world ramps up efforts to combat climate change, the aviation industry finds itself under growing pressure to cut its carbon emissions. Aviation currently accounts for 2.5 percent of global greenhouse gas emissions, and this figure is expected to rise alongside the increasing demand for air travel. Fortunately, there is a promising solution on the horizon: Sustainable aviation fuel (SAF), which can reduce emissions from flying by between 70 and 90 percent.
SAF is a “drop-in” fuel available today, meaning it can be used in existing aircraft without any modifications. However, the SAF market is still in its nascent stage, facing a classic chicken-and-egg problem: supply and demand are not growing fast enough to meet the emissions reductions targets needed to avoid the worst impacts of climate change. While governments are already providing incentives and mandates to boost supply, there is less clarity on demand, particularly in terms of how much customers are willing to pay for SAF, making SAF projects less attractive for investors.
To explore this crucial aspect of the SAF market, RMI and the Mission Possible Partnership conducted a survey of 23 companies, examining their willingness to pay (WTP) for SAF and SAF certificates (SAFc) and shedding light on factors influencing purchasing decisions. The findings reveal promising insights that could pave the way for a more robust and sustainable aviation fuel market in the future.
Airlines and Corporates Show Significant Willingness to Pay
Our survey focused on two primary groups of SAF buyers who are currently active on the market: airlines and logistics service providers, and corporate customers. Airlines and logistics service providers directly use SAF fuel to power their fleets and purchase SAF priced in dollars per gallon. Corporate customers buy SAFc, priced in dollars per metric ton of CO2 emissions abated, and use the certificates to meet corporate sustainability targets and reduce their Scope 3 emissions. SAFc represent a mechanism that allows companies to purchase certificates tied to the environmental benefits of SAF without directly buying the fuel itself, effectively supporting voluntary emissions reduction efforts.
Using a discrete choice experiment, we evaluated the impacts of different attributes (price, carbon intensity reduction, SAF feedstock type, and contract duration) in driving buyers’ choices and determining WTP and found empirical evidence for a positive WTP for both types of buyers.
Airlines’ Willingness to Pay: Airlines and logistic service providers showed an average WTP of $6 per gallon for SAF — almost three times the current price of fossil jet fuel, which at the time of writing sits at $2.29 per gallon (exhibit 1). This willingness to pay a significant premium for SAF reflects airlines’ commitment to sustainable practices, even when it comes at a higher cost. However, because airlines usually operate on thin margins, this “green premium” will likely be passed on to customers to maintain financial viability. This practice is common for products with environmental benefits, as seen with electric vehicles or organic produce.
Corporates' Willingness to Pay: Corporate buyers demonstrated an average WTP of $300 per ton of CO2 emissions abated for SAFc. Interestingly, we found that WTP varied across sectors in our sample, ranging from $298 to $325 per ton of CO2. Industrial companies had the lowest WTP, while corporate travel and consulting firms were willing to pay the highest.
It is important to note that the surveyed companies represent “first movers” who are already familiar with SAF and SAFc and either have prior knowledge about these products or even purchasing experience. These companies often have already made public commitments to emission reduction targets or have a stronger focus on corporate sustainability compared to the rest of the market. Their willingness to pay to reduce emissions might be higher than that of other potential SAF and SAFc offtakers, but their commitment sets a promising benchmark for the wider industry.
Key Factors Influencing Purchase Decisions
In order to get a better understanding of buyer’s decision-making process, we used a statistical model to evaluate which SAF and SAFc attributes have impact on the probability that companies will make a purchase. Our survey included price, carbon intensity reduction, SAF feedstock type, and contract duration (exhibit 2).
Our statistical analysis revealed that contract length and SAF feedstock type are the top attributes determining purchase decisions in our sample.
Feedstock Preference: Survey respondents demonstrated higher purchase probability and higher willingness to pay for SAF made from waste-based feedstocks, such as tallow, over crop-based alternatives. This preference is likely driven by concerns about potential competition with the food sector when using crop-based feedstocks and/or wider sustainability challenges (e.g., biodiversity, water quality, etc.).
Contract Duration: Survey respondents showed preference for shorter offtake contracts for SAF. Longer contract durations tend to reduce the probability of a purchasing decision and lower the WTP. One potential explanation for this result is that buyers are hesitant to lock in long-term contracts at current prices, possibly anticipating that SAF costs will decrease as the market matures.
These insights provide valuable guidance for SAF producers and policymakers on structuring offerings and incentives to better align with buyer preferences, which could help boost demand and grow the overall SAF market.
Potential for Bankable Projects
The WTP for SAF through the SAFc mechanism in the US market indicates potential for bankable projects — projects that are able to meet the financial criteria necessary to secure capital on reasonable terms. Since corporate buyers purchase SAFc to reduce their Scope 3 emissions, WTP for SAFc effectively represents the price of abatement — the amount buyers are willing to pay to reduce CO2 emissions. We can use this value to calculate the green premium — the additional cost of opting for a sustainable option over a conventional one — which is crucial for assessing the economic viability of SAF projects.
Assuming a 75 percent carbon intensity reduction, the SAFc WTP from our survey translates into a green premium of $2.34 to $3.93 per gallon, leading to a SAF price range of $9.4 to $10.96 per gallon (exhibit 3). With the cost of SAF production ranging from $6.4 to $19.01 per gallon, this green premium enables SAF to be cost-competitive with fossil fuel-based jet fuel in many scenarios. A private equity-backed energy transition fund may want 15-20 percent (levered) equity returns; such a green premium could generate the revenues needed to entice investors. Specifically, for the HEFA (Hydroprocessed Esters and Fatty Acids) pathway, which tends to have lower production costs, there is potential for a range of bankable projects already today (exhibit 4). This is encouraging news for SAF producers and investors looking to enter or expand in this market.
Implications for the SAF Market
Understanding airline and corporate willingness to pay for SAF and SAFc, as well as drivers of their purchase decision, can have profound implications for the broader SAF market:
- Boosting Producer Confidence: Knowing there is demand for SAF gives producers the confidence to scale production and invest in new technologies, ensuring a steady and ample supply.
- Attracting funding for SAF projects: Investors will be attracted to SAF projects knowing offtakers are willing to pay a premium for alternative fuels, accelerating the growth of SAF infrastructure and production capabilities.
- Informing Policy: Data on WTP can guide policymakers in crafting effective incentives and regulations that align with market needs, helping foster a favorable environment for SAF adoption.
- Enhancing Market Stability: A thorough understanding of demand will help stabilize prices and ensure a reliable supply chain, benefiting all stakeholders along the supply chain from feedstock producers to final consumers.
- Advancing Climate Goals: By demonstrating the economic viability of SAF, we can expedite the transition to low-carbon aviation, a crucial step in meeting global climate targets.
The Road Ahead
As more companies commit to transparent emissions reporting and ambitious greenhouse gas reduction goals, corporate demand for Sustainable Aviation Fuel (SAF) is expected to rise, further driving the adoption of sustainable practices in aviation. However, to fully unlock the potential of the SAF market and accelerate global emissions reduction efforts, more work is needed to enhance transparency and share insights on demand and willingness to pay for emerging green commodities. In order to understand the barriers for SAF and SAFc adoption by a broader universe of buyers, additional work is required, particularly focusing on impacts of legacy procurement practices on WTP for green commodities. Another area for future work around SAF WTP could evaluate the relationship between companies’ overall decarbonization budgets and their WTP.
Such market studies conducted at scale will help more clearly articulate the value that SAF adds to corporate decarbonization plans which is necessary to sustain market growth until costs decline further. Making these data and insights publicly available will also play a crucial role in minimizing market risks and supporting the green transition across aviation and other sectors.
The findings from this study offer a promising outlook: airlines signaled willingness to pay a substantial premium for SAF, and corporates are showing strong interest in SAF certificates, the foundation for a robust and sustainable aviation fuel market is being laid. As production scales up and costs potentially come down, we may see the gap between fossil fuels and SAF prices narrow, further accelerating adoption.
In conclusion, the demonstrated willingness to pay for SAF from both airlines and corporates represents a pivotal step toward decarbonizing the aviation sector. It sends a strong signal to producers, investors, and policymakers that the demand for sustainable aviation alternatives is here—and it is growing due to regulation and voluntary airline commitments, with about 40 airlines already committed to use some 13 million mt of SAF by 2030. Yet the path forward will require continued collaboration between all stakeholders to overcome remaining challenges and realize the potential of SAF to transform the aviation industry.
About Clean Industrial Hubs
The insights above come from RMI and the Mission Possible Partnership’s Clean Industrial Hub work in Los Angeles, California, that accelerates industrial and heavy transportation decarbonization in the region. Clean industrial hubs bring together policymakers, financial institutions, project developers, and community-based organizations to enable groundbreaking decarbonization projects in the hardest-to-abate sectors. In Los Angeles, RMI and MPP’s analyses, convenings, and tools support stakeholders working to advance zero-emissions trucking, low-carbon cement plants, sustainable aviation fuel, and decarbonized ports, by increasing the size, scale, and speed of critical climate investments that benefit the environment, the economy, and communities. This work is done in partnership with the Bezos Earth Fund.
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