As major economies push ahead with sustainable aviation fuel (SAF) mandates in 2025, maintaining free trade in Used Cooking Oil (UCO) has become increasingly critical for the aviation industry's green transition. The EU's 2% SAF mandate is expected to create demand for approximately 1.2 million metric tons just this year alone, while the US aims for an ambitious 3 billion gallons (7.8 Mil MT) of production through 45z production incentives by 2030. These targets are reshaping both renewable fuel markets and feedstock demands in unprecedented ways. Airlines strongly prefer SAF produced from waste feedstocks like UCO or waste oil streams over crop-based alternatives, driven by concerns about consumer backlash and sustainability credentials. Additionally, it is important to note that UCO based SAF can achieve 90% greenhouse savings Vs a conventional jet fuel while crop based oils can only achieve in best circumstances only 60%. This preference has created a unique market dynamic where UCO-based SAF commands a significant premium as prices are near $1800/mt in Europe if you can buy the associated HVO/RD and not lose money. However, the economics of SAF production present crucial challenges. Recent analysis reveals that producing SAF alone in HEFA (Hydrotreated Esters and Fatty Acids) facilities is unprofitable. To address these economic challenges, major producers like Neste have implemented policies requiring customers to purchase at least 3 units of HVO/renewable diesel for each unit of SAF. This cross-subsidy model allows producers to optimize facility utilization and maintain sustainable pricing for both products. The US government's 3 billion gallon SAF target brings another crucial dimension to this discussion. According to USDA/ERS analysis, reaching this goal will require reducing renewable diesel production nameplate capacity by approximately 20% at HEFA facilities.
This reduction will primarily impact soybean oil demand, as it is still the dominant feedstock for US renewable diesel production. The shift toward SAF production could significantly reshape agricultural commodity markets and particularly soybean oil demand as we move forward.
Furthermore, the EU's recent policy decisions acknowledge these market realities. While implementing broad restrictions on Chinese biodiesel and HVO imports, they specifically exempted SAF. This targeted exemption recognizes:
The critical role of Asian UCO in meeting SAF feedstock demand
The necessity of maintaining free trade flows for waste-based feedstocks
The importance of Chinese production capacity in meeting EU mandates and US goals
As SAF mandates increase globally, maintaining free trade in UCO becomes increasingly critical. This is why the action of Indonesia to restrict exports of UCO and palm oil residue oil is particularly alarming. Without access to international waste feedstock markets, particularly from Asia, meeting both EU and US SAF targets while maintaining reasonable prices will be extremely challenging. The success of aviation decarbonization strategies thus depends heavily on preserving open trade in waste feedstocks, while ensuring robust verification systems to prevent fraud and maintain sustainability standards. Nonetheless, the shift to SAF production will have far-reaching implications for traditional feedstock markets like soybean oil and other high carbon intensity crop-based vegetable oils, making the availability of alternative feedstocks like UCO even more crucial. This underscores the importance of maintaining open trade channels while developing robust sustainability verification systems.
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