Europe’s sustainable aviation fuel market takes off while US sector stutters

A year ago, the investment landscape for sustainable aviation fuel (SAF) was buoyant on both sides of the Atlantic. Today, the prospects for the sector are more favourable in Europe.

While the SAF market in Europe has continued to gain momentum over the past year, sentiment in the US has cooled following the anti-climate stance of the Trump administration.

In Europe, visibility into revenues for SAF producers is getting clearer, while their US counterparts have spent 2025 shrouded in uncertainty.

Despite this, US corporates have been putting more money into funding initiatives for SAF. Just last month, a coalition of aviation players got together to launch the $150m Oneworld BEV Fund, anchored by American Airlines and Alaskan Airlines, and managed by Breakthrough Energy Ventures. That followed another group of corporates that backed the $100m United Airlines Sustainable Aviation Fund in 2023, which gained more LPs from the industry over the following year.

Regulatory cliff

But a US-based SAF investor was downbeat about the SAF market in the US. “It’s a different market from November of last year, that’s probably what the decisive turning point was,” says the investor, referring to Donald Trump’s election victory, which pulled a curtain down over sustainability initiatives backed by the US federal government, including subsidies for SAF developers.  

“When the notion of the fund first got started, the regulatory environment, particularly in the United States, was much different,” says the SAF-focused investor.

“All this stuff takes lots of capital, and that capital really was going to be unlocked by virtue of government support, in one form or another, that was going to underpin the funding for it. That support has waned,” he says.

Federal tax credits in the US for sustainable fuels such as the 45Z credits under the Inflation Reduction Act which are given per gallon of SAF produced are less certain than they would have been when some startups last raised money. The new administration’s Treasury Department gave guidance earlier this year that softened expectations for the eligibility of certain feedstocks, and legislative proposals are in the works that might cap the credit-per-gallon below where it was expected.

45Z credits are meant to start this year but are set to expire in 2027 unless extended. That might change depending on the results of the mid-term elections.

At the state level, there are low carbon fuel standards (LCFS), which incentivise producers to lower the average lifecycle carbon intensity of their fuels below a declining annual target.

While LCFS rules are legally independent from federal regulations, the value of the credits is not unaffected by federal regulations. If 45Z support goes down, LCFS credits can actually become more valuable because there is less supply of credits overall, but any state-level increase would not likely compensate for the loss of federal support.

The SAF investor tells GCV that their portfolio companies do have enough liquidity for the next couple of years. For now, they’re in a holding pattern, watching to see how regulations evolve.

By contrast, European players are more confident. Both the UK and the EU have incremental blending mandates that are starting to kick in. The UK SAF mandate requires 2% of the UK’s aviation fuel demand to be met with SAF, ratcheting up to 10% in 2030 and 22% in 2040.

The EU’s ReFuelEU mandate starts slower but then accelerates faster than the UK’s, requiring 2% of member states’ fuel to be met with SAF this year, increasing to 6% by 2030, 34% by 2040, and 70% by 2050.

A European startup that recently raised funds is UK-based OXCCU, a company developing technology to convert carbon into fuels and chemicals. Its recent $28m series B saw more participation from corporates including Eni, Aramco, IAG, Safran, and Orlen compared with its series A. Encouraged by the success of its OX1 pilot plant at London Oxford Airport, it is seeking to open its second, larger demonstration plant next year.

Apart from OXCCU, other European SAF startups to get funded this year include Norwegian SAF producer Wastefront and Swiss SAF technology company Metafuels.

Tech advances

While SAF policy is progressing by fits and starts, the technology to produce low carbon aviation fuel is making headway. Hydroprocessed esters and fatty acids and eSAF have expanded the feedstock landscape. A large amount of money is still needed to build out commercial-scale facilities, although it may prove to be cheaper to retrofit existing refineries that are not making money.

SAF producers are seeking to change the kind of feedstocks they are using. Regulators and entrepreneurs are prioritising carbon feedstocks such as biogas, waste wood, agricultural waste and captured CO2 because they don’t bring the challenges of food displacement that crop-based bio-fuels do.

“We can start from biomethane or CO2, and I don’t think CO2 is in short supply,” says Nacho Gimenez, COO at OXCCU, who previously considered investments in SAF while an investor at BP Ventures and energy investor DTEK. The problem becomes more a logistical one of capturing the carbon and transporting it than sourcing it in the first place, he adds.

Hydroprocessed esters and fatty acids (HEFA) is increasingly popular because it takes waste products such as used cooking oil, fatty streams from industrial waste, and other fats and vegetable oils, and can heavily reduce the lifecycle emissions.

But the availability of sustainable feedstock for hydroprocessed esters and fatty acids compared with other feedstocks such as cultivated palm oil is not enough to meet demand. It is also more costly.  

eSAF is also gaining popularity because it is made with renewable hydrogen and captured CO2, typically reducing emissions by at least 70% compared with jet fuel. It circumvents the supply constraints of hydroprocessed esters and fatty acids and benefits from a sub-mandate for synthetic fuels under ReFuelEU.

Wider outlook

The price of SAF production is still high, requiring economies of scale and large capex.

The price of jet fuel is tied to oil, while the ultimate price of SAF is determined by negotiated contracts.

The capex for building the production infrastructure will only come if investors see that offtake contracts are available at a good price. And at least in the US, where there is no federal blending mandate, that’s even harder to picture than in Europe. Some US investors are taking a step back to see where things go before committing more capital.

“We’ve laid our bets around the space [in terms of technologies], but the market kind of in a trough right now as it relates to climate tech, and sustainability in particular,” says the SAF investor.

“We’re being very prudent and measured with where we deploy capital going forward.”

But, even in Europe, if the costs aren’t brought down by the time the heavier mandates kick in, those costs will be passed on to consumers. Volume by itself is not enough, it will be the most cost-efficient startups that succeed.

“Once we get to those blending levels of 2040, it will not be the biggest SAF producers that thrive, but it will be the most economic producers,” says Gimenez.