Neste's CEO recently sounded the alarm on a potential price war in Europe's sustainable aviation fuel (SAF) market, a situation driven by a complex mix of geopolitics, trade policy, and market pressures.
The immediate trigger is a geopolitical shock. Recent U.S.-Israel strikes in Iran and the resulting disruption in the Strait of Hormuz have sent conventional jet fuel prices soaring. While this makes SAF look more competitive on a relative basis, it also makes airlines extremely sensitive to any additional costs. The high absolute price of fuel puts immense pressure on their budgets, making them less willing to pay the significant premium that SAF still commands. This dynamic squeezes European SAF producers, who face high production costs and now must contend with buyers focused intensely on affordability.
Adding to this pressure is a critical trade policy imbalance. First, in early 2025, the EU imposed anti-dumping duties on Chinese biodiesel to protect local producers. However, these tariffs explicitly excluded SAF. Second, China simultaneously began issuing large-scale SAF export quotas, effectively opening the floodgates. This policy combination created a perfect channel for Chinese producers to pivot from biodiesel to SAF and direct their supply straight into the European market, where demand is mandated by the 'ReFuelEU' initiative but local supply is still ramping up.
This external threat arrived at a moment of internal uncertainty for the European market. Key industry figures, including the CEOs of Ryanair and TotalEnergies, had already begun publicly questioning the feasibility of the EU's aggressive SAF blending targets. Their comments signaled wavering conviction in the very demand a policy like ReFuelEU was designed to guarantee. This was compounded by Shell's decision to scrap a major biofuels facility in Rotterdam, which reduced the expected growth in domestic European supply. This combination of weakening demand signals and constrained local capacity created a vulnerability just as a wave of imports was preparing to arrive.
In essence, these three forces—a geopolitical fuel price shock, lopsided trade policies, and wavering internal market confidence—have converged. They collectively create a material risk of a price war that could undermine Europe's own SAF producers and jeopardize the bloc's ambitious aviation decarbonization goals.
- Terminology -
- Sustainable Aviation Fuel (SAF): A biofuel used to power aircraft that has a smaller carbon footprint than conventional jet fuel.
- ReFuelEU Aviation: An EU regulation mandating that a growing percentage of fuel supplied to EU airports must be SAF, starting with 2% in 2025 and rising to 70% by 2050.
- Anti-dumping duties: Tariffs imposed by a country on imported goods that it believes are priced below fair market value to protect its domestic industries.