Governments need longer-term mandates for green jet fuel to guide production: Neste CEO

Governments must be more ambitious in mandating the use of sustainable aviation fuel to spur its producers to ramp up output, said Heikki Malinen, president and chief executive officer of green-fuel producer, Neste.

He said that Singapore’s targets, extending through 2030, set a good example – but global governments can go further, and shoot for higher, longer-term goals.

In 2026, Singapore will impose a levy on outbound flights, calculated based on a national target for sustainable aviation fuel to make up 1 per cent of all the fuel used at Changi and Seletar airports in 2026.

By 2030, this will rise to between 3 and 5 per cent.

In an interview with The Business Times, Malinen said: “We need a transitory solution between conventional jet fuel and sustainable aviation fuel, and that’s why we believe the mandate should be raised to about 10 per cent over the next five to seven years.”

Neste is listed on Nasdaq Helsinki, and is the world’s biggest producer of sustainable aviation fuel and renewable diesel.

But without concrete signals about future demand, producers of this greener jet fuel cannot afford to gamble by ramping up capacity, Malinen said, as setting up production facilities takes years and requires major capital expenditure.

Singapore’s unique approach – with centralised procurement and a national target for sustainable aviation fuel based on volume – could thus be a “guiding light” for the region, he said.

Still on the ground

Sustainable fuel is viewed as the most viable way to decarbonise aviation at the moment; other options such as hydrogen and electric power are expected to be adopted only in the 2040s.

Unlike conventional jet fuel, sustainable aviation fuel comes from renewable sources such as used cooking oil, fat waste, and non-food crops. It can cut carbon and greenhouse gas emissions from aviation by as much as 90 per cent.

But it is not widely used because supplies are limited, and its cost is three to five times that of regular aviation fuel.

Growth in the supply of this greener fuel remains “disappointingly slow”, said the International Air Transport Association. A million tonnes of it was produced in 2024, just 0.3 per cent of global jet fuel production.

The high price is a barrier, and fuel accounts for as much as 30 per cent of an airline’s costs. Airlines already have thin profit margins – around 3 per cent in 2024 – and competition is fierce, with travellers being sensitive to ticket price increases.

Sustainable aviation fuel costs more, partly because of the logistical challenge of sourcing raw materials, said Malinen. Neste has around 600 vendors in 60 countries, and has set up networks to collect, for example, used cooking oil. It has long focused on using waste and residues, which others cannot easily use, to make this green fuel.

While supply is also affected by factors such as technology, mandates should increase production, he said. And as economies of scale grow, the price gap between conventional fuel and this greener fuel should narrow.

Mandates on the use of sustainable jet fuel are, however, gaining momentum: The European Union and the United Kingdom have led the way with binding targets of 6 per cent and 9.5 per cent, respectively, by 2030; at least another 17 nations have announced or are considering mandates or targets.

But most existing policies lack specifics and have a limited time-frame, said Malinen.

Australia has a non-binding goal of 10 per cent usage by 2030. India, Thailand and Malaysia have announced 1 per cent targets by 2027, but further goals have not been confirmed.

China, the world’s second-largest market for passenger aviation, announced the use of only 50,000 tonnes of this fuel by this year. Malinen said: “What industrial companies like Neste would find very helpful is more visibility on the longer-term plans. If decisions are made on an annual basis, without a long-term perspective, how can a company take a massive bet for investing (in the production of this fuel)?”

He added: “If you want to have enough capacity for the early 2030s, you need to start making decisions now.”

This is because building the plants that produce this fuel is no small task. For instance, Neste began planning for its 2.5 billion euro (S$3.7 billion) Rotterdam facility in 2020. It will be completed only in 2027.

File a flight path

The lack of clarity is clouding investment decisions, said Malinen. “We’ve seen a number of companies now retract their investment plans, simply because no one really knows what happens next in the regulatory fight.”

The uncertainty also makes it harder to secure funding – a key reason for the failure of recent projects in sustainable aviation fuel.

In 2024, five such projects with a planned output of almost a million tonnes were cancelled. These included Oceania Biofuels’ project to build Australia’s first plant for this fuel; the project between Fulcrum Bioenergy and Solena in the US; and those by oil majors Shell and BP.

At least three projects in China have reportedly been postponed, and the lack of clear signals on the future of this greener fuel was cited as a reason.

But there are some bright spots, especially in the Asia-Pacific, said Malinen, citing Singapore, Thailand, and Japan as the “frontrunners”. Japan has the “most ambitious” long-term target in Asia – of 10 per cent sustainable aviation fuel by 2030; Thailand’s target is 1 per cent in 2026, gradually going up to 8 per cent by 2036.

Singapore’s target – 3 to 5 per cent by 2030 – is not as high, but Malinen noted that the country is seen as a “shining star”, adding: “My understanding is that what it does, others will follow eventually.

“So the decision Singapore takes on these mandates is extremely critical for the whole region,” he said, and expressed hope that the Republic would set higher targets.

Regardless, Singapore’s centralised approach is an efficient and transparent one that others should emulate, he said.

“If Singapore Airlines and Singapore take on the decision to use sustainable aviation fuel, then others will eventually have to follow, because they don’t want to be left behind.”

To date, the Singapore Airlines group has purchased 3,000 tonnes of this fuel from Neste’s Singapore refinery, in preparation for using it for 5 per cent of its total requirements by 2030.

Source: The Business Times ©️ SPH Media Limited. Permission required for reproduction.