Of course, the transition is all about sustainability. But, pragmatically, the transition must also be sustainable itself. That means taking a realistic transition path, which includes the fuels we rely upon day-by-day. If we don’t do that, we may put the transition itself at risk.
This article is part of our Beyond Transition series, which looks beyond the established asset classes and into the next frontier of energy investment. SAF sits squarely in that frontier, representing an enormous but complex commercial opportunity. The question is not whether SAF will matter, but whether Australia is positioning itself to capture the opportunity or once again will be playing catch-up.
Key takeaways
- SAF is both a decarbonisation and energy security issue: Australia’s reliance on imported liquid fuels means domestic SAF production has strategic as well as climate value.
- Policy support is the missing link: Europe and the United States have created stronger demand and investment signals through mandates, carbon pricing and tax incentives.
- The green premium is real and likely to persist: SAF remains materially more expensive than conventional jet fuel, which makes mandates, subsidies and contracting innovation critical.
- Bankability will depend on policy, not technology alone: The core challenge is feedstock and revenue certainty, not whether the technology works.
Australia has made this mistake before
The LNG parallel is instructive and uncomfortable. Australia is one of the world's largest LNG exporters, shipping approximately 80 million tonnes per year, rivalling Qatar and the US for the top spot globally. There was a sound strategic rationale to develop this industry. It is in Australia’s national security interests to be part of the energy security equation in our region, particularly with Japan and South Korea, but also with other major trading partners. However, managing the tight rope between this strategic interest and domestic energy security has proven to be difficult.
East coast gas consumers continue to face supply tightness and elevated prices because we failed to implement a meaningful reservation policy before the export boom locked in long-term contracts. We built a world-class export industry but forgot to serve our own market.
The risk of repeating this pattern with SAF is real. Australia has the feedstock base, renewable resources and industrial capability to be a major SAF producer. But without deliberate policy design, we could easily end up exporting SAF feedstocks or finished product to jurisdictions with blending mandates, particularly in Europe, while Australian airlines continue to rely on conventional jet fuel. That would be a policy failure, and it is the trajectory we are currently on.
Recent geopolitical challenges have made this more urgent, not less. Supply chain disruptions, refinery closures across the Asia-Pacific region and the growing volatility of global energy markets have exposed just how precarious Australia's fuel security position is.
We have built an economy that is structurally dependent on the continued availability of cheap imported hydrocarbons. That dependence weakens the commercial case for domestic alternatives and increases exposure to disruption risk. Building sovereign fuel manufacturing capability (the ability to produce transport fuels on Australian soil, from Australian inputs, for Australian consumption) is not gold-plating the energy system. It is the minimum viable response to a threat environment that is becoming less predictable.
Domestic SAF production sits at the centre of this imperative. It is not just a climate initiative, it is critical national infrastructure. The sooner we internalise that framing, the sooner projects will start moving.
The case for SAF is no longer theoretical
Aviation accounts for about 2–3% of global CO₂ emissions, representing around 900 million tonnes a year. IATA expects passenger numbers to nearly double to over 8 billion by 2050. Unlike road transport, long-haul widebody aircraft cannot simply be electrified. Battery density is nowhere near sufficient, and while hydrogen-powered aircraft are in development, it remains decades away from meaningful large-scale deployment.
That leaves SAF as the primary lever available. IATA estimates that SAF will need to contribute approximately 65% of the emissions reductions required for aviation to reach net-zero by 2050. That is not a niche contribution, but a centrepiece of the entire decarbonisation strategy for the sector. SAF is a drop-in fuel, meaning it can be blended with conventional jet fuel, used in existing aircraft engines and refuelling infrastructure without modification. It can be produced from a range of feedstocks, including waste oils, agricultural residues, municipal solid waste or, in the case of synthetic e-fuels, manufactured using renewable electricity, green hydrogen and captured carbon dioxide.
The technology exists, yet global SAF production currently accounts for less than 0.5% of total jet fuel consumption. The challenge is not the core concept. It is the cost, scale, policy and bankability.
Europe is moving faster than Australia
Despite its natural advantages, Australia’s progress in this space is lagging. The contrast between Europe’s policy settings and Australia’s is stark. The European Union's ReFuelEU Aviation regulation mandates that fuel suppliers blend increasing percentages of SAF into the jet fuel supplied at EU airports. The mandate started at 2% in 2025 and rises to 70% by 2050. This is not aspirational, but law, creating a compliance-driven demand floor, precisely the market signal that developers and their financiers need.
On top of this, the EU Emissions Trading System captures aviation emissions, effectively imposing a carbon tax on conventional jet fuel. The United States, through the Inflation Reduction Act, has taken a different but equally aggressive approach, offering production tax credits of up to USD 1.75 per gallon for SAF that achieves a 50% or greater lifecycle emissions reduction. The result is that projects in Europe and North America are progressing through development pipelines with genuine policy tailwinds behind them.
Australia has neither a blending mandate nor a meaningful production incentive. It also lacks the durable policy support that moves projects from feasibility studies to financial close. The gap is widening and deterring capital and development expertise that would otherwise flow into Australian SAF projects. The SkyNRG's DSL-01 project in the Netherlands, recently reached financial close, a landmark moment for the global SAF industry.
The price parity problem and the green premium
This is the central economic tension in the entire green fuels thesis. Conventional jet fuel, refined from crude oil and imported at scale, is cheap. It benefits from decades of infrastructure investment and global supply chain optimisation. SAF, by contrast, is produced at smaller scale using newer technology from feedstocks that are often more expensive and less liquid. The result is a green premium of around two to four times the cost of conventional jet fuel, and potentially higher for synthetic e-fuels.
Price parity with conventional fuel is not coming any time soon. The learning curves are real but gradual, and SAF will not benefit from the same dramatic cost declines that solar PV and battery storage experienced. This is a fundamentally different asset class and the green premium is not a temporary inconvenience. It is a structural feature of the market that must be addressed through policy, contracting to support innovation and a rethinking of how we value fuel security.
Someone has to pay it. The question is who, and how. Tight margins mean airlines will not absorb it at scale voluntarily, and although passengers may accept modest surcharges, they will not absorb multiples of their current fuel cost exposure. That leaves government through mandates that force demand, subsidies that bridge the cost gap, or contracts-for-difference that guarantee a floor price to producers. In practice, it will likely require all three, calibrated and sequenced over time.
The bankability problem
SAF projects are structurally challenging. They are capital-intensive, with total installed costs that can run into the hundreds of millions of dollars. Construction risk is elevated because many of the conversion technologies, particularly e-fuels, are at or near first-of-a-kind stage. Operating margins are thin absent subsidy or mandate support, because SAF significantly more expensive than conventional jet fuel.
Revenue risk is the critical issue and in Australia, potentially fatal without policy reform. In a market without a blending mandate, there is no structural demand floor. Offtake agreements are difficult to negotiate at a price that supports debt service, because airlines already operating on margins of around 3–5% are reluctant to commit to long-term SAF purchase agreements at a two-to-four times premium to conventional jet fuel without regulatory compulsion or passenger willingness to absorb the cost.
The green premium, in other words, does not yet have a clear home. Until it does, the revenue line in any SAF project financial model carries a degree of uncertainty that makes traditional project finance lenders sceptical.
Hydrogen's challenge is SAF's opportunity
Much has been written about the promise of green hydrogen, and Australia has rightly identified it as a national priority. But the frank reality is that the hydrogen economy faces a fundamental chicken-and-egg problem: producers cannot commit capital without contracted offtake, and end users cannot commit to offtake without cost certainty and supply security. The economic gap between green hydrogen production cost and the price at which end users can commercially absorb it remains wide.
SAF, particularly the methanol-to-jet pathway, may offer a potentially viable use case and offtake channel for green hydrogen that sidesteps some of these challenges. This pathway creates a defined, contractable end product with a known market (aviation fuel) and identifiable buyers (airlines). It does not solve the cost problem entirely, but it does offer something that many other proposed hydrogen applications currently lack: a credible demand signal and a route to revenue.
For developers and investors looking for a near-term use case to anchor a green hydrogen investment, methanol-to-jet SAF warrants serious consideration. The end user market is large, global and facing genuine regulatory pressure to decarbonise, even if that pressure has not yet fully materialised in Australia.
A different investment lens is needed
A central argument in the Beyond Transition series is that emerging energy assets cannot be evaluated through the same investment lens as mature, commoditised infrastructure. A traditional project finance screen will filter out virtually every first-of-a-kind SAF project in Australia today. That does not mean these projects are bad investments. It means the lens is wrong.
SAF sits in a category of assets where the national interest case materially exceeds what a conventional risk-adjusted return framework will capture. The value of domestic fuel manufacturing capability (reduced import dependence, supply chain resilience, emissions reduction, regional employment, industrial diversification) is real, but it does not show up in a discounted cash flow model. If we insist on evaluating sovereign capability investments using the same IRR thresholds we apply to a toll road or a contracted wind farm, we will never build them. And our competitors who are applying a different lens, will build them instead.
This is where capital allocation thinking needs to evolve. Government has a role through institutions like the Clean Energy Finance Corporation, Export Finance Australia and the Northern Australia Infrastructure Facility. Their mandates are broad enough to support SAF projects if government chooses to direct them to do so. But the private sector needs to move as well. Superannuation funds, sovereign wealth vehicles and infrastructure investors with long-duration mandates should view SAF and green fuels not as speculative venture bets, but as strategic infrastructure plays with inflation-linked revenue potential and genuine scarcity value. The capital is there, what is missing is the framework that gives investors permission to deploy it at the returns these projects currently offer.
The gap between a 6% return backed by sovereign fuel security value and a 12% return demanded by a traditional infrastructure fund is not a market failure, it is a pricing failure. And it is a pricing failure that government is uniquely positioned to correct, through credit support, risk-sharing mechanisms and demand-side regulation that firms up the revenue line. The IRA in the United States, the EU's Innovation Fund, and the UK's Revenue Support Agreements for low-carbon hydrogen all represent variations on this theme. Australia needs its own version, designed for Australian conditions, and it needs it urgently.
What needs to happen
To move SAF projects in Australia from ambition to bankability, four things need to happen:
- Policy certainty is non-negotiable. A domestic blending mandate, even a modest one that increases over time, would do more to unlock private investment than any number of feasibility grants or strategy papers. It creates the demand signal that underpins offtake, revenue and financing. Europe has demonstrated this. Australia should follow suit, adapted to our market conditions and feedstock realities.
- Government risk sharing. Government will need to absorb some first-mover risk in early projects through concessional finance, contracts for difference, production subsidies or a combination of these mechanisms. This is consistent with how earlier renewable technologies were supported. SAF is a nascent asset class and requires catalytic public capital to reach commercial maturity. However, in a rapidly changing global environment with a growing emphasis on sovereign capability, Government support for an industry that offers to improve energy and fuel security should be conceivable.
- Feedstock strategy must be national in scope. Australia has genuine feedstock advantages in agricultural waste, renewable electricity for e-fuels, and emerging carbon capture capability. But these advantages need to be converted into reliable, contracted supply chains that can support long-duration project finance structures.
- Revenue models need innovation. Book-and-claim systems, SAF certificates and green premium pass-through mechanisms all have a role to play in bridging the cost gap between SAF and conventional fuel.
Final reflections
The energy transition is not a single track. It is not just about electrons - it is about molecules, about industrial processes, about decarbonising the parts of the economy that cannot simply plug in. SAF is one of the clearest examples of this broader transition imperative, and it is one where Australia has both the resources and the industrial capability to be a global leader.
But leadership requires action, not just ambition. The developers, financiers and policymakers who move first will shape this market. Others may end up buying SAF credits from overseas producers at a premium, having missed the window to build a domestic industry. Australia has the feedstock, the renewable energy, the capital markets and the engineering talent. What it lacks is the policy conviction to back itself. Australia has seen similar patterns before, including in LNG and other strategy industries. It does not need to repeat them.