Sustainable Aviation Fuel Bill (Second sitting)

The Committee consisted of the following Members:

Chair: Mark Pritchard

† Atkinson, Lewis (Sunderland Central) (Lab)

† Buckley, Julia (Shrewsbury) (Lab)

† Collins, Tom (Worcester) (Lab)

† Dearden, Kate (Halifax) (Lab/Co-op)

† Downie, Graeme (Dunfermline and Dollar) (Lab)

† Hack, Amanda (North West Leicestershire) (Lab)

† Kane, Mike (Parliamentary Under-Secretary of State for Transport)

† Kohler, Mr Paul (Wimbledon) (LD)

Macdonald, Alice (Norwich North) (Lab/Co-op)

Mayhew, Jerome (Broadland and Fakenham) (Con)

† Minns, Ms Julie (Carlisle) (Lab)

† Reed, David (Exmouth and Exeter East) (Con)

† Robertson, Joe (Isle of Wight East) (Con)

† Smith, Greg (Mid Buckinghamshire) (Con)

† Stainbank, Euan (Falkirk) (Lab)

† Taylor, Luke (Sutton and Cheam) (LD)

† Vince, Chris (Harlow) (Lab/Co-op)

Lucinda Maer, Dominic Stockbridge, Committee Clerks

† attended the Committee

Doug McKiernan, Co-Founder and CTO, Zero Petroleum

Ruben van Grinsven, Head/General Manager of Low Carbon Advanced Fuels and Products, Shell International Ltd

Matt Gorman, Sustainability and Environment Director, Heathrow Airport

Josh Garton, Technical Director, Green Finance Institute

Philip New

Geoff Maynard, Member of the Aviation Policy Group, Chartered Institute of Logistics and Transport (CILT UK)

Professor Mark Maslin, Director, UCL Centre for Sustainable Aviation

Mike Kane MP, Minister for Aviation, Maritime and Security, Department for Transport

Public Bill Committee

[Mark Pritchard in the Chair]

Sustainable Aviation Fuel Bill

Examination of Witness

14:00:00

The Chair: We will now hear oral evidence from Doug McKiernan from Zero Petroleum. This session will have to end by 2.20 pm. Good afternoon. Could you please introduce yourself?

Doug McKiernan: My name is Doug McKiernan. I am a co-founder of an e-fuels company based up in Oxfordshire. We have been going for five years. We have 40-plus staff, and are primarily focused on Jet A-1 development.

Q29 For transparency, I should declare that I have visited Zero Petroleum on a couple of occasions and met with people there. Mr McKiernan, your product is a power-to-liquid product; it is not derived from feedstocks or waste. Do you think that a power-to-liquid solution is the long-term solution for sustainable and synthetic fuels for aviation use? Do you worry that any part of the Bill incentivises short-term solutions over long-term solutions? Doug McKiernan: On the first part of the question, given my knowledge of the sector as an engineer, I do not believe that there is a long-term solution other than power to liquid. At the moment, in the ASTM fuel standards, there are a lot of bio-based, sugar-based and food-waste solutions. In my view, those are not truly scalable, and their cost will only ever go up, because of the shortage of land and so on. The power-to-liquid side is truly scalable. The feedstock is air, water and renewable energy. It is extremely clean, and it gives the industry the opportunity—in, say, 10 or 15 years’ time—to move to fuels that are even more performant than current fossil-based fuels. We are very supportive of the Bill, and we think it will be useful for us if it goes through. It will give confidence to the sector and bring investment, which then helps to bring capability to the UK. It is a great way to kickstart the e-fuels industry, which is the medium to long-term solution, not a short-term solution. We have been working in this sector for only five years. Because of our education system, we probably have some of the best talent in this sector globally, and we are able to recruit that. We have already made significant inroads into the quality of the fuel, which is over and above anything else that is now available—and when I say that, I mean globally available. This little company that we have—and it is little—has been able to outperform some of the bigger competitors in the field. Towards the end of this year, we will submit our product to the ASTM governing body to get it certified. The intellectual property that we are generating is key to the UK. We need to make sure that the IP is generated here in the UK and kept here because I believe that in five years from now all the big decisions around e-fuels—all the important ones—and the freedom to operate will have been worked out, and we do not want that to be worked out anywhere other than in the UK. It will enable us to kickstart the energy generation within the UK so that we have a sovereign capability for energy generation. I hope that answers your question.

Q It does. I have one brief additional question, mindful that we have only 20 minutes with you. Off the back of that protection of UK IP, do you think the Bill could be strengthened to bring in greater protection of technologies such as those that have been developed by Zero and other companies in the UK, so that when the strike price is set it does not end up with foreign-owned technology being incentivised in the United Kingdom? Do you believe that you, along with others that have similar technologies, can scale fast enough to meet the other side of the coin of this Bill, the SAF mandate? Doug McKiernan: That is a very good question. I think we are in a race. At the moment we need the Bill to give confidence to investors. That will help us to scale. That is the main benefit in the short term. With regard to the IP, there needs to be a mandate somewhere in Government to support core e-fuels development. A lot of small companies at the moment are not getting that, so we are at risk of going abroad with the technology. The Aerospace Technology Institute heavily sponsors hydrogen and electric, but does not really support the core technology of e-fuels. Although we have this mandate, which we think is great, there is a bit of a gap there that could do with addressing.

Q This morning, we had a witness say that they did not believe the revenue certainty mechanism was required, that the market would essentially take care of the solution itself, and that the mandate was all that was needed. What is your response to that, and how would it affect your company in particular? Doug McKiernan: Without this Bill and the mandate and quotas that have been set, I think the investment industry will step back from that, which would hurt us as a company. We would not be able to scale up. It would make things extremely difficult and would push the pace at which we could get to net zero to the right.

Q You have given a really helpful view of the long-term solution. I do not think many would argue with PtL being the solution for the industry. This question is similar to one I have asked other panel members: how do other parts of Government, other levers and other enablers need to be brought in place to enable you to do what you need to do? What conditions does the Bill need to set? What do you see as the main challenges for the Government to act? You have spoken about skills. What else needs to be done in the Bill to enable you to be successful and for the Bill to achieve what it needs to achieve? Doug McKiernan: Coming back to the IP, there needs to be some sort of support for e-fuels core technology development. That is very important. If you want e-fuels to be part of the future, we need to make sure that that research is supported in the UK and that when it is supported in the UK there is proper IP regulation of that. That needs to be mandated as part of the support from the Government. What is happening in the aviation area is clearer cut, because you cannot get the energy density into an aircraft with hydrogen or electric, so it is kind of obvious, but I think it is a solution for a lot of the fossil-based fuels, including gasoline and diesel. I think what we will end up doing is that, if we can develop that core technology, it is then transferable to other sectors, and with that we will be able to deal with the real problem, which is the end-to-end solution of getting renewable energy to the consumer. That is the real challenge. At the moment, we are talking about sustainable aviation fuel, but actually there is a lot of energy in the North sea that is not getting used because of the challenge of the cost of getting it from there to the consumer. This is where e-fuels come in. The Bill would help to move us in the right direction to start to tackle that problem, because you would have these companies with the new tech working out how to make that viable. There is a very good, well researched paper by the National Renewable Energy Laboratory in the US and the Department of Energy. It was done back in 2021. I had a conversation with our CEO and the board one day and realised, “We’re not actually a fuels company, although we’re called Zero Petroleum and we’re making jet fuel and gasoline. We’re actually an energy transmission company, because all the problems we have with renewable energy are solved by liquid hydrocarbons”. If you look at the paper I referred to, done back in 2021, the cost of getting energy from the North sea in a cable to the consumer is probably forty to fiftyfold what it is if you wanted to do it with a liquid hydrocarbon. That is the fundamental problem that we are going to struggle with going forward. We are slowly going to morph as technology and engineering rather than policy dictate what the solution is.

Q Just for clarity—forgive my technical inexperience—what you are suggesting is production of the hydrocarbon at the source, at the base of a wind turbine, which is then collected in tanks rather than transmission over cables? Doug McKiernan: Correct. Within that report, there were also comparisons to hydrogen—that was a sixfold increase over a two-foot oil pipeline—and to ethanol, methanol and ammonia. It looked at how you get energy from A to B in the cheapest operational expenditure and capital expenditure form. That is a fundamental. The cost of getting the renewable energy is what all the engineering will come back to. I believe the renewable energy will be in remote locations, a bit like oil today. Ultimately, we are going to put renewable energy in those places. Hopefully we do not cover all the fertile soil with solar panels and we can generate it elsewhere, and then use the power-to-liquids to get it from A to B.

Q Using carbon dioxide to produce SAF is a wonderfully seductive and brilliant solution. You are addressing the regulatory obstacles, but what are the technical obstacles? Doug McKiernan: To be perfectly transparent with everybody, with carbon dioxide at the moment I think the direct air capture, compared with where we are, is a bit of an Achilles heel. It is probably around two to four years behind in its scale-up, in terms of being able to keep pace with our scale-up, but actually there is plenty of biogenic carbon dioxide around for large-scale commercial plants here in the UK, which could be a stepping stone to the direct air capture. A lot of the work with direct air capture at the moment talks about the cost of it; you can sequestrate the carbon dioxide in the ground. That is not what we want to do as a petroleum company; we want to put that carbon dioxide into a liquid fuel, and then it is net zero. You have carbon dioxide and water coming out of the exhaust—whether that is a turbine or internal combustion engine. If you capture the carbon dioxide again with the direct air capture, you are then net zero. When you integrate that direct air capture with our process, the cost of direct air capture is probably reduced by 80%, because we have an exothermic reaction going on, and the majority of the cost in direct air capture is in the de-absorption of carbon dioxide. Once you have absorbed it from the air, you have to heat up the catalyst again—or the material that has absorbed it—to get the carbon dioxide out again, and we have an exothermic reaction. We would not have those costs associated with our process. Integration of our direct air capture with our power-to-liquid solution in three to four years’ time would be quite a mature technology, and definitely scalable within the UK.

Time is pressing; we have only four minutes left.

Q I should have said this morning that I previously met with Alfanar prior to the publication of the Bill. Mr McKiernan, it is quite clear that you are very proud of your company, and very ambitious for its future. Do you think the SAF mandate is challenging enough, or could it go further? Doug McKiernan: That is a good question. I am not a particularly good judge of financial investment—I am a technical person—but I looked at the quotas for the e-fuels, and if they went further, I believe they would drive the development of the technology harder, because it would bring more investment into that particular area. To me, 3.5% by 2040 seems quite low—I think that we could probably scale up and do blends where that would be significantly higher.

Q Partly because you are based in Oxfordshire, my mind goes to universities. I wondered—based on what was said by a previous contributor—where we are with this technology compared with other countries. I do not know whether you are working with universities, but I am sure you are working with young people to develop skills. Is there is a risk, if the Bill is not passed and we did not get the RCM, that some of the skills that you are developing will be lost to other countries? Doug McKiernan: There is no question about it. The people who we have recruited have been researching, and have done not only doctorates but post-docs in this area. They have been working in it for nine or 10 years, hoping that there was a company out there that would recruit them and turn their R&D into a reality. These people are very passionate about their career and what they want to do. They are not going to work for the money; they come to make a difference. We have recruited a lot of those people. They will go wherever the company is that will make what they want to do happen.

Q Have you overcome the technical problems? Once you have the CO₂, is the technical process now scalable, or are there still many issues involved in it? Doug McKiernan: Our technology at the moment has to be scalable. When I go to the Jet A-1 ASTM committee at the end of the year, it has to be scalable. That is part of getting of getting the certification. We have to have a scalable process as well as a quality of fuel—so yes, we are there.

We have a minute left, but there are no further questions from Members. I thank the witness for his evidence. Examination of Witness Ruben van Grinsven gave evidence.

14:19:00

We will now hear from Ruben van Grinsven from Shell International. This session will have until 2.40 pm. Can you introduce yourself for the record, Ruben? Ruben van Grinsven: Good afternoon. My name is Ruben van Grinsven. I work for Shell and I am based out of the Netherlands, at The Hague—the former headquarters of our company, which has now moved across the street. Shell is active in quite a large part of the value chain of aviation refuelling. We provide both SAF and fossil aviation fuel to airline customers today. We do the blending, we do the transportation and we do sourcing, which means that we buy both aviation fuel and SAF from across the world to meet our customers’ needs. We are also actively looking at the production of generations 1, 2, and 3 of SAF.

Q Good afternoon. You have talked about the sourcing of aviation fuel and blending SAF as well as fossil fuel for aviation. Shell is clearly a global company, but the Bill’s underpinning is the United Kingdom’s domestic fuel security. Where does Shell sit in terms of viewing domestic fuel security for aviation use within the United Kingdom? Do you think the Bill will deliver on not just that primary goal but increasing UK-based SAF production? Ruben van Grinsven: That is a really good question. We are looking globally at various opportunities to build SAF production plants. The second and third generations especially are more challenging than the first generation. To make the investment case robust, we need to solve a whole number of challenges—some are around ensuring that we can make the technology work, and some are around financing. But a lot of it has to do with the value of the product that we make, and the certainty around the value of the product. The revenue certainty mechanism being discussed in the Bill is very compelling. There is always a combination of different factors. It is partially fundamentals about whether we can get the right feedstocks, but part of it is also about the certainty we have about the price we are going to get for our products. The revenue certainty mechanism is absolutely very helpful.

Q That is helpful, but on this particular point about UK-based production, a global company like Shell—there is nothing wrong with this position; it is what you do—will source SAF from wherever it is cheapest around the world. Does the Bill go far enough to pump-prime UK-based production so that a global giant like Shell—nothing wrong with being a global giant—will choose UK-based plants, or will the mechanism in the Bill not produce SAF at a cost that you think is competitive for your usage, blends and potential future use when compared to that from suppliers overseas? Ruben van Grinsven: There are two elements. One is whether we can invest in a UK plant. That is hard to tell at this point in time for two reasons. We do not fully understand all the details associated with the Bill. I think the principles are very promising, but there are many things that need to be detailed out, which, at the end of the day, will decide how appealing the investment is going to be. There is a lot of that. Can UK-produced SAF be competitive in a global market? I think that depends a little bit on the type of technology, but it is also very timebound. At this point in time, this is not the cheapest place to make e-SAF, just because power is more expensive than other places in the world. But if we continue to build out the renewables, as I have seen in plans before, I think there are going to be more affordable electrons around that can then be converted into e-SAF. In the longer term, e-SAF can be competitive. For other technologies, I think things are less location dependent. Ethanol to jet, for instance, is very feedstock dependent, and I think that the UK can be as competitive as other places. Again, the fundamental competitiveness is one element. The other element is whether the whole investment case makes sense, and part of that is financing —and part of the financing is driven by revenue certainty. It is not just the fundamentals but the whole package that determines the attractiveness of the investment.

Q That is very helpful. On one last point of clarity, when you talk about the long term for e-fuels, we can all put a different definition on “long term”. What do you mean by that—10, 20, 50 years? Ruben van Grinsven: I do not know. I do not know exactly what the price projections are for renewable power in the UK. It is hard to guesstimate that, so I do not know.

Q Sitting in the audience, you will have heard me ask this question of the last person. We had a witness this morning who said they did not believe the revenue certainty mechanism was required, and that the market would essentially take care of this on its own. You described it there as “compelling”. Do you agree that the RCM is required in the Bill, or do you think the market could take care of itself? Ruben van Grinsven: Ideally, you want the market to take care of it. As evidenced by a lack of investment to date and by a lot of feedback from industry, it is difficult for investors now, without the revenue certainty mechanism, to invest. Is it essential? That is a very black-and-white question. I think it is going to be extremely helpful to convince people to invest. We absolutely support the Bill because additional SAF production in the UK is going to be helpful for decarbonising the aviation sector, and we very much support that. Additional supply projects in the UK are going to be very helpful to meet the targets and help decarbonise the aviation industry. Yes, we very much support the Bill.

Q I think it is fair to say that the international supply chain is becoming more constrained and that there is a more protectionist international global economy. Can you give us a flavour of some of the economic and logistical challenges that you would face, importing SAF into the UK? As a follow on, if there is a requirement around energy security to set up shop in the UK, given the known knowns, would you look for subsidies from the current Government to set up production in the UK? Ruben van Grinsven: I am afraid I cannot fully answer that question because it is not the part of the business that I am in. I am not importing SAF to the UK, so I do not know how trade limitations are currently impacting SAF supply. I would have to ask a colleague and come back to that question. It is also hard to predict what the future is going to bring for global trade and how protectionism will impact the global free trade of all types of fuels. If you produce domestic fuels, that is, of course, going to be helpful if you want energy security. I must say, though, that if you look at the volumes that we are talking about today, the energy security element in the early days is going to be limited because of the volume of the fuels involved.

Q I want to put on the record that I have an airport in my constituency, so many relevant companies are based there. You are a global company in a global marketplace. The airlines I have spoken to want to source SAF from UK markets. How attractive is that to your organisation as a global business—responding to your customers’ wanting you to deliver locally? How much does that play a part in that investment? Ruben van Grinsven: I am going to answer in a slightly similar way. My role is very much investigating and developing supply assets. I am really looking at building SAF plans. I am not very familiar with how customers demand locally produced fuel. In general, customers look for affordability and, therefore, at price and eligibility legislation. At this point, those are the more driving factors for people to buy certain fuels.

Q Mr Downie stole my question, so I will develop it a bit further. The RCM sets the levy on to the fuel producers who will likely pass it on to passengers. You operate internationally and see mechanisms being implemented elsewhere in the world. We mentioned the alternative of using the ETS to fund the RCM. How do you see the advantages of one system or the other, and where have you seen alternatives implemented elsewhere that have worked well? Ruben van Grinsven: That is a good question. First and foremost, the UK is ahead of pretty much everybody else when it comes to developing those mechanisms. I know the EU is basically inspired by the RCM and trying to come up with a similar framework, which it will be announcing in September in the sustainable transport investment plan. I think the initial thoughts are indeed to fund that through ETS. I do not have a strong preference between ETS-funded or levy-funded. The most important thing is that it is clear, transparent, consistent and predictable. Once we know the details and find out how the whole mechanism will work, we can perfectly live with the levy mechanism—as long as it works practically. So we do not have a strong preference between ETS or levy funding.

Q You have just mentioned that you are looking broadly at SAF production and how that is going to play out into the future. Compared with other northern European countries, the UK has excellent access to renewable energy, and we had a very early responding hydrogen industry. What do you see as the UK’s unique opportunities in SAF production? Ruben van Grinsven: There are two elements. One is the fundamentals: affordable renewable energy, other feedstocks, then the cost of building plants, labour, and everything else. At the moment, in terms of the fundamentals of renewable electricity, the UK does not have a clear advantage because power prices are slightly more expensive, and most of the renewable power in the UK is intermittent. That is an important thing that needs to be overcome. You have a slight disadvantage compared with, for instance, the Nordics, such as Sweden and Finland; they have a lot of hydro and stable baseload renewable power. On the fundamental side, especially for power, I think there are other places that are currently a bit more competitive. However, many of the other elements, such as feedstock supply, labour and knowledge, are quite similar. The biggest differentiator is probably the legislative and regulatory landscape. You are creating a market through mandates, which I think is extremely powerful. If you also increase investment certainty through an RCM, that element is unique and, at this point in time, very helpful.

Q Obviously, the Bill is trying to make it easier for us to produce SAF in this country, which is really important. I gather—if this is correct—that part of your role is to source SAF around the world. Do you feel there will be a greater need, and therefore a strong argument that we should be pushing ahead with SAF and producing it here in Britain? Although you said you cannot commit to where you will buy your SAF because of cost, would you say you will be in a place where you need more and more—and so it is very likely that you will have to source SAF from Britain, because you will need as many sources as possible? Ruben van Grinsven: Especially for the second and third generation, SAF needs to develop. I think the consensus is that HEFA-based SAF is, at this moment, the most mature and affordable, so it is a great option. However, we also all believe that we are going to run out of feedstock at a certain time. If you want to continue decarbonising aviation, you need additional forms of SAF—and that is where the second and third generations come in. We need to start developing those now, to learn how it is done and establish the technology and the fundamentals behind it. Starting that now is essential, and doing it in the UK could potentially give you a head start. If you do this before everybody else, you would have a technological and commercial head start, which could be an advantage.

Q If the Bill becomes an Act, Shell will find itself in a peculiar place given that it will be both a levy payer, as a fossil fuel producer, and a developer of SAF potentially looking to benefit from the strike price. The Government put an analysis in the public domain on Second Reading: they suggested that the ultimate cost to the end user, such as somebody getting a flight—there will be a different calculation for those using air freight—will be plus or minus £1.50. Witnesses earlier suggested that that might be a “conservative” estimate—in their own words. Where would Shell see the ultimate cost pass on to the end user? Ruben van Grinsven: The principle makes sense: at the end of the day, additional cost will find its way to the end user. We do not have enough information at this point in time to calculate what the cost is going to be because a lot of the details of the Bill are unknown. We would like to better understand how this is going to work, what the volumes are, what the timing is going to be, and how we will organise the contracts between the supplier and the off-taker. There are a lot of things that we do not know at this point, and therefore it is difficult to model what the final cost of the levy is going to be for the end consumer. I do not know; it is difficult to answer. On top of that, I think it is going to change over time. Over time, if the market is short and the prices are high, money might flow towards the levy, so it would be like a negative levy but then it might turn into a positive levy. It is very difficult to assess that and put a number on it.

Q Some of the evidence we have received from the contributors to the consultation expressed concern over the levy calculation. Under clause 6, it could be based on historic market share. Do you share those concerns about complications in the levy calculation? Should it be a simple levy placed on sales going forward, rather than on historic market share? Ruben van Grinsven: Again, that is hard to judge because we do not have the full details of how this is going to be done. I agree that it is a very thin-margin business, so we have to make sure that the levy is distributed properly, and that we do not give certain people a disadvantage or advantage just based on calculation methods. We need to design it very carefully so we do not disturb the market too much. We will be able to assess that much better when we have more details about the Bill.

I thank the witness for his evidence. Examination of Witness Matt Gorman evidence.

14:38:00

We will now hear oral evidence from Matt Gorman from Heathrow airport. For this session, we have until 3 pm. Welcome, Mr Gorman. For the record, can you please introduce yourself? Matt Gorman: Sure. I am Matthew Gorman, the carbon strategy director for Heathrow airport.

Q Good afternoon, Mr Gorman. I will lead with the question that I asked the previous witness about end-user cost. Clearly, Heathrow’s business model relies on you having many people coming through and getting on aircraft, or arriving in the UK on an aircraft. If the cost of flying were to increase significantly, that might impact Heathrow’s very business model, with fewer people being able to take those flights. Some of the evidence we have heard today seems to challenge the Government’s presumption, presented on Second Reading, that any cost increase to the end user, as a result of the Bill and the SAF mandate, would be plus or minus £1.50. Do you share the Government’s view on that, or do you share some of the other witnesses’ views that that might be optimistic? Matt Gorman: Let me start by saying that we take this issue very seriously, for the reasons you have outlined. It is central to our business. SAF is key to delivering the industry’s net zero transition plan: it is about 40% of the solution. I do not think that anyone can forecast the future costs and prices with exact certainty, but I will say that we test all our demand forecasts for Heathrow against a range of different carbon price scenarios, from low to high—“high” being the Department for Energy Security and Net Zero’s high scenarios. We do that because it is important for us to understand and our investors to understand, and because climate disclosure legislation now requires us to share that information in our annual report. We have concluded that demand for flying from Heathrow remains robust even in high carbon price scenarios in future. We are confident about that. The Government have shared their analysis on the revenue certainty mechanism and the reasons behind it. That is one of the carbon costs that consumers will bear—there are clearly others—but I come back to the point that all our forecasts have shown that demand is robust.

Q In respect of procurement of SAF to be available at the airport, will the Bill safeguard domestic fuel security? I ask that question largely through the lens of the challenge to Heathrow if fuel were suddenly to be unavailable in the United Kingdom for you to supply to the airlines on site. Is there any way that the Bill could be improved to shore up the domestic security position? Matt Gorman: It is a good question. We welcome the Bill. As SAF is so important, the sector and Heathrow have advocated over a number of years both the mandate, which was passed as legislation at the beginning of the year, and the revenue certainty mechanism. It has benefits for energy security, green jobs, growth and decarbonisation. That has been one of the drivers for the sector to support it. The decarbonisation benefits are clear. On jobs and growth, earlier witnesses talked about the industry studies showing up to £10 billion of GVA and 60,000 jobs by 2050. Energy security is one of those reasons. As SAF is a key part of the industry transition plan around the world, there will be global trading of SAF. Kerosene is a global commodity today; SAF will be in future. We think we will import some. However, the sector is supportive of domestic production, which is why we are so supportive of the Bill. I should say that Heathrow is not directly in the fuel value chain—we do not buy, make or sell fuel—but we are very involved in the debate, because it is so significant. All the fuel producers and investors we talk to say that the revenue certainty mechanism will help to unlock investment decisions in the UK. I am not sure whether the Bill could be improved to do that even more. I do not have a view on that.

Q I have two questions. The first relates to your role on the board of Sustainable Aviation. You referred earlier to the key part the Bill plays in decarbonisation and reaching net zero. On behalf of that board, from the wider sector perspective, do you think that it is possible to reach net zero by 2050 without the Bill? Matt Gorman: That is a good question. We have not studied it in those terms. We have published a plan to get to net zero, and there are four key tools in the toolkit. SAF is one; zero-emission and hydrogen-powered aircraft are others. More efficient aircraft and more efficient operations deliver a huge amount, and there are greenhouse gas removals for anything that we cannot cut within the sector. SAF is important. We have always said that a combination of a mandate requiring production and incentives to stimulate investment in the UK is important. We are delighted to see the Government progressing with the Bill: we would like it to be passed as soon as possible, and we would like the consultation on the implementation to move forward. I would simply say that SAF is very important and that the Bill is very important to driving UK production.

Q So it would be significantly more difficult for you without the Bill? Matt Gorman: It would be much more difficult to produce in the UK; all the investors and fuel suppliers we talk to say so. There are huge advantages in doing that—for jobs, growth and energy security, as well as for decarbonisation .

Q My second question is about your role at Heathrow. We heard from earlier witnesses that, because the generation fuels are drop-in fuels, they are fairly confident that they could rely on existing infrastructure for storage and so on. As the person in charge of Heathrow, our largest airport, how confident are you that existing infrastructure and storage spaces can accommodate drop-in fuels? Matt Gorman: Very confident, from everything we hear from fuel suppliers in this space. Looking at the different bits of infrastructure, starting briefly with aircraft and engines, the main aircraft and engine manufacturers are in the process of certifying all their aircraft to run on 100% SAF. In a sense, we do not have to worry about that problem immediately, because—apart from dedicated flights—we do not have 100% SAF flowing through pipes, but that is clearly their goal. I forget the exact dates, but I think that by the end of this decade they will all be doing it, if not before. On pipelines and aircraft infrastructure, one of the main reasons that we have focused on SAF is that it requires upstream investment in production facilities, but it does not require changes in airport infrastructure or planes. That means that as soon as you can start producing SAF, you can start cutting carbon. As an illustration, at Heathrow, partly in anticipation while waiting for some of the Government market signals to develop and kick in, we introduced a landing charge incentive—a financial incentive. It started at 0.5% a couple of years ago, and now 3% of all the fuel being used at Heathrow is SAF, which has dropped into our systems without any issues. I should also say that 17% of the total global production of SAF is now uplifted through Heathrow.

Q My question is relatively straightforward: does the Bill go far enough to allow us to proceed with aviation expansion and be consistent with our climate change goals? Matt Gorman: This Bill is part of a package of measures from the Government, and I think it is absolutely vital. I see the Bill and the SAF mandate as equally important, with the SAF mandate driving a requirement for 10% SAF and with the Bill encouraging investment in domestic production. Those are vital tools, and the Government are taking a range of other steps. I am not here as a spokesperson for the Government, but the jet zero strategy outlines a range of measures to support the ongoing development of more efficient aircraft, which is a key tool in our toolkit, along with modernising airspace with the new UK airspace design service, which is vital for more efficient airspace, and support for new hydrogen technology and greenhouse gas removal. This is a vital part of that package.

Q The SAF mandate is 10% by 2030. The EU target is much lower: 6%, I think. Our target goes up to 22% by 2040, but elsewhere the target increases more dramatically. As Heathrow is such a large user—17% is a massive component—will the mandate be achievable alongside the goals and targets set out in the Bill? You have said that other things need to be done and that this is part of a suite, but I guess the question is whether this is enough. Do you need to see more aggression and more ambition, with investment in firms through skills and through the measures we have drawn out from previous witnesses around the protection of IP? Do you see this as enough? Matt Gorman: I think this is a very strong start from the UK. I was smiling when the Shell representative said that the EU had been inspired by the measures that the UK is taking. Joking aside, I have talked to fuel suppliers and investors to get a sense of how they are seeing the market. They say that this package, with the mandate and the revenue certainty mechanism, is a really strong policy package from the UK. To answer your question, Heathrow has been invited by the Government to submit updated proposals for our expansion plans by the end of this month. Within them, we will be setting out our views on our future trajectory to net zero. We think that the mandate and the revenue certainty mechanism are vital. The Government have already said that they want to keep the mandate levels under review; you are right that although we are more ambitious to begin with and the EU is less ambitious, the EU takes over. Our view is that heading more in the direction of the EU’s ambition over time will be important for Heathrow and for aviation generally, but we will keep that under review. It is really important to get started and make a strong start in this decade, to show that as well as producing SAF globally for use in the UK, as we are already doing, we can produce it in the UK.

Q You have mentioned that the UK is taking a strong leadership position on this stepping-stone technology with SAF. If the UK were to prepare itself now, early on, to be in a leadership position in sustainable aviation using hydrogen, what do you think that would look like? Matt Gorman: I think it would look broadly like what the UK is doing. We think about it in three buckets: the plane, the airport infrastructure and the regulatory environment. It is worth remembering that UK aerospace is one of the jewels in the crown of our manufacturing sector. We have a very long history in aerospace, and the Aerospace Technology Institute funds some of that technology development alongside the private sector. That is important. With airport infrastructure, we have always said, certainly for Heathrow, that we do not want to be a blocker. We do not want a hydrogen plane to be designed but not able to fill up at our airport. We keep an active watching brief on technology developments. We have taken a stand at Heathrow to trial hydrogen technology so that we can understand and build understanding. That is partly to influence the regulatory environment so that we are supporting the roll-out of hydrogen. The latest views from manufacturers are that we will probably start small with hydrogen—small plane sizes and small ranges—and build confidence there before getting bigger. However, that could play a real role in domestic connectivity. I think we are doing the right things, but it is a both/and with SAF and hydrogen, not an either/or. I would also say that SAF is the solution that we know exists today and that we can deploy today, so we need to get it moving.

Q First, given the obvious international aspect of aviation, does it make sense for the UK mandate and the EU mandate to diverge, or would it make more sense if they were the same? Secondly, we heard from one witness that the levy would encourage tankering, with air operators filling up in other locations. Does that happen now, and is it an issue that you can see being made worse by the levy? Matt Gorman: On the first question, I touched earlier on the fact that the EU and the UK have taken different trajectories, certainly into the longer term. I will be a little bit careful in what I say, because we are just finalising our thinking on what we submit to the Government, but increasing ambition with SAF will be important in the UK as we build confidence in production and scale-up of the technology. We can see a case in future to be more ambitious with the UK mandate. I think the Government said that they want to keep that actively under review, which we support. On the question of tankering, it happens to a limited extent today. We do not fly the aircraft, but our understanding, from when we last looked at it several years ago, is that on short-haul aircraft in particular, where there is a very rapid turnaround and you do not necessarily want to take time to fill up the aircraft at the other end of the route, the CO₂ penalty was not huge in terms of the industry overall. I am not close enough to comment on whether the levy poses a particular challenge there, but when the Government get to the stage of consultation on the detailed design of the mechanism and are working with the industry, it will be important to design it in a way that avoids that wherever possible.

Q We talk an awful lot about the customers and what they might see on the price of their ticket, whether that is for freight or for going on holiday to Spain or wherever, but are your customers demanding that you be more environmentally friendly? As an airport, how far do you need your customers to support the transition to SAF? Matt Gorman: It is a great question. All the evidence from our polling of customers, as well as what we read in regular polls and consumer surveys, shows that people are broadly concerned about climate change and environmental issues generally. In terms of aviation, they see that there is a role for customers, but they are clear that the industry needs to set out a plan and take action. They understand that airports do not necessarily fly planes, but that we clearly have a responsibility. They expect us to set out the plan, communicate it and take action at the airport where we can. In that sense, all the evidence shows that consumers support us taking action. As the answer to an earlier question alluded to, the net zero transition will have some costs to consumers. The challenge is how we keep those costs as low as possible while reaching the goal of net zero. I think the balance of the mandate and the revenue certainty mechanism is well designed to achieve that. We think that domestic production in the long term so we are not reliant on imports—we have discussed the energy security angle—is a good way of helping to manage price certainty in future. Consumers are supportive, engaged and willing to pay a bit more to support the transition to net zero, but the industry and Government need to take action to manage it cost-effectively.

Q May I go back to my first question? I hear what you say about being more ambitious, as the EU is towards the end of the mandate or as it progresses, but do you see any problems with the mandates being out of kilter? Or is that not an issue? Matt Gorman: If we start with the mandates out to 2030, we at Heathrow do not see a particular challenge in the UK’s adoption of a more ambitious mandate. We very actively supported the 10% mandate for the UK. As I say, it is really important that we start to get SAF flowing and to produce it in the UK, with the support of the Bill. In the longer term, through the work we are doing and our submissions to Government, I expect us to say a bit more about the long-term ambition for the mandate in the UK, but we have not quite finalised that. I will be happy to update the Committee in writing later in the summer.

There are no further questions from Members. Thank you for your evidence, Mr Gorman. Examination of Witness Josh Garton gave evidence.

14:58:00

We will now hear oral evidence from Josh Garton of the Green Finance Institute. For this session, we have until 3.20 pm. Good afternoon and welcome, Mr Garton. For the record, will you please introduce yourself? Josh Garton: I am Josh Garton, technical director at the Green Finance Institute.

Q Green finance is something of a minefield across various technologies. A straightforward first question is whether the Bill is the most effective way to get finance into UK SAF production via the price mechanism. If the answer is no, what would be a better way of ensuring UK SAF production and the protection of UK intellectual property in that production? Where do you sit in the debate about what the ultimate cost to the end user will be? Josh Garton: I think that the revenue certainty mechanism that is being proposed is a really good start to getting finance into the sector. Undoubtedly it will not be the only thing that is required: there are other risks that need to be addressed. The revenue certainty mechanism addresses price risk, as it is designed to, but other challenges remain for the second and third-generation fuels, and they may need to be addressed as well. I think that it is the best solution for addressing price risk. As other witnesses have described, when we speak to our colleagues in Europe and elsewhere, they see the package of regulation that the UK is proposing as some of the most promising in the world. The UK will become a very promising place to invest in SAF. On your question about the price for the end consumer, it is very hard to forecast what that will be. There are a lot of forecasts out there. It obviously depends on the cost of production, the blending of the fuel and many other factors, but the most important thing is that the mechanism for transferring the cost to the consumer be done in a very equitable way, so that you remove any competitive advantages or disadvantages resulting from airlines and other players in the industry potentially gaming the system. I would say that that is a more critical element to consider.

Q From your experience of securing finance for green projects, and given that the other side of the coin to the Bill is the mandate and its demands for increasing percentages of blend of SAF, do you think that the mechanisms within the Bill that we are considering in this Committee will deliver scalability fast enough to meet those elements of the mandate—the 2%, or the 10% over time—or are we going to find ourselves in the position where, to meet the mandate, we will still need to rely to some degree on imports? Josh Garton: I think that imports will definitely play a role, particularly for the first-generation fuels. The structure of the mandate provides space for second-generation fuels, which are quite novel with the sustainability requirements attached to them, so the UK will be a good place for producing them. The technical design of the mechanism, which is not set out in the Bill, will be what is most critical to ensuring that the mechanism is adequate for facilitating investment.

Q If British money is being spent on British technologies, and if you are leveraging capital to go on those SAF programmes, where is that money coming from? Is the investment attitude right in this country toward green technologies and SAF? Which countries are quite front-footed in their approach to investing in these technologies? Josh Garton: We are most active here in the UK and Europe with sustainable aviation fuel and the investors that are interested. We deal with commercial banks, private equity and other investors, and they are all very enthusiastic about the prospect. Unquestionably, they want to deploy capital into this space, but they will not be throwing out their investment rulebook when it comes to their risk-return profiles and the way that they assess risk. For that reason, we need things like this revenue certainty mechanism in place to provide confidence that investors, when they deploy capital in this space, will get the returns they need to justify their investments, or that lenders providing debt capital into this will get the returns they need within the regulatory frameworks in which they operate.

Q Obviously, when you are looking at green investment, there is a huge element of risk in new technologies. Are there other levers of Government that would de-risk them from an infrastructure point of view, or are there other things that we could do on top of the Bill to de-risk it? Josh Garton: Yes, I think there are. As I said, the revenue certainty mechanism seeks to address price risk primarily. The mandate deals with volume, and it provides that volume certainty in the market. When we think of the second and third-generation fuels that we need to develop to meet the aviation decarbonisation targets, these are somewhat novel technologies—in fact, they are novel technologies—and there is no market for the fuel at the moment. That means the technologies themselves are not commercially mature yet, so even with a revenue certainty mechanism in place, there is still a level of technology risk that some investors are not willing to tolerate at this point in time. We need further support to help the first-of-a-kind projects get through FID, even with the revenue certainty mechanism in place. That can include deploying things like first-loss guarantees, or other forms of Government involvement, such as being the first lender through something like the NWF taking a slightly more risk-on approach to the financing of these first-of-a-kind projects. That way we can prove that the technologies are commercially viable, and then help scale the sector.

Q This is a similar question to Mr Reed’s. Would you say that UK SAF developers find it harder, easier or the same as their international counterparts to access finance? Josh Garton: The UK compared with Europe?

Any international comparator. Josh Garton: In green finance, we will all have observed that the geopolitical narrative is changing. In the UK and the EU there is a more favourable environment for green finance than over the other side of the Atlantic. There is still a great appetite here, albeit within those risk tolerances that the different types of investors require.

Q Building on those last two questions, in terms of the investment landscape in the UK for technology, and for SAF in particular, we are in an emerging technological race where, for example, the mandate itself starts to wind down HEFA use quite quickly. We can see waste-derived fuels coming down, but then we have heard from witnesses, such as Zero Petroleum and other manufacturers of e-fuels and power-to-liquid fuels, that this might be where the technology settles in the long term. How much reticence is there from those who might finance these projects to go there on a technology that could well be stood down in 10 or 20 years in favour of something else coming upstream? Josh Garton: To go there? Are you talking about the first-generation fuels?

Well, first and second, until we get to third. Josh Garton: It is certainly a consideration, but I think most investors are very cognisant of the fact that the third-generation fuel, while absolutely necessary in the long term, has some way to go to evolve to that point. There is a lot of space still for the first and second-generation fuels to develop, but there will be some consideration about not building overcapacity in those sectors.

Q Can I gently push you on that? We heard from the witness from Zero Petroleum earlier that they are ready to scale now, in reference to a question from one of the Liberal Democrat Members on the Committee. If that is the case, what do you see as the barriers to those later-generation fuels being scalable now, when one witness who actually does it—sat where you are sat not half an hour ago—said they are ready to scale? Josh Garton: Certainly, the technologies are at that point. There are still commercial challenges; they have been proven at demonstration scale but not at the commercial scale. In the UK, we have a mandate that provides space for second-generation fuels. While that mandate remains intact, there will be a lot of space for that fuel over the long term. In the EU they have a different structure, where they do not have that same space for second-generation fuels.

Q I want to be very careful with this question. We have had questions about investors and appetites to put money into these technologies—into refineries, production and particular projects. There was previously a fairly strong consensus on the need to address climate change, and this is one of the projects that we are doing to mitigate those impacts. There is a fair amount of rhetoric at the moment about stopping investment in net zero projects in particular regions, some of which have a heavy dependency on or a high frequency of these sorts of projects—north Lincolnshire, Humberside and such areas. Is there a risk that that sort of rhetoric damages investor confidence and that, with that sort of language and those sorts of pronouncements being made, we see challenges in delivering the jobs and the plants and seeing the capacity that we need come online? Josh Garton: Yes, absolutely there is. It feeds into the overall narrative in the UK on the direction of SAF. It is more than just at the regional level; there are murmurings around the strength of the mandate itself and its being upheld. All those murmurings impact the narrative and the appetite for investors. The more we can do to support those first-generation plants to get through to a final investment decision and through to production, the better we prove out the sector as a viable one in the second and third-generation fuels. That narrative then falls away, because we have proof that it is a commercially viable product.

I admire your faith that that narrative might fall away, but I agree with the rest of the answer.

If there are no further questions, thank you very much indeed, Mr Garton, for your evidence today. Examination of Witnesses Philip New gave evidence.

15:11:00

We will now hear oral evidence from Philip New. For this session we have until 3.40 pm. Welcome, Mr New. Just for the record, could you introduce yourself? Philip New: My name is Philip New. A couple of years ago I was commissioned to prepare a report for the Government on the development of a UK SAF industry. Before that, I used to be responsible for BP’s global renewable energy activities.

Q Good afternoon, Mr New. Fast-forwarding from your review to where we are today, is there anything that you wanted to see, that you recommended or that you found in that review, that is lacking in the Bill that this Committee is considering? If that is the case, how would you improve it—or is this the mechanism that you think will pump-prime the UK SAF industry? Philip New: The main conclusions from the report that I did were, first, that the SAF mandate as laid out—it was at a slightly more formative stage then than it is now—was a really smart way of trying to define the market mechanisms, the targets and the obligations framing a new market. The question then was what other mechanisms would need to be in place, having got the demand side largely mapped by the mandate, to enable supply to occur. My first thought when I saw the RCM was that there was very little that was needed: if you believe that the market will be short of SAF, as many people do, with a buy-out price and a target, you would expect the product to price close to the buy-out price—that which is available. That sends a very strong price signal to investors. I was unfortunately thinking of that from my historical perspective as a strategic investor and had underestimated the conservatism of the banking community. It was clear to me that they were pushing very hard—perhaps because they had grown very comfortable with the idea of a CFD in other parts of the green transition—and they were really enthused and insistent on the idea of a revenue certainty mechanism. The way that the RCM has emerged so far is very highly aligned with the proposals that emerged in that original report. From that point of view I would say, “So far, so good.” The mandate is evolving well and the RCM feels pretty much where it needs to be. The questions that are still out there, as I think Josh Garton was referring to, are specific to very first-of-a-kind technologies. Part of the issue with the second-generation products is that, while the feedstocks are already wastes, they are often already being used in other sectors. There needs to be, I think, some greater degree of comfort to enable some of those wastes to be bid away without wrecking the project economics of the SAF developer. A good example is black bin waste. The prospect is that by having more competition for black bin waste, we reduce costs for local authorities. It is really nice if we can get there, but for now, while these technologies are so uncertain and regarded as such a risk, it is difficult for local authorities to commit to them with enthusiasm, because they are afraid that they will end up paying landfill fees if they do not manage to do it. That is one example suggesting that there should be some more comfort around feedstocks. The rest of the answer are the mechanisms that could be put in place to smooth some of the risk around the very first projects. The risks there are around integrating new technologies for the first time and then getting through some of the operating teething problems, because everyone involved will be coming across those issues for the first time. It took me about four years to get a much simpler plant up and running to a point of satisfactory operation. We should not underestimate the challenges of getting those initial assets over that first set of hurdles, but the RCM is an absolutely necessary part of the mix that needs to be put in place.

Q That is very helpful. As you raised, for example, the black bin waste stream, it strikes me that looking across the differing technologies to produce SAF, the waste-derived ones could end up being the most costly, not least because the bulk of waste goes through local authorities. Many of those—including my own in Buckinghamshire—are tied up in very long-term finance arrangements on incinerators, so they cannot simply take their waste somewhere else because they are locked in a contract. Buckinghamshire is by no means unique in that. Do you see waste-derived SAF hitting an even bigger buffer when the practicalities come, and it either requiring some significant state subsidy to buy out those incinerator contracts or simply not having the waste in the first place? Philip New: When I first engaged with this, I had exactly the same thought. However, a few things are starting to emerge that sit on the more optimistic side of the balance of risk here. First of all, over time there will be more and more pressure for the energy from waste manufacturers to access carbon capture and storage. It is not at all the cleanest way of generating an electron in this day and age. It would be reasonable to expect that over the next 15 years, we will see a number of those assets get to a point where the contracts are expiring. They will then need to contemplate refinancing, and if they do, whether or not they have access to carbon capture and storage will become important. Not all of them will be able to either afford or justify it, because they are too distant from where the carbon sinks are. There is a probability that enough capacity will start to come off stream for it to be picked up. On top of that, the imposition of the emissions trading tax will start to free up some of the very difficult to recycle plastics, which could be used to make SAF. There is also an interesting stream of waste wood that will become available, particularly as some of the rocks start to fall away, which will start to happen in a couple of years’ time—and assets that at the moment are making renewable electricity out of waste wood will lose their rocks. We also need to remember that it is the local authority that is paying the energy from waste company to move it away. I have recently been involved with some economic analysis. We assumed that for the first wave of sites there would be a 100% discount. In other words, rather than the local authority paying, it would get rid of the waste for free. The developer would not pay for it themselves, but the local authority would still save the money. We thought that would be necessary to give local authorities the comfort to take on the exposure. Later on, there might be scope for it to become a little more competitive, because people will get more comfortable and there will be more confidence in the technology. I do not think that we simply have to bail them out. I think there might be something around a guarantee of some description that simply says to a local authority, “Look, if you give a contract to one of these companies and it fails—if it can’t live up to that contract—and you have to put it into landfill and pay the landfill tax, there could be some kind of keep-whole mechanism,” just to encourage them over the line. The other thing that you could consider is looking at the waste hierarchy. Simply moving this from being recovery to recovery-plus would send a very strong signal to local authorities that putting it into SAF is a better use of their waste than simply incinerating it and turning it into electrons.

Q Building on that, we heard from a couple of witnesses earlier today about the waste hierarchy, but in your view, is there a point at which local authorities should be looking at their local plans for waste and minerals? My local authority is already receiving applications for gasification plants, and it is not alone in this. If they come on stream, they could deprive the SAF producers of the materials that they would want to acquire. At what point do local authorities need to be thinking ahead when looking at their waste and mineral plans? Philip New: This is quite a challenging conundrum. Right now, the safe place to put your waste is into an incinerator to make electrons. Is that the best place for the journey to net zero or for the local authority’s long-term economics? That is less obvious. It is difficult to put all the obligation on the local authorities to make the right, wise, long-term choice, when they are dealing with some very short-term pressures. This is where I think some extra signals—whether through some kind of mechanism that gives them comfort that they will be kept whole if things do not work out as planned, or some adjustment to the waste hierarchy—could play a helpful role.

Q You did your independent report in 2023. Obviously, the world has changed rapidly in the past couple of years. We are seeing global economic change, with tariffs, international supply chains becoming more contested, and increased conflicts and volatility. How have the conclusions that you drew in 2023 changed, and where would you say that delta is? Philip New: I think the key change has been in the United States. When I wrote that report, it was in the context of Biden’s Inflation Reduction Act. The concern was that we might be out-competed by investment in America, and we would end up being a net importer of stuff from America, not just in first-generation SAFs but in second-generation SAFs. They have lower energy costs, which are very important in these sorts of industries, and their build costs are about 20% less than ours. That was a real worry then. Especially coming out of the big, beautiful Bill, America is out of the game. That is kind of a good thing at one level, because it means that, particularly with the way the mandate is designed around second-generation SAFs, we now have a globally unique position. We could therefore become an incubator for a series of technologies that will have to play a significant role in aviation decarbonisation over the next couple of decades. The bad news is that if we fail to get this new industry kick-started, I do not think we can hope to rely on imports from somewhere else to get us out of trouble. It will mean that we will not meet our mandate targets.

Q Just a small follow-up, if I can. You are saying that the biggest change is the US pulling back from innovation and production of SAF. Is that in direct response to what the Chinese are doing? Philip New: No. For most global markets that have started to look at SAF, the preferred mechanism has been to impose some form of mandate—even China has put in place the beginnings of a mandate mechanism. None of them are as ambitious as those in Europe and the UK, but that is the normal mechanism. The reason for that is simply that SAF costs more than aviation fuel. Left to its own devices, an airline in a very competitive industry is unlikely to voluntarily buy more SAF than it needs to buy. If it has big corporate clients that want to offset some of their scope 3 emissions and are willing to pay a premium to have their flights decarbonised, that is fine, but there is a real limit to how big, dependable and investable that market will be. That is where America is right now, and it is because of the structure of the other incentives in the American mechanism. A critical part of that was a change in the big, beautiful Bill, in which the premium given to SAF producers was removed completely. They now get no more money than those making diesel for ground transport use, but it costs more money to make SAF. The airlines do not have an incentive to buy SAF because there is no mandate, and the producers do not have an incentive to make SAF because it costs more to make and they get less credit from the American mechanisms in place to support renewable fuels.

Q As a good Liberal Democrat, I want to talk about bins again. Incineration and energy recovery facilities are broadly seen as the least worst options. If there is now an alternative, lots of us will be very interested in the opportunities for local authorities and for making conditions better for our residents. If that means cheaper bin collection, we will all be in favour. I have questions about the big picture. It has the potential to disincentivise recycling. Does the increasing value of SAF feedstock undermine the efforts to recycle? Another, more technical question is: could plastics recycling be better diverted into this process to solve a lot of the problems we have with exporting plastics for recycling and the energy used to do that? Many of our energy from waste facilities are now linked to heat networks. Is that bigger picture being considered—not just producing electrons, as you say, but using waste heat for district heating networks? There is a bit of additional complexity. That leads into the bigger question of the holistic view across different Departments and the incentives that the Bill creates, which I am sure are all positive. It promotes better, more sustainable options in different Departments. Is enough work being done elsewhere for this to work within the bigger system? You have 15 minutes. Philip New: My roots are as a fuels and energy guy, so I will not be able to respond with much expertise to the more specific questions about the waste sector. However, I will do my best by starting with the general statement that I think you are quite right that the second that waste becomes more valuable than an alternative use of that waste, you have to start questioning whether it is really waste. Funnily enough, that is more of an issue in some of the first-generation products that we are using, where the waste is becoming more valuable than virgin vegetable oils. That is a different issue, but it is very important. In this case, as long as people either do not get anything for waste or have to pay to get rid of it, the risk of it distorting other parts of the hierarchy is manageable, particularly with a sensible degree of oversight and monitoring. I would not lose too much sleep about that. You will have to help me with the other part of the question.

Q It is the broader question of how this sits within the system. The implications of this Bill are really broad in the way the incentives will come into a whole different set of markets, including agriculture, waste and local government. Philip New: First, I challenge the suggestion that this is an incentive. I think of it more as an insurance policy. If you are a recipient of the insurance policy, if it turns out that the market price is higher than you contracted for—your strike price—you will end up paying. The counterparty will be in receipt of money from the participants in the scheme. It is not a one-way incentive. One of the charms of the RCM is that it is nicely balanced. If you are worried that the market will go long and there will be lots and lots of lower-priced product that undermines your economics, the RCM is a great way of giving you insurance that your investors will stay whole and happy. On the other hand, by taking it on, you are sacrificing your exposure to the upside. That is the premium you are paying. I think the balance that has been designed into the RCM is a really attractive way of keeping everyone honest while still enabling investment to flow into the sector. I do not think it should distort the underlying drivers or mechanisms. That having been said, I worry about the range of sectors that a successful SAF industry will touch. It has the potential to touch them in a very positive way, but it is also exposed to some inadvertent—I would not call it negligent—inattention in somewhere that does not feel a very strong ownership of the space, which could really mess things up. A degree of conscious, whole-system understanding of what it takes to enable a brand-new sector to emerge, and providing some co-ordination of that, would be welcome. Whether that looks a little like mission control in the electricity transition or something else, I do not know, but something to provide more comfort would be important. It touches many parts of the economy and many Departments.

Q Mr New, in your report you say that one of the key asks for industry is around confidence. We have talked a lot about revenue confidence today, but I want to go over that a little bit. You ask how the UK Government can demonstrate that they will stay the course, and I guess the core of that is political confidence. Since your report, of course, we have had a change in Government, and who knows if there might be another one over the investment cycles we are talking about here? Could you say a little about your assessment of how a Bill—putting something in primary legislation, as this does—helps to provide the political confidence that you believe investors are looking for, and also, frankly, helps to mitigate the actions of the varying parties in Parliament as we approach this issue? Philip New: There were two big pushes from the investment community when I was writing the original report connected with the RCM. The first was that it would just be nice to have that revenue certainty in the first place, and that is what we see in other parts of the green transition. The other speaks directly to this point. They were very nervous that there might be a change to the mandate design, the mandate targets or something at some stage in the future, and that that would so change the market dynamics and the pricing dynamics that all their assumptions would go out of the window. They were not going to be satisfied with any number of assurances from the Government, because Governments change their minds, so they wanted a bilateral contractual arrangement, which is another feature of the RCM. A big driver of its original definition was precisely to respond to that very concern.

Thank you for your evidence, Mr New. We will now move on to the next panel. Before I call our next witness, Mr Geoff Maynard, I say to colleagues that there may well be a Division around 4 pm, or perhaps 4.05 pm, so we may or may not get through the whole of this session before then. If there is a Division, we will go and vote. Return within fifteen minutes maximum, please. If there is another vote, which I do not think there will be, it will be a further 10 minutes. Examination of Witness Geoff Maynard gave evidence.

15:35:00

Q Welcome, Mr Maynard. For this session, we have until 4 pm. Please introduce yourself for the record. Geoff Maynard: Good afternoon. I am Geoff Maynard, a fellow of the Chartered Institute of Logistics and Transport and a member of its aviation policy group. We meet regularly, maintaining links with universities, industry, airlines and environmentalists to assess developments in the sector, and to advise and inform Governments and the aviation sector on the best way forward, balancing the needs of the environment and the airline sector.

Q Good afternoon. Does the Bill get that balance right? Will it increase UK production of SAF to the point that we have domestic fuel security, or is there a better way of decarbonising aviation fuel? Geoff Maynard: I think the short answer is yes. It meets that requirement because, unless there are some incentives for SAF—which will cost more than the kerosene that would otherwise be used—there is no incentive for the aviation industry to use it. That presents a problem because there is then no environmental benefit, which we desperately and quickly need. The Bill is a good way forward, as we see it.

Q But it is the mandate that tells them they have to use it. The Bill is about domestic SAF production. Geoff Maynard: But production is important. You could have a situation in which there is a mandate but nobody can acquire the fuel, except at a totally extortionate price. There would then be pressure on the Government to revise the mandate. That is how we see it.

Q That is a very fair answer. On the cost basis, the Government have said that the end-user cost—as opposed to the cost to the airline or the producer—of buying a plane ticket is plus/minus £1.50 on a fare. We have heard from multiple witnesses today that that is potentially an optimistic figure. Where does your organisation’s analysis put it? Geoff Maynard: It depends on where you are within the mandate. If you are looking at low mandates, up to about 10%, then the £1.50 figure is probably correct, but as we move further on, it seems unlikely that it will be quite as low as that.

Q Where does your organisation see the price of SAF going in the medium and long term? In theory, if the Bill works, SAF production in the United Kingdom will increase exponentially. Therefore, the unit cost—the per litre or per tonne cost—will come down. How long does your analysis suggest it will take us—as a country, as opposed to a global market—to be able to supply SAF to the airlines at a cost that is closer to the fossil-fuel equivalent today? Geoff Maynard: On the face of it, you would expect the cost to fall, but the problem is that there is only a limited amount of raw materials for the generation 1 and 2 fuels to proceed. You will have to move forward to meet the requirements; you will have to move to power-to-liquid fuels, and they are going to be more expensive to produce. Therefore, at some point, as they kick in, to meet the overall figures, the cost base will rise. That is why we believe that, in the longer term, it will be slightly more expensive because there are not the cheaper feedstocks that are currently available.

Q As you mentioned, this is an enabling Bill and what will really count is how the RCM rounds are designed. You have talked about the need for us to realise economies of scale and advances in technology as we move through larger and larger availability of feedstocks. Do you see that kind of mechanism as being a useful vehicle for us to make those economies of scale and bring that innovation to bear? Geoff Maynard: The short answer is yes, I do. I think it will be very effective. As many previous witnesses have said, it provides a guarantee to investors that they will get a return on their money. A point that perhaps has not been made is that it gives quite a lot of authority to the Secretary of State. If he sees that the process of moving to SAF is slowing, he can instruct the counterparty to let additional contracts and thus speed up the process and the amount that we have. There is a considerable degree of confidence that, properly used, it will produce the desired results.

Q Mr Maynard, thank you for being with us. In your role within the aviation policy group, have there been any conversations with colleagues from the Ministry of Defence about the Royal Air Force potentially using SAF and the international logistical challenges of getting SAF into the UK? You raised some concerns earlier on. Geoff Maynard: We have had some discussions around the edges with the RAF, if I can put it like that. They recognise the need that, at some point, they perhaps ought to be using SAF. It is certainly possible for them to do so, albeit not necessarily to the same percentage that you can use it in commercial jets, as I understand it, because the engines have not been designed for it. There are some issues to resolve before they can use it in the way that the commercial sector does. Does that answer your question?

Q It does. Do you see this developing in the private sector far faster than in military environments? Geoff Maynard: Yes, because the use is much greater. There is a lot more SAF to be used in the commercial sector than there is in the military sector.

Any other questions? No. Mr Maynard, thank you very much indeed for your evidence this afternoon. We are grateful to you for taking the time to meet with us. Examination of Witness Professor Mark Maslin gave evidence.

15:42:00

We will now hear oral evidence from Professor Mark Maslin from the UCL Centre for Sustainable Aviation. We have till 4.20 pm for this session. Welcome, Professor Maslin. Would you state your name and so on for the record? Professor Maslin: I am Professor Mark Maslin. I am a professor of Earth system science at University College London and the founding director of the Centre for Sustainable Aviation.

Q It is always good to get an academic perspective on these matters. We can get locked into all sorts of technical discussions and lose the bigger picture. From your work in the UCL centre, is there an academic view—a big picture view—on which of the technologies that the Bill could support through the price mechanism to scale up production in this country has the best chance of breaking through and being a long-term solution, on a scale that will give us domestic fuel security and at a cost that will not drive commercial passengers and holidaymakers away from the airlines? Professor Maslin: We take the very large view that the only way to make the international aviation industry net zero is by SAFs. Electric short haul—possible in the next 20 to 30 years. Hydrogen—forget it; it is never going to work and any pilot will tell you, “Not a chance.” That is just so we have that laid out there. We need SAFs both UK-wide and globally, and we are talking, as an academic institution, with very large airlines that want to produce SAFs in their own country. As academics, my colleagues and I would not pick one technology. What you need to do is what you are doing, which is having a levy that says, “If you produce SAFs, you will then have this benefit.” Then, you will work out which technology comes to the fore, whether that happens to be alcohol production or waste. You should stay agnostic to the successful SAFs output.

Q That is very helpful. You may have heard me ask previous witnesses about the cost to the end user. The Government’s analysis is that it would end up being plus or minus £1.50 on the airfare, but a succession of witnesses have not been willing to put their name to that, or even to go as far as saying that they think that that is a conservative estimate. Where does your analysis sit on that? Professor Maslin: Our analysis is slightly different because it is looking at the industry as a whole. On the airline side, there is a worry that these costs will literally be shoved on to the airlines. Many of us do not realise that the difference between this industry and others is that it is a very narrow margin industry. If there is any change in geopolitics, companies can go bust—for example, Finnair. Airlines are worried about this levy system, not necessarily because of the extra cost, but because they are not reassured that when there is a surplus, which goes back to the actual producers, it will be then be passed back to the airline. Again, they are happy with the up and down mechanism, but there seems to be no way of shunting that back to airlines to say, “Okay, you have done well, so you can get some money back.” That is more the concern. Adding £1 or £2 to the price of a flight does not concern the airlines from the passenger point of view—it will not put passengers off. What will put them off is when the airlines suddenly realise that if you multiply that by 550, which is the number of people in an A380, you suddenly start to bankroll quite a lot of extra money that has to be found. I am hedging my bets, so I will not tell you that it will be higher or lower than £1.50. That is a very small amount per individual, but for the companies that are trying to make aviation work and are positive about trying to move to net zero, this is the perfect time to push, as they have suddenly woken up to the fact that they are laggards.

Q As someone who works in research and innovation, you will be familiar with the UK pain point, where we are often excellent at planning the technologies at low technology readiness levels, and then we lose them to that mid-level valley of death. The UK is strong in sustainable fuels at the research level; this mechanism is intended to help us to navigate through the valley of death, and to reach scale and economic viability. Do you think it is a good mechanism for that and that it will help us to break that trend in the UK? Professor Maslin: Other levy systems that have been used in the energy sector have been very successful, so I am personally very positive about this because it gives a guarantee. We have seen what I call the solar rollercoaster: suddenly everyone has solar panels, and then suddenly all the companies go bust. What you are doing, very sensibly, is trying to level those bumps in the road. That worked for offshore wind and it should work for this, but there also needs to be support through other mechanisms, such as R&D and mechanisms designed to support small and medium-sized enterprises, so they can get the research they need, to go from “Wow! That’s a brilliant idea!” to being world leading. This is a great mechanism, but the Government need to use the other mechanisms to fund those companies to develop as well.

Q Obviously, Innovate UK is our key player in that space. Do you see it as active in this space? Is there anything you would like to see us doing slightly differently to support SMEs and innovators better? Professor Maslin: I have been very lucky, because in the past I have been able to get funding from Innovate UK and even from the TSB before that—that is how old I am. Innovate UK needs direction, with top-down prioritisation of this sector for the UK. Sometimes Innovate UK has stuff coming in, then selects what it thinks is good, but I think you need to mandate, in concert with the Bill, that it focuses on SAFs and makes that one of its priorities.

I have realised that Professor Maslin was an undergraduate tutor of mine quite a few years ago. Professor Maslin: Oh, this is becoming a real embarrassment; it just makes me feel really old. But it is great to see you in a position of power.

Q By the look of it, you have had an easier life than I have had. I have a fairly brief question. This morning, we heard representations that the SAF mandate is enough in that it creates the demand and requirements that the market will adjust to and fulfil, and that the Bill is therefore not needed. I invite your thoughts and comments on that bold statement. Professor Maslin: I think that is deflection. The Bill is absolutely required. You need to support this fledgling industry; as with any of our green industries, we need to support it so that we can be world leading. SAFs are going to be the future. There are 14,000 planes in the air at any moment, and in 30 years’ time they will hopefully all be flying on SAFs. If we can get our industrial might to actually produce the technology, patent it and push it forward, we will be ahead of the curve, because everybody else is starting to throw money at it.

Q On the potential economic benefits of the Bill, you mentioned the other layer of infrastructure that we need to put in place. How do we ensure that we have individuals with the skills and smaller organisations with the financial capacity to ensure that we maximise the economic benefits from trying to be the market leader? Professor Maslin: That is a huge, huge question.

Sorry. Professor Maslin: No, no, I think it’s great. Forgetting schools, I think we need reinvigorate engineering in universities—and I say that not coming from an engineering background. The reason is that, at UCL, we have a huge faculty of engineering and some real areas of expertise, but we need to build those up. We need the chemical engineers who can train the next generation to go into SAFs. We need to energise that. At the moment, the problem is that the university sector is creaking and underfunded, and top universities are doing things on a shoestring. It seems slightly ridiculous that I am going out to the middle east to get funding to support research into SAFs, but we are having to be entrepreneurial and sell our talent around the world.

Q Professor Maslin, thank you for being with us today. You talked powerfully about the international nature of this technology set. If a country or business is not going through a good time, that technology might not come through the supply chain. From a UK perspective, where are the main weaknesses with the international supply chain? As a follow-on, are any hostile states actively trying to weaponise elements of that supply chain? Professor Maslin: The first thing is that we have to work out a way of being self-sufficient in SAFs. If you want the mandate and the Bill to work, we have to have that self-reliance. The problem that is the quality, quantity and supply of SAFs around the world are highly variable. They are not as good as you think they are. We therefore need to be able to protect our own regulations by having a homegrown community. On weaponisation, no, I have not seen any evidence that hostile states are going after SAFs at the moment, because they are a very small percentage of the aviation mix. At the international level, it would be helpful if the Chicago accords could be renegotiated so that you could tax aviation fuel internationally, even if the tax was small—$1 per tonne, or something like that—to shift the balance away from aviation fuel and towards SAFs being more accountable. I doubt that will be possible in these interesting political times, but that is the problem we have. We are able to tax aviation fuel internally but not internationally. Therefore, at the moment, there is no aviation fuel tax on international flights, which would be a really nice mechanism. Of course, you can see that as weaponising against the fossil fuel industry.

Q May I start by heartily endorsing your encouragement of engineering as a career or an education? As an aeronautical engineer before I came to this place, I am available for motivational speeches whenever necessary. From my discussions with industry on the Bill up until now, I am not quite sure that I am convinced about being agnostic to SAF production, source and mechanism. My worry is that it does not give enough ability to shape the environmental benefit of that SAF stream and to incentivise the most beneficial SAF production, such as PTL compared with the earlier gen SAFs, even 2g SAFs. Does the Bill as presented give enough of the right mechanisms to incentivise the right sort of SAFs that will be most beneficial and provide us with the greatest environmental benefit? Professor Maslin: The Bill provides financial security for industries producing SAFs, which I think is essential. I do not think it has real tweaks to favour particular SAFs—whether you want to do that or not is another matter. The problem is that some SAFs have a better environmental signature, and they are better, but we are going to run out of those. Ultimately, the real SAFs that we are going to be looking at globally are massive algal productions and artificial kerosene, whereby you produce huge amounts of energy, and you use water and CO₂ from the atmosphere to actually create kerosene. That is extortionately expensive at this moment in time. However, as I said, if there are 14,000 planes, going up 4% per year, by 2050 you will have a very large number of planes in the air at any one moment in time. There will not be enough waste, cropland or algal stuff to produce the SAFs we need. Generations 4 or 5 will be the ones that ultimately look after the aviation industry. I would still say to be agnostic; I cannot believe I am saying this, but let the economics work its way through at the moment to see who comes out on top in the UK, and then take through the next generation.

Professor, thank you for your evidence and for illuminating us with the alumni in our midst. Professor Maslin: It is amazing where my students end up.

Thank you, Professor, for a very interesting contribution. We very much appreciate your time today. Examination of Witness Mike Kane MP gave evidence.

15:58:00

We now move on to the Minister, and we have until 4.40 pm for this session. I suspect that we will be interrupted shortly by a Division, but I think we should proceed. Minister, while you have been active in our proceedings today, taking notes and so on, could you please introduce yourself for the record? The Parliamentary Under-Secretary of State for Transport (Mike Kane): Thank you, Mr Pritchard. I am Mike Kane, and I am the Minister for aviation, maritime and security.

Q Minister, no doubt we will be able to go through much of this on Thursday and next Tuesday, but a central feature of the debate on Second Reading was the ultimate impact on airfare payers of the price mechanism in the Bill, on top of the mandate. You were very clear at the Dispatch Box that it was plus or minus £1.50. I have no reason to doubt that, but some of the witnesses today have. Is there some more work to be done by the Department as the Bill progresses to kick the tyres on those assumptions? How confident are you that it will stand the test of time, given that multiple witnesses today have challenged that number? Mike Kane: As the Minister, may I start by thanking all Committee members and witnesses for their time today? I think it is a great question. We have a world-class aviation sector and, if we want to stay world class, it is absolutely essential that we pass this Bill. It is part of our manifesto commitment. We introduced the mandate on 1 January for 2% on the demand side, and this now begins to give investment to the supply side. You are absolutely right; we have to remain competitive in the aviation market if we are going to remain the third largest on the planet, and one of the most advanced. The figure we have from the departmental analysis teams is that it is plus or minus £1.50 of the price of a ticket over a year. That is less than my Bee Network bus fare, where Andy Burnham keeps the cost below £2. That is what we are looking at. You ask how we are going to look at this. To answer in all seriousness, we are going to continue to monitor and control by managing the scale of the number of contracts we let. This gives the Secretary of State—whoever it is, from whichever party it is in the future—the power to look at what is happening and scale up or down if the market is badly distorted. We feel that there is no big impact on consumers taking their annual holiday to the south of Spain once a year. They will continue to do that unaffected.

Q Thank you. That is helpful. Can I also ask for your views on a couple of other areas of evidence we heard today? The first is about a point that also came up on Second Reading: the protection of UK intellectual property as contracts are let and participants come forward to take part in the price mechanism. Has the Department done any more thinking on UK IP, so that we are not just producing SAF, of whichever technology, within the United Kingdom for our own fuel security, but doing so with genuinely UK technology driving it? Mike Kane: As we said, we are agnostic to the technology. As we let the contracts, that is where the innovation will come. There is a wider question across Government and UK security about intellectual property, and of course we will keep in contact with our colleagues at the Department for Business and Trade who look at that. The world is looking to us at the moment, as Lahiru from EasyJet said this morning, because we are the first doing this. We want to maintain the intellectual property by being first in the world to do this and then, as the companies come forward with the innovative technology, we want to properly IP that and maintain the competitive advantage in the UK.

Q This is my final question before we get to go through the Bill in detail on Thursday and next Tuesday. Accepting the agnostic position, has anything you have heard today from the various companies who have given evidence, be that global giants such as Shell, UK-based innovators such as Zero Petroleum or the companies developing SAFs from waste, changed your thinking on whether there might be emerging winners and losers, given some of the challenges that we have heard about—not least the municipal waste challenges? Mike Kane: As the Minister leading on the Bill, I would say, “My kingdom for a chemistry degree.” Actually, Mark said something that I thought was very pertinent towards the end: we just have to allow the technology to emerge. That way, as we get to the power-to-liquids and the harder piece to do, in five, 10 or 15 years, there will be a market for it. The beauty of the Bill is that we can let contracts over five or 10 years. Personally, even though Exxon has reservations about this measure, the only emotion I would convey to Exxon is thanks for producing this fuel now, in this country. Exxon is happy about the SAF mandate; its issue is with the revenue certainty mechanism. That is an area where, once the market is established, the Government have an exit strategy; once the market begins to work, the then Secretary of State will have ways out of it, because Government will not need to be in it once we have established it.

Q The evidence session has been very positive—I think you would agree—with a lot of positive evidence about the Bill and sustainable aviation fuel in general. I have the same question that I have asked a number of those giving evidence today: will you elaborate on what you think would be the risks and potential disadvantages to the UK, if we were to stall on the Bill and not pass it on Third Reading? Mike Kane: First, I thank you, Chris—you have been a great advocate for aviation since you came to Westminster in 2024, with Stansted airport near your constituency. The No. 1 risk is not doing this—that is the risk. I think Matt from Heathrow and Rob from Airlines UK said that in our approach to getting to net zero by 2050, we have a number of Government policies—airspace modernisation, leadership at CORSIA, the emissions trading scheme, the £2.3 billion investment in the Aerospace Technology Institute and hydrogen regulatory development—but that 40% of that pathway is the Bill. If we do not pass it, we are in serious trouble about decarbonising the industry. That is the key risk.

Q We heard some of the evidence about how effective the RCM could be in light of the difference that CfDs have made. You have already explained how to manage the levers and the number of contracts allocated to get the economics right, but can you explain how that sits alongside the SAF mandate to help us to steer UK innovation and maximise the opportunities for the UK to lead in this sector? Mike Kane: When we came into Government in July, we had two key aviation policies. The first was airspace modernisation, and we set up the UK Airspace Design Service and passed it into legislation just the other week. In addition to improving resilience in our skies, we hope that that measure will stop planes circling and allow those that currently do not fly in a straight line to fly in a straight line, which reduces the cost of fuel—to go back to the shadow Minister’s point. Lahiru from easyJet said in his evidence that the best energy is the energy we do not use, and airspace modernisation helps us with that piece. The second part of our manifesto commitment was SAF. After we were elected, we laid the mandate for 2% of all aviation fuel in the UK to be SAF. That came into force on 1 January. Airlines are sourcing SAF and getting supplies of it, but too much of it comes from abroad. While we have a good industry in the UK, companies need the confidence to scale it up. I will make no party political points, but four or five years ago we were promised that by 2025 five plants would be up and running. If I were going there, I would not be starting from here, but we are getting on with doing this now. I think everyone on this Committee can be extraordinarily proud that this will be the moment that we stepped up and began to decarbonise the aviation industry.

Q I have one straightforward question, and one that is a little more spiky. First, we have heard a lot about the need to work across Government to ensure that we get the most effective outcome from the Bill. From all the evidence we have heard, it seems to be the right thing and structured well, but how do we ensure that municipal waste streams match up with incentives for heat networks, waste hierarchies and that sort of stuff? We hear a lot about mission-based Government—is that what will give the advantage to being able to co-ordinate across Departments? Will you give us an account of what you are doing so far to pull those Departments and different groups together to make sure it works? Mike Kane: To get any Bill this far, as any Member will know, it has to have consent right around Government. The Government know exactly what we are doing in a joined-up way. To answer your mission question, we have said that we want to be a clean energy superpower, and this Bill helps us to do exactly that. It gives us sovereign capability here on UK shores to do that; not only is that the right thing to do, but, in the increasingly uncertain geopolitical situation we face, it is becoming almost essential. The other mission that we have is growth. Today, I heard some very big figures on what that could mean. Our Department figures show at least £5 billion GVA added if we do this, and about 15,000 jobs—[Interruption.]

Order. I am suspending the Committee for a Division in the House. We will try to get back as quickly as possible.

16:10:00

Sitting suspended for a Division in the House.

16:25:00

We now continue with our proceedings. I call Luke Pollard to continue—[Interruption.] Sorry, you are not a Minister of State yet, but you will be soon, I am sure. I call Luke Taylor.

Q Thank you, Mr Pritchard. Minister, your first answer was very helpful. My second question is on a theme that I have brought up a couple of times, and which echoes the evidence around ETS funding from a couple of the witnesses. I am going to be a bit pointed, but if you had had the choice and the permission from the Treasury to get the funding from the ETS, rather than passing it on to firms and then passengers, would you have seen that as an optimal solution, in these constrained times? Mike Kane: As the departmental Minister, I want to avoid the pitfall of commenting on Treasury policy, but I did hear some earlier evidence that £500 million came in from the ETS. What did they get back for it? Well, £2.3 billion of investment in the ATI, which is looking at engine capacity, hydrogen and reduced noise technologies. We are investing more than we ever have in that area. We are also now aligning, or are in negotiations to align, our ETS with the European Union. That would give us a bigger market, and therefore help aviation in this space. In addition to the £2.3 billion, the Chancellor recently announced £63 million for the advanced fuels fund. The Government are putting their money where their mouth is. As part of the work that I have done this year to restart our confidence in aviation, I set up the jet zero taskforce, which is jointly chaired by me and the Minister for Industry, my hon. Friend the Member for Croydon West (Sarah Jones), at DBT. There is an awful lot of joined-up thinking in this area.

Q In terms of SAF’s growth potential, I would be interested to hear more about how smaller organisations can get involved and how we can ensure that lots of businesses benefit from this huge step forward for our economy. A lot of SAF production will be in coastal areas, but my constituency, which has an airport, is inland. How can that growth potential reach all parts of the UK? Mike Kane: Indeed, and Amanda, you are a great champion of East Midlands airport in your constituency—I have Manchester airport in mine, and I see from day to day the benefits that growth brings in terms of jobs, skills and inward investment. You make exactly the right point. Good strategy is turning what you have into what you need to get what you want. We have industrial heartlands dotted right across our nation, including in our coastal communities. They are almost oven-ready to host the technology, inward development and jobs. Our analysis, which was a minimum compared with those of everybody else in the room, is that this would create 15,000 jobs in the next few years and £5 billion in GVA. Those jobs are in many of our run-down coastal communities and industrial heartlands, so this is a win-win on many levels—in terms of decarbonisation, carbon capture, production and the regeneration of parts of our nation that have been left behind for far too long.

Q I have been looking at some of the written evidence we have received in addition to the testimonies from the witnesses. I understand why clause 6 is widely drawn, but do you recognise that the levy being calculated in too complex a way would produce uncertainty, a lack of transparency, and externalities or transaction costs that we do not need? Mike Kane: I think clause 6 gives us flexibility. That is what is key in letting the contract. We have made some principle statements here. This is industry-funded; we do not think the taxpayer should pay for the decarbonisation of aviation. We know that at the moment it is a small amount of what transport emits nationally, but because it is one of the harder-to-decarbonise areas, we know that the graph will go up over time. That is why we are funding the fuel suppliers, at the top of the chain here, so that the costs are spread as this goes lower down the chain and eventually to the passenger.

Q I do not know whether you have seen it, but Valero makes the point in its written submission that if the way that you calculate the levy is too complex, and if you base it on historical market data rather than current data, then with just a standard levy, that will produce problems, whereby new entrants will not be subject to the levy. We have to be sensible about how we calculate the levy. That is all I am suggesting. Do you recognise that as an issue? Mike Kane: The first thing I would say in response to your question, Paul, is that this is a very technical, short Bill, but there are huge challenges ahead. I want to compliment my officials, who have worked extraordinarily hard to get to this point, and also industry who have worked with us to get to this point. As we go to the strike price and the levy, we will continue to work with industry to make sure we get that right. Somebody described it earlier—I think it was Mark again—as being like a seesaw. It will go up, it will go down; but by letting the contracts or drawing them in, we can keep that balance in equilibrium, as far as humanly possible. That is the quality of this. While that is not the answer you might want to hear about the end piece, there will be scrutiny of the Secretary of State and of this, and of the legislation, and that will be covered by the Competition and Markets Authority. There will be many levels of scrutiny of how well Government are delivering this.

I am sure Hansard will pick it up, but just for the record, Minister, you have mentioned Mark twice. I believe it is Professor Mark Maslin you are referencing, rather than the Chair, who of course remains neutral—and is not in a seesaw chair. Mike Kane: You are always Mr Pritchard to me.

Q This question has come up in some of the other discussions today, but do you think there is enough in the Bill to properly incentivise the move beyond first and second generation SAFs, into what I think some of the witnesses described as the ultimate place we want to end up in—and where there is probably the most opportunity for UK IP, UK innovation and subsequently UK jobs and growth—such that the UK is where SAF happens and is created, as well as where it is developed in future? Do you think there is enough in the Bill for that? How do you see the Bill, and the next steps after that, as making sure that we can really achieve that and ensure that proper added value for the economy, while meeting climate targets? Mike Kane: First, you are a great champion for Edinburgh airport in your constituency. You know the value of aviation to local communities in particular and you have championed that since you have been here. Does the Bill give you innovation? I am not sure it does. I think it gives you a platform for what you want to do, in terms of the contracts that we will let going forward, which are about going from HEFA and first generation, to second and third generation. This gives you the substructure to build that capacity for intellectual property, inviting bids for various ways of doing things, and then protecting and supporting that, and bringing new entrants into the market. I think that is what the Bill does.

Q We have heard quite a lot about what we can do to enable second-generation fuel from municipal solid waste, large volumes of which are currently going, and have been for a while, to electricity generation through waste incineration. Has the Department held any preliminary discussions with other Departments or external stakeholders about what local authorities need in order to have the confidence to send more of their municipal solid waste to make SAF? Mike Kane: This will depend, again, on the contracts. I know that you are a neighbour to the Grangemouth refinery, where there could be potential in the future. We know that SAF can be made from a wide range of feedstock, including household waste. The SAF pathways are developing rapidly, and will do even in the weeks and months while the Bill goes through. We just need to make sure that this legislation adapts to the technology and pathways that are coming forward, which will involve further discussions with DBT, other parts of Government and possibly local authorities.

Q To follow up on that, the Government have been quite consistent in their response to this question, but I just want to reconfirm: are the Government committed to maintaining their current position on the HEFA cap? Mike Kane: The requirements to support specific technologies’ feedstock today may be out of date. Again, if we were to pass this legislation and get to Third Reading, that gives us flexibility, as the Secretary of State has ability to change it. If we feel that the HEFA cap needs to change, we will be able to change it. If we want to move up the gradients of the types of SAF that we use, it gives us the ability to do that through the letting of the contracts.

Q I am neither a chemist nor an aviation policy expert, so I will ask my questions from the perspective of my constituents in Sunderland. Looking at this policy area, they would be interested in the potential impacts on jobs and airfares. On jobs, could you say a little more about what you think the potential upside is in areas like mine? On airfares, can you confirm that clause 10, which deals with the payment of potential surpluses back to levy payers, creates the potential for downward pressure on airfares, depending on where the strike price ends up? Mike Kane: First, you have been a big supporter of sustainable aviation fuel in your constituency, because you have the Wastefront tyre-to-fuel plant, so your constituency is already benefitting from jobs that have been created by that company. The Bill also allows us to scale up the technologies that we want to use, which could be of particular benefit to the north-east. I am also the maritime Minister, and we have announced £1 billion investment at the Port of Tyne for LS Cables, and Teesport is about to announce big investments in sustainability as part of our clean energy mission. The mayor, Kim McGuinness, is absolutely tied into this agenda, and using the whole north-east coast to support our green energy mission is vital. You are absolutely right that the pressure on ticket prices could be downward. Very recently, there was an article in The Sunday Times by the International Airlines Group, which hedged its SAF supplies a long time ago in advance of this. It says that it will now, as an airline, have a competitive advantage in the price of ticketing over the next few years, because it got SAF at the right price at the right time.

If there are no further questions, thank you, Minister, for your evidence this afternoon. That brings us to the end of today’s session. The Committee will meet again at 11.30 am on Thursday 17 July to begin line-by-line consideration of the Bill. Ordered, That further consideration be now adjourned. —(Kate Dearden)

16:38:00

Written evidence reported to the House

SAFB 01 Alfanar

SAFB 02 Airlines UK

SAFB 03 Neste

SAFB 04 GRAMM Energy

SAFB 05 Carbon Neutral Fuels Ltd

SAFB 06 Wood Panel Industries Federation

SAFB 07 OFTEC and UKIFDA

SAFB 08 Biofuelwatch

SAFB 09 EET (Essar Energy Transition)

SAFB 10 Willis Sustainable Fuels UK

SAFB 11 Jet2

SAFB 12 Arcadia eFuels

SAFB 13 Valero Energy Ltd

SAFB 14 Exolum

SAFB 15 Enerkem

SAFB 16 Fuels Industry UK

SAFB 17 Transport and Environment

SAFB 18 Daniel Scharf

SAFB 19 International Air Transport Association (IATA)

SAFB 20 Esso UK Ltd

SAFB 21 Renewable Transport Fuel Association (RTFA)

SAFB 22 Sustainable Aviation