Singapore’s new sustainable jet fuel law ensures cost certainty for industry, unlike mandates or incentives, says MOT

[SINGAPORE] The Republic’s new legislation for the adoption of sustainable aviation fuel ensures cost certainty for the industry, said Senior Minister of State for Transport Sun Xueling on Tuesday (Oct 14).

Unlike a mandate, Singapore’s approach is not affected by fluctuations in the price of such fuel; and unlike incentives, it does not require “large and recurring fiscal commitments, which are not fiscally sustainable for Singapore”, she said.

“It helps to encourage (sustainable aviation fuel) production through clear demand signals, while ensuring that costs remain contained, predictable and fairly shared,” she said in Parliament at the second reading of the Civil Aviation Authority of Singapore (CAAS) (Amendment) Bill.

Singapore has set a target for this fuel to form 1 per cent of fuel use by 2026. The Bill, passed on Tuesday, allows this previously announced policy to be implemented.

It provides for CAAS to enact a levy, and create a fund and central procurement mechanism for sustainable aviation fuel.

The 1 per cent figure was chosen as it will not increase air ticket prices significantly, yet sends a firm demand signal to the market to spur production and industry development, said Sun.

Avoiding volatility

The amount that the government will spend on sustainable aviation fuel each year is pre-determined, based on the 1 per cent target and the projected price premium of the fuel compared to conventional fuels. This required amount is then collected via the sustainable aviation fuel levy: a tax paid to CAAS for outbound passenger and cargo flights from 2026.

CAAS itself – or an entity established by the agency – will procure, manage and allocate sustainable aviation fuel and credits for it.

“This allows us to secure better commercial terms with fuel suppliers and ensures that the levy proceeds are used in an accountable and effective manner,” said Sun.

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The levy quantum for each year will not change even if the actual sustainable aviation fuel premium differs from projections.

Instead, the amount of such fuel to be procured will be adjusted accordingly.

Singapore chose to avoid sustainable aviation fuel mandates and incentives – adopted by the European Union and United States, respectively – because of their downsides, added Sun.

Due to price volatility, mandates create significant cost uncertainty for airlines and passengers.

An example is the EU’s requirement for sustainable aviation fuel to form 2 per cent of jet fuel use by 2025, rising to 70 per cent by 2050.

This fuel is “a nascent product that is subject to high price volatility” and airlines cannot hedge its price, she said.

“Simply mandating (its use) would impose unpredictable and unsustainable costs on airlines and passengers as sustainable aviation fuel prices may vary significantly.”

Meanwhile, subsidies “require large and recurring fiscal commitments, which are not fiscally sustainable for Singapore”.

She cited federal and state-level incentives in the US that lower the cost of sustainable aviation fuel and encourage domestic production.

In response to clarification questions from Members of Parliament, Sun said that the levy quantum in 2026 is expected to be within previously announced levels: For economy class, S$3 for short-haul flights such as to Bangkok, S$6 for medium-haul flights such as to Tokyo, and S$16 for long-haul flights such as to London.

She added that there are no plans to include transit and transfer passengers under the levy, in order to ensure Changi’s competitiveness as an international air hub.