Singapore green fuel levy on travellers ignites funding debate

Singapore to impose green fuel levy on departing flights; move from 2026 will raise ticket prices; aviation industry growth faces environmental challenges, says industry body

Updated - February 19, 2024 09:05 pm IST

Published - February 19, 2024 07:58 pm IST - Singapore

An Airbus A350-1000 flies during an aerial flying display ahead of the Singapore Airshow at Changi Exhibition Centre in Singapore. (FILE PHOTO)

An Airbus A350-1000 flies during an aerial flying display ahead of the Singapore Airshow at Changi Exhibition Centre in Singapore. (FILE PHOTO) | Photo Credit: REUTERS

Singapore on Monday said travellers would need to bear the cost of the transition toward green jet fuel, announcing plans for a levy that would lift ticket prices on departing flights as the aviation industry searches for a viable funding model.

Introduced by Singapore's transport minister at an industry summit on the eve of the Singapore Airshow, the city-state said it aimed for all departing flights to use 1% sustainable aviation fuel (SAF) from 2026 and planned to raise that to 3-5% by 2030, subject to global developments and the wider availability and adoption of SAF.

"It will hurt our air hub and our economy, and raise the cost of travel for passengers if we are overly ambitious with our sustainability goals," Transport Minister Chee Hong Tat said of the need to give modest targets initially.

Aviation produces about 2% of the world's emissions but is considered one of the hardest sectors to decarbonise.

European regulators have to date been the most active in trying to boost the use of SAF, introducing rules that force airlines to meet minimum requirements for its use such as 2% in France by 2025 and 5% by 2030.

Under the European model, the carrier pays for the SAF and decides whether to pass the cost onto passengers in the ticket price.

Singapore's levy will vary based on factors such as the flight's distance and travel class.

For example, in 2026 the price of an economy class ticket on a direct flight from Singapore to Bangkok, Tokyo and London by an estimated amount of around S$3 ($2.23), S$6 and S$16 respectively to pay for the SAF, said the Civil Aviation Authority of Singapore, which developed the plan in consultation with industry and other stakeholders.

SAF, which can be made either through synthetic processes or from biological materials like used cooking oil or wood chips, currently accounts for 0.2% of the jet fuel market and costs up to five times more than conventional jet fuel.

"A big challenge that we are facing that is contributing to the high costs is actually securing bio-derived feed," said Ong Shwu Hoon, Asia Pacific fuels vice president at ExxonMobil Asia Pacific.

High Costs

Singapore's only current SAF producer Neste has the capacity to produce up to 1 million metric tons of the fuel annually at its refinery in the country that started operating last year, a company representative said, more than 10 times the volume required for the target of 1% by 2026. Neste produced 251,000 tons of SAF globally in 2023, according to its most recent financial report.

The aviation industry says SAF use needs to rise to 65% by 2050 as part of a plan to reach "net zero" emissions by then, though that will require an estimated $1.45 trillion to $3.2 trillion of capital spending.

"There will be a cost associated with transitioning to net zero. And ultimately, that cost will have to be reflected in the ticket prices, which will have a dampening effect on growth," IATA Director General Willie Walsh said at the Singapore summit.

IATA, which represents about 320 airlines, estimates the global airline industry will grow at about 3.3% a year over the next 20 years, significantly lower than between 2010 and 2019, because of environmental challenges and supply chain issues, Walsh said.

He said there were risks that taxation to pay for aviation sustainability measures would not reduce the number of flights but it could price some people out of flying and lead to empty seats, which is not good for the environment.

"It's got to be a conversation: economics and viability, and environment sustainability," Walsh said.

Luis Felipe de Oliveira, director general of Airports Council International, said governments must invest in new SAF refineries to help bring down the cost.

"The solution is not capacity restrictions, the solution is not taxation, the solution is finding ways that you can work together to increase production which then will be used by the airlines in the system," he said.

Sustainability will be a key theme of events at Asia's largest aviation gathering, the Singapore Airshow, which opens February 20.

During the show, Airbus will fly its A350-1000 widebody aircraft with a 35% blend of SAF supplied by Shell Aviation from used cooking oil and tallow.

Singapore Airlines Chief Sustainability Officer Lee Wen Fen said, while the industry awaits ramped up SAF production, replacing older planes with efficient modern ones is the most effective option.

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