Official UK report to call for green aviation fuel subsidies

The UK government will on Thursday publish a report recommending state subsidies for the production of low-carbon aeroplane fuel made from household waste.

The Department for Transport will release the report as part of wider package of proposed policies but ministers are still haggling with Treasury over the scale of the subsidies, according to people close to the matter.

Rishi Sunak, prime minister, will on Thursday oversee a so-called government “energy security day”, with dozens of policy announcements and consultations running to about 1,000 pages.

Ministers have drawn up plans to fund a new nuclear body called Great British Nuclear; ease onshore wind development; and tweak the windfall tax on oil and gas companies, according to officials.

Grant Shapps, energy secretary, has signalled his intention to remove green levies from customers’ electricity bills and include them in general taxation, and to change the way that electricity prices are set.

The car industry is hoping for clarity over of a controversial electric vehicle sales mandate due to kick in next year.

Auto sector executives have warned that to allow manufacturers time to plan ahead they need certainty as soon as possible on new rules stipulating a certain proportion of sales must be of electric vehicles,

Officials have also been finalising an updated “green finance strategy” to encourage the uptake of products such as “green gilts” — bonds which finance projects that contribute to reducing carbon emissions.

However, some of these policies have been delayed until later this year, according to officials.

Ministers are under pressure to draw up a fresh “net zero” plan after their previous version was rejected by a High Court judge last summer for being insufficiently detailed.

Ed Miliband, shadow energy secretary, said in a speech on Tuesday that the government was not doing enough to compete with the US’s recent “Inflation Reduction Act” which will channel hundreds of billions of dollars into America’s green industries.

Last October, the DfT commissioned Philip New, former head of BP Biofuels, to lead an independent evaluation of how to build a “sustainable aviation fuel” (SAF) industry in the UK.

New is expected to back the aviation industry argument that financial subsidies are needed for producing SAF because cleaner fuels are currently about three times the price of normal jet fuel.

But while the DfT is expected to endorse the general findings of the report it has not yet had the go-ahead from the Treasury for extra subsidies, according to people familiar with the situation.

Aviation contributes around 8 per cent of the UK’s greenhouse gas emissions, and the industry’s net zero targets are heavily reliant on using sustainable aviation fuels to decarbonise flying.

Airlines believe some form of price stability mechanism, which would agree a set price for fuel underwritten by the government, is crucial to spur more investment.

The UK has announced £165mn in grants and a mandate that would require at least 10 per cent of jet fuel in the UK — an estimated 1.5bn litres — be made from “sustainable sources” by 2030.

But industry executives have expressed concern that the EU and the Biden administration in the US have gone further with incentives around sustainable fuels.

Shai Weiss, chief executive of airline Virgin Atlantic, told the FT in December that UK government support was “a drop in the ocean” compared with the money being spent in the US.