South Korean refineries are hoping for government action to bolster their transition to sustainable aviation fuel (SAF) as SAF initiatives to achieve carbon neutrality gain global momentum.

Industry sources revealed Monday that domestic insiders are under pressure to keep pace with this global trend to ensure their global competitiveness, particularly after major economies announced SAF support measures.

The Ministry of Economy and Finance designated low-carbon aviation fuel-related technologies as “emerging growth and proprietary technologies” in January 2024, which has led to tax benefits. The decision increases tax deductions on investments for the four major Korean refineries?SK Innovation Co., GS Caltex Corp., S-Oil Corp, and HD Hyundai Oilbank Co.?from 1 percent to 3 percent. The government also included aviation fuel production facilities under biomass energy production facilities a month later, allowing the refineries to enjoy further tax deductions of up to 6 percent.

But the refinery industry is arguing for a higher tax deduction of up to 15 percent by designating low-carbon aviation fuel as a national strategic technology. “SAF production costs are about three to six times higher than regular aviation fuel. Some tax support for manufacturing will eventually be necessary alongside tax deductions on investment,” according to an unnamed industry insider.

SAFs encompass various fuels, including bio-jet fuels produced from waste cooking oil or animal-based oils, sugarcane, and electric-based fuels (e-fuels) produced by combining hydrogen and carbon dioxide. These fuels can be blended with conventional aviation fuel and are known to reduce carbon emissions by up to 80 percent compared to regular aviation fuel.

Major economies like the United States, European Union, and Japan have all taken regulatory steps to embrace the transition to SAF, recognizing its importance from an energy security standpoint. The European Union will mandate that all aircraft taking off within its 27 member states use fuel that is blended with at least 2% of SAF from 2025. This ratio will increase to 6 percent by 2030, 20 percent by 2035, and 70 percent by 2050.

Although the United States is yet to mandate the blending or use of SAF, the U.S. energy, transportation, and agriculture departments have set targets to expand SAF production and usage, aiming to produce a minimum of 3 billion gallons annually by 2030 and replacing 10 percent of aviation fuel demand with SAF. Japan has set a mandatory ratio for SAF usage at 10 percent by 2030 and has invested 257 billion won ($192.8 million) from its green innovation fund into the production facility of Idemitsu Kosan Co., a petroleum chemical company, which will start operations in 2026.

Against this backdrop, industry players worldwide are also actively participating in SAF initiatives. Finnish bio-diesel company Neste Oyj plans to start operating a factory in the Netherlands in 2024 that can produce 500,000 tons of SAF annually. ExxonMobil Corp. aims to produce 200,000 barrels of biofuel per day by 2030, while Japanese oil company ENEOS Corp. partnered with Mitsubishi Corp. to form a domestic bio-SAF supply chain, from raw material procurement to manufacturing and distribution, from 2027 onwards.

”SAF will remain a key greenhouse gas reduction measure in aviation, which is difficult to electrify and hydrogenate,“ according to Professor Kim Jae-hoon of Sungkyunkwan University, who also suggested its potential to be placed at the center of fuel weaponization.

By Jung You-jung and Chang Iou-chung

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