I beg to move, That the Bill be now read a Second time.
On the day when the Chancellor has set out this Government’s determination to deliver a decade of national renewal, I am proud to stand before this House to make good on our promise to deliver a sustainable aviation sector. If we are once again to be an outward, confident trading nation that is connected to the world and leading the way on innovation, we must run as fast as we can towards a greener, cleaner future for flying. The Bill before us today will enable us to do precisely that. We do not have time to waste.
Does the Secretary of State agree that this Bill has a missing half, which could cut aviation emissions by demand management, and that at the very least, if there is to be public money spent setting up this system, it should be raised from the most frequent flyers and private jets?
I think the hon. Lady and I fundamentally differ on the issue of demand management, because demand for air travel is only going one way, and it is therefore our moral responsibility, if we are going to have more people in the skies, to reduce the carbon emissions associated with that.
As I said, we have no time to waste. That is why, when it comes to aviation, this Government have rolled up their sleeves and got on with the job, putting an end to the dither and delay of the past. In less than a year, we have approved the expansion of Luton airport and invited plans for a new runway at Heathrow, and I will be making a final decision on Gatwick expansion as soon as possible. We have invested in the future of aviation, not just with the help we have given to reopen Doncaster Sheffield airport or the work we are doing to strengthen connectivity around Liverpool John Lennon, but also by putting £1 billion towards aerospace technology. We have introduced the sustainable aviation fuel mandate and provided £63 million to the advanced fuels fund, helping the industry prepare for a sustainable future. Just last week, we kick-started the largest redesign of UK airspace since the 1950s, paving the way for cleaner flights, fewer delays and more direct routes. This is what governing for growth looks like.
I really welcome the Bill and the creation of a mechanism to increase the supply of sustainable aviation fuel. Can I add that, as we look towards airspace modernisation, we will have not only cleaner and quicker but quieter flights?
My hon. Friend is completely right to highlight the benefits of cracking on and delivering airspace modernisation. It could mean not only more direct flights and therefore less use of carbon, but noise benefits for communities close to airports.
We are determined to make rapid progress on this issue because we have an iron-clad belief that our success as an island nation rests on our international connectivity. The flow of trade, exporting British expertise and the movement of people for business and leisure all depend on aviation continuing to grow and thrive. We could put our head in the sand and pretend that people do not want to fly, that the sector does not support hundreds of thousands of jobs, that people do not look forward to foreign holidays or family reunions and that air freight is not a significant part of our trade by value, but we would be on the wrong side of both reality and public aspiration.
The truth is that demand for flight is only going in one direction. According to the Civil Aviation Authority, passenger levels were 7% higher in 2024 than in the previous year. If we do not respond and if we do not set aviation up for long-term success, we do not just make ourselves poorer today, we kiss goodbye to the growth and opportunity this country needs in the decades to come.
I want a future where more passengers can take to the skies, not fewer. But like the rest of our economy, that must mean emitting less carbon, not more. This Bill will help secure that future. It builds on the fantastic work across Government and industry, led by my hon. Friend the Aviation Minister, which saw the SAF mandate come into effect earlier this year. As we run towards a future of green flight, we know that sustainable aviation fuel is one of the biggest levers we can pull. It emits 70% less greenhouse gases on average than fossil fuels. It can be used in existing infrastructure and aircraft engines, and it is now backed by a mandate that is rightly ambitious: 10% SAF in the fuel mix by 2030 and 22% by 2040. I want as much as possible to be made in the UK.
The mandate, which we welcome, calls for only 22% sustainable jet fuel usage by 2040, while the Chancellor has said that she wants a third runway in use at Heathrow by 2035. That would mean more aviation-related health hazards to my constituents. Does the Minister agree that we should not pursue Heathrow expansion until we can turbocharge the SAF mandate and bring non-sustainable fuel usage down further?
The Government have been clear that we will permit airport expansion only when it is consistent with our legally binding climate change targets. SAF is one way in which we can clean up aviation, but the work we are doing on the development of new aircraft technologies, alongside the work we are doing on airspace modernisation, is all connected to how we bring those emissions down. I point out to the hon. Lady that the expansion of Heathrow has already been modelled in relation to the sixth carbon budget.
We have been clear that the mandate alone is not enough. Creating the demand for SAF but not the supply does not get us where we want to be. We have heard the industry’s concerns around risk and uncertainty for investment, and that is why we are acting today. The Bill creates a revenue certainty mechanism that will boost SAF production by giving investors confidence to choose the UK.
I declare an interest as a pilot. In this context, I spoke to one of the would-be producers—I think it is called Zero—and its primary concern with respect to the strike price mechanism that the right hon. Lady talks about is how that will be set and what input producers will have. Will she address that when she talks through the mechanism?
There is more detailed design work to do on all that, and we will work alongside industry to ensure that we have a workable proposition.
The mechanism boosts SAF production and gives investors confidence in the UK by addressing one of the biggest barriers to investment: the lack of a clear, predictable market price for SAF. That starts with a guaranteed strike price agreed between a Government-owned counterparty and the SAF producer. If SAF is sold for under that price, the counterparty will pay the difference to the producer. If SAF is sold for above that price, the producer will pay the difference to the counterparty.
The revenue certainty mechanism will be funded by industry, specifically through a levy on aviation fuel suppliers. That makes sense for two reasons. First, it is the industry that will benefit from more and cheaper SAF production, so it is only right that industry, and not the taxpayer, should fund it. Secondly, placing the levy higher up the supply chain spreads costs across the sector and is the least burdensome option. It is important to note that the revenue certainty mechanism will not be indefinite. It will be targeted and time-limited, helping to get first-of-a-kind UK projects off the ground. The Bill’s sunset clause means that we can offer contracts only for 10 years, unless it is extended via the affirmative procedure. We will have a firm grip on costs throughout. We will decide the number and duration of contracts, limit support to a predetermined volume of SAF and negotiate acceptable strike prices. There is no obligation on the Government to enter into a defined number of contracts or to agree contracts at any cost.
I know that some hon. Members may be concerned about the impact on passengers, so let me reassure them: none of this will limit people’s ability to fly. We expect minimal changes to fares, with an average ticket increasing or decreasing by up to £1.50 a year. I am pleased to say that this is a product of many months of consultation with the industry. Airlines are calling for it, airports are calling for it, SAF producers are calling for it, environmental organisations are calling for it, and the Government are therefore getting on with delivering it.
I am sure that we wish the Government well in what they are trying to do. I gather that the International Air Transport Association highlighted only last week that, at the moment, sustainable aviation fuels cost approximately five times as much as conventional jet fuel. Will she explain how the measures in the Bill will bridge that gap to make it economical?
Supply is constrained at the moment; the UK has one commercial production facility, in Immingham. We need to build investor confidence to commercialise some of the sustainable aviation fuel demonstration projects around the country. More supply and lower prices are good for the aviation sector and, ultimately, good for those who wish to fly.
I think it is worth taking a moment to reiterate what is at stake. When UK production of low-carbon fuels is up and running, it could support up to 15,000 green jobs, contribute £5 billion a year to our economy, and deliver clean and secure energy. What is more, fulfilling the SAF mandate could save up to 2.7 megatonnes of carbon dioxide equivalent a year by 2030. Seizing those opportunities will ensure that we deliver on our bold plan for change and that the UK and our world-class aviation sector are leading the way in the race towards sustainable flight.
This country cannot be open for business, open to investment and open to growth yet have a closed mind when it comes to international connectivity. The Bill is a clear signal that we will not accept false trade-offs that pit aviation’s growth against our commitments to net zero. We can and must do both. We have the opportunity of a lifetime and, I believe, a moral mission to future-proof aviation. When the sector succeeds, it is not only a source of growth, through trade, business and tourism, but a source of joy, aspiration and opportunity. It is as vital today as it will be for future generations. Their need to fly, explore the world and do business requires us to act now. That is what the Bill does, and I commend it to the House.
Let me begin by setting out an unambiguous truth: aviation is vital to the British economy. It is a cornerstone of our national infrastructure, our competitiveness and our connectivity.
When it comes to the impact of aviation on our economy, the figures speak for themselves. Aviation contributes £52 billion to UK GDP, supporting over 960,000 jobs across the country. That includes 341,000 people working directly in aviation—from air traffic controllers to aerospace engineers—350,000 jobs in the supply chain, and another 269,000 supported through consumer spending. Aviation also delivers nearly £8.7 billion in tax revenues, and aerospace manufacturing adds a further £9 billion directly to GDP, plus over £10 billion more when including its supply chains. Some 197 million passengers and 2 million tonnes of freight move through our airports each year. The economic case is therefore unanswerable. In short, we must all support this thriving industry with clear benefits to the country.
The Conservative party has always recognised the strategic importance of aviation, but, unlike the current Government, we understand the damage that can be done with poor policy choices—I regret to say that we have seen plenty of that from the Labour Government over the past year. Alongside their national insurance jobs tax, which is putting pressure on businesses and threatens to leave working people £3,500 a year worse off, Labour’s decision to hike air passenger duty threatens the vitality of this thriving industry. The Office for Budget Responsibility confirms that rises planned by the Chancellor of the Exchequer will raise an extra £555 million in taxes over five years, pushing up the costs for businesses and passengers alike.
In a speech that will have a lot of common ground with the Secretary of State’s speech, I regret to say that Labour’s handling of its professed desire to expand aviation raises more questions than answers. The decision to approve a second terminal at Luton airport, which we support, will be judicially reviewed. The proposal for a second runway at Gatwick has been kicked down the road for surprising reasons, to say the least, and the supposed support for a third runway at Heathrow is no more credible. The Chancellor has promised that the latter proposal will be operational by 2035, with spades in the ground in this Parliament, but that ambition looks very far-fetched, and there are substantial logistical and financial barriers to its construction. So far, the Government have provided no solutions on those points, so we will watch developments in the next few weeks with considerable interest.
I start by thanking the Secretary of State for Transport for her speech. I also thank her and the Aviation Minister, my hon. Friend the Member for Wythenshawe and Sale East (Mike Kane), for coming to speak to the Transport Committee earlier this year about aviation and, of course, wider matters.
I welcome the introduction of the Bill, and I was pleased to hear the remarks of the shadow Secretary of State, the hon. Member for Orpington (Gareth Bacon). The Bill will play an important role in our work to decarbonise our aviation sector. Some 7% of domestic greenhouse gas emissions come from domestic and international flights, and it is estimated that this figure will increase to 11% by 2030 and 16% by 2035. We all know the huge challenges involved in decarbonising aviation, and this Bill is a much-needed step towards addressing them. I am glad that the Government are taking action, and I know that many in the industry want to ensure that the Bill is operational as soon as possible.
As I am sure the Transport Secretary will appreciate, I have a few questions about the Bill, which I am sure will also be raised at later stages of its progress. However, I start by saying that it is rare to find a Bill on which there is so much agreement; every major airline I have met has mentioned its support for SAF, and there is widespread agreement that we need a price certainty mechanism. That is a sign that the Government have been pragmatic, working with business and—in the case of SAF—working to ensure that we have domestic capacity here in the UK.
I am glad that the Bill will start to move us away from our dependency on imported fossil fuels, particularly for aviation. This House may forget that our reliance on foreign fossil fuels meant that in 2022, we had to spend more than £35 billion bailing out our energy market. That reliance leaves us reliant on the whims of autocratic regimes across the world. We need to move away from that costly model and, in turn, bring investment into our regions, growth to our economy and much-needed tax revenue to our Treasury.
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It is against that backdrop that we come to the Bill before us. When we entered opposition, we made it clear that we would not oppose the Government just for the sake of it. We made it clear that where the Government’s choices would benefit the country or the economy, we would welcome them. That is why we will not seek to divide the House on this legislation on Second Reading. This Bill is a logical follow-on from the statutory instrument passed in September last year that established the SAF mandate, the first stage of which came into effect in January. Having mandated that airlines will be required to use a specified percentage of SAF—2% this year, rising to 10% in 2030 and 22% in 2040—it is logical to take steps to ensure adequate levels of locally produced fuel.
While the mandate requires the consumption of SAF, it is a new technology, and its production carries a high risk for investors. Encouraging the development of the plants required to produce this fuel is the purpose of this Bill and, to a very large degree, it is a continuation of the policy of the previous Government. In 2023, it was the last Government who committed to an industry-funded revenue certainty mechanism to support UK-based SAF production. In early 2024 we published the detail, with plans for a guaranteed strike price model to give price certainty to SAF producers. I hear the Minister say, “You didn’t do it!” He is completely correct, because unfortunately there was something called a general election that followed shortly after.
As the Secretary of State has outlined, under this model, producers will be topped up when the market price falls below a guaranteed strike price; when the market price rises above, they will pay it back. The system mirrors the successful contracts for difference model in offshore wind, and the economic benefits could be considerable. A cost-benefit analysis produced by the Department for Transport before the general election suggested that the SAF industry could add more than £1.8 billion to the economy and create more than 10,000 jobs in the country, but, more fundamentally, SAF is a product of what we know to work. As the Secretary of State said in her speech, it can be blended with conventional Jet A-1, used in existing aircraft and refuelled at existing airports. The capability exists. The challenge is not scientific; it is economic. That is why the concept of a revenue certainty mechanism was one of the six pillars in the previous Government’s jet zero strategy, and, as the Secretary of State outlined, the introduction of a revenue certainty mechanism has wide support in the aviation industry.
Let me be clear: while we will not oppose the legislation this evening, we will carefully scrutinise it as it progresses through the House. In that spirit, I will put some questions to the Minister, which I hope he will address in his summing up. The first is about passengers. In the press release announcing the Bill, the Government said that the revenue certainty mechanism would keep ticket price changes minimal:
“Keeping fluctuations to £1.50 a year on average.”
The Secretary of State said the same in her speech. Perhaps in his speech the Minister could outline what this figure is based on. Do the Government stand by it? Is it a commitment, or a rough estimate?
The second question is about what type of SAF the Government favour and how it will be produced. While the SAF mandate permits the production and use of hydroprocessed esters and fatty acids SAF in the early years of the mandate, and also contains a small but increasing requirement for power-to-liquid SAF in later years, the bulk of the SAF to be developed and used under the terms of the mandate is second generation SAF, which is to be made from municipal waste, non-edible crops and woody biomass. The UK is a small island, with insufficient spare land to enjoy self-sufficient food security or to grow new forests at scale. Does the Minister think we will be self-sufficient? If not, what proportion of the ingredients necessary for making second generation SAF does the Minister think we will need to import?
Relatedly, the HEFA cap comes into force incrementally from 2027, despite there currently being no domestic production of second generation SAF in the UK and low levels of second generation SAF produced globally, removing the opportunity to source mandated volumes through imports. This risks making the costs of hitting SAF mandate targets very high indeed, because suppliers will soon be forced to buy out of their mandate obligations—a significant cost that will be passed on to the airlines and, ultimately, to passengers without delivering any decarbonisation benefit at all. Will the Government consider revising the timelines for phasing out HEFA SAF to bring them more in line with the timescales for domestic second generation SAF production, in order to minimise the costs for passengers?
The next area of interest is planning. The plants in which the Government are seeking to encourage investment will be large, and—as the Minister no doubt knows—large developments tend to attract a lot of local opposition, often leading to planning inquiries, judicial reviews, vast expense and years of delay before any construction work begins. If this does not change, the revenue certainty mechanism may not be sufficient to attract investors, so what will the Government do to minimise delays in the planning process?
I turn now to timescales. When will the first contracts be awarded under the RCM? Will there be a timetable for reaching full mandate compliance? As my right hon. Friend the Member for Goole and Pocklington (David Davis)—who is no longer in his place—touched on, the issue of the strike price is critical to the success of the proposal. What criteria will be used to set the strike price? Will the methodology be published, and will there be regular reviews? Finally, will the Government commit to regular reporting to Parliament on industry take-up, production capacity and cost trajectory, to ensure that they remain accountable for the Bill over time?
The importance of this Bill is clear. Backing UK production of sustainable aviation fuel is necessary if we are to meet our net zero goals without undermining the competitiveness of the aviation sector. However, let me be clear: as the Bill moves through the House, we will continue to look closely at the detail and press for changes where necessary, where improvements can be made to ensure that the scheme delivers on its promise.
I am glad that the UK Government are working to make sure that we continue to lead on decarbonisation and to reduce our carbon emissions in line with the Paris agreement. I want to touch on the nature of the SAF we will be using. First and second generation SAFs are made from waste—the first from used cooking oils predominantly, and the second from waste such as household black bin bag waste. Where do the Government see that waste coming from in the future? How does that tie in with our efforts to reduce our residual waste, particularly black bin bag waste, and wider efforts to reduce the non-recyclable waste that we produce? Is a large part of our household waste not already going to waste-to-energy plants, providing electricity that we depend on?
There is a lot of support for SAF in America and, as with ethanol, it offers a huge chance for large-scale agricultural businesses to profit from the sale of their waste and their oil. Ethanol is often produced in the same plants as SAF. In seeking to secure UK domestic production of SAF, what could the challenges of the US-UK trade agreement mean for our biofuel industry and its ability to transition to producing SAF? Has the Department modelled the economic and environmental impact of providing resources for second generation SAF? What is the timescale to bring on third generation SAF?
One issue that has been raised with me is whether companies looking at producing SAF will be able to enter negotiations with the Government before the Bill reaches the statute book. I understand that that has been the case for the mechanism for renewable energy projects, where negotiations began early to ensure that the investment is locked in.
We need to see changes in aviation to meet our ambitious climate goals. Now that aviation and shipping are included in our carbon budget, those changes are even more important, and I hope that the Government will also look beyond SAF when thinking about decarbonising aviation. SAF is not and will not be the silver bullet solution to the sector’s responsibility to this country’s decarbonisation strategy.