The adoption of sustainable transport fuels in the EU and beyond is built on regulatory mandatesand incentives but could be undermined by uncertainty, writes Alastair O’Dell.
Transportation is among the highest CO2 emitters, yet sustainable alternative fuels remain at uncompetitive prices. The EU is leading the charge to drive adoption with a sustained programme of regulatory mandates and subsidies.
Thierry Cojan, infrastructure principal – transport, at Australian investment manager QIC, says “the reality is that hard-to-abate sectors are going to need government and policy leadership”. Globally, the EU is at least set to play a key role, “with funding initiatives to test the potential of today’s technological breakthroughs to ultimately become tomorrow’s solutions… it’s also playing a pioneering role in setting mandates with minimum uptake percentages at the point of supply”, he notes.
Edward Lees, co-head of the environmental strategies group at Paris-based BNP Paribas Asset Management, says that there have been several supportive initiatives including the revised Renewable Energy Directive to target 29 percent renewable energy in transport by 2030, with 5.5 percent from advanced biofuels and e-fuels.
The European Commission also announced the results of the second round of its Alternative Fuels Infrastructure Facility in February. The executive arm of the EU allocated €422 million to 39 projects, mostly for e-mobility but also hydrogen refueling, e-methanol and e-ammonia bunkering. The facility supports the ReFuelEU Aviation and FuelEU Maritime regulations and the cut-off for the next funding round is in June.
Florian Schwarz, global lead for sustainable fuels at risk management firm DNV, says that the subsidies are a positive signal. “Infrastructure is an important element in reducing uncertainty for producers and customers, and acts as an enabler for projects.”
The opportunity set
A bankable project should demonstrate certainty in technical, economical, commercial, operationally and political aspects, says Steven He, senior consultant – energy strategy advisory at DNV: “Subsidies for infrastructure investments in sectors where the potential for electrification is limited or not possible are expected to have a positive impact.”
Chris Rozzell, managing partner at Dallas-based investment manager Cresta Rozzell Fund Management, says he sees sustainable fuels, including sustainable aviation fuel (SAF) and renewable diesel, as “one of the most actionable, near-term decarbonisation levers, particularly for hard-to-electrify sectors such as aviation, maritime and heavy-duty freight”.
Cojan says the opportunity set is “vast” but warns that the transformation of the sector will not be uniform: “Each sector will develop and scale over different timeframes… gains can be made quickly through more developed technology that has better commercial fundamentals.”
Ed Mountney, co-lead investment manager for British investment trustForesight Environmental Infrastructure (FGEN), agrees investing in early-stage solutions remains more challenging. “While more investment is needed to develop better sustainable sources, our preference is to invest in more mature solutions.”
The most compelling next wave of opportunities will combine secure access to diverse feedstocks, flexible off take strategies and scalable infrastructure, says Rozzell. “Platforms with vertically integrated supply chains and modular Rozzell production capabilities are well-positioned to manage risk and adapt to shifting policy landscapes.”
Aviation advancement
Under the EU’s ReFuelEU rules, jet fuel suppliers must blend 2 percent SAF in2025, rising to 6 percent in 2030 and 70 percent by 2050, while the UK requires 10 percent by 2030. “EU and UK mandates are creating a growing market for SAF,” says Lees.
Rozzell says SAF is widely viewed as the leading investment opportunity. Rozzell Cresta predicts the global market for SAF alone could hit $40 billion-$60billion annually by 2035.
Almost all SAF will come from bio-feedstocks, according to Schwarz.“ Mandates and high penalties for non-compliance in line with ReFuelEU Aviation make it likely that sustainable fuels projects will focus on this sector.”
Cojan says SAF is technologically feasible and proven, and is easier to adapt with existing fuel storage, distribution and dispensing infrastructure as well as existing airframes. “However, cost is the main barrier, owing to a lack of sufficient demand due to high prices.” The ambition is to move beyond biofuels to scale with synthetic e-fuel production: “Adaptability is important as it builds resilience. Projects that can use multiple feedstocks or can sell into different markets provide optionality.”
Jonathan Tudor, investment partner at venture capital firm Clean Growth Fund, says “Europe is attracting a lot of infrastructure investment” to produce SAF and many different avenues should be explored.“ Many companies have evidence that their approach works. But there’s risk to proving at scale… You can’t predict the things you’ll run into when you go to the next level.”
Maritime and freight
FuelEU Maritime regulations are also forcing shipping to decarbonise, with a technology-neutral mandate driving the uptake of biofuels, methanol, ammonia and other low-carbon fuels. From 2025, ships must cut fuel GHG intensity by 2 percent (relative to 2020), tightening to 80 percent by 2050. “As a result, the number of methanol-fuelled vessels could exceed 200 by 2028, up sharply from current levels. We’re looking at upstream producers of renewable diesel/SAF and downstream companies that support sustainable shipping,” says Lees.
Tudor notes that agricultural biofuels also impact the amount of land and water available for food supply. “We need lots of different approaches,” he says, noting the International Maritime Organization wants to see alternatives to arable sources for maritime use.
Firms are already looking at solutions. Clean Growth fund invested in biotech company Hutan Bio, which has developed micro algae to survive in seawater and intense sunlight. The micro algae consumes industrial CO2 to produce maritime bio-fuel oil and Hutan Bio has plans to set up ‘bio-reactor farms’ on semi-arid land and supply at scale.“ There’s a political motivation, a social motivation and an energy motivation to get this to work,” adds Tudor.
Sustainable fuels are similarly being scaled for heavy-duty transport. For example, FGEN invested in a UK network of HGV refuelling stations which provide compressed bio methane.
“It’s a by-product from the decomposition of food and animal waste, independently verified and approved,” says Mountney.
When switching from diesel, customers can save up to 40 percent on lifetime fuel costs, he notes. “HGVs fuelled by bio methane are the only commercially available, at-scale solution to substantially reduce emissions… our network has contracts with household names such as John Lewis, DHL, Amazon, Tesco and Morrisons and is continuing to expand.”
Variations and uncertainty
Investor sentiment today varies by region, largely dependent on policy.Sentiment is strong in Europe due to the Renewable Energy Directive (RED III) and Fit for 55, says Rozzell. “They provide long-term visibility on demand and Rozzell help unlock capital.”
Canada’s Clean Fuel Regulations and the UK’s SAF mandate are also driving demand and attracting capital to new facilities. “Both regions offer clear incentives, attracting private capital to production facilities,” Rozzell says. By Rozzell contrast, US investor interest remains tempered by uncertainty around the Renewable Fuel Standard (RFS). “While the Inflation Reduction Act introduced tax credits like 45Z for clean fuels, these are not enough to drive transformation without meaningful updates to the RFS,” he says. “A credible reset could unlock substantial investment.”
Article published by Infrastructure Investor on July 1, 2025
https://www.infrastructureinvestor.com/the-long-voyage-to-sustainability/