In a bid to seize the market for sustainable aviation fuel, known as "future aviation fuel," which emits less carbon than conventional aviation fuel, China has joined the United States, Japan, and Europe. In contrast, South Korea is said to be lagging in its response due to limited government support for sustainable aviation fuel and a lack of proactive investment from the oil refining sector.
According to the oil refining sector on the 18th, movements in China are accelerating alongside leaders in the sustainable aviation fuel market, including the United States, Japan, and Europe. A Chinese energy corporation started producing sustainable aviation fuel on a scale of 200,000 tons annually from May. This is equivalent to the production capacity of SK Energy, South Korea's largest sustainable aviation fuel producer. Another Chinese energy corporation plans to operate a sustainable aviation fuel plant with an annual capacity of 300,000 tons starting next year.
A representative from the oil refining sector noted, "China is nurturing sustainable aviation fuel at a national level. China is the world's largest holder of waste cooking oil, and if it reduces exports of waste cooking oil, South Korean refiners could struggle to secure raw materials, allowing Chinese corporations to dominate the sustainable aviation fuel market."
Sustainable aviation fuel refers to aviation fuel made from waste cooking oil, agricultural waste, and the like. It is considered a key element in reducing greenhouse gases in the aviation sector because it emits up to 80% less carbon compared to conventional aviation fuel. Sustainable aviation fuel has a chemical structure similar to that of conventional aviation fuel, allowing for the use of existing aircraft engines and infrastructure.
The European Union (EU) and the United Kingdom have implemented regulations requiring airlines to fill at least 2% of the fuel they use with sustainable aviation fuel starting this year. The EU plans to increase this percentage to 6% by 2030 and to 70% by 2050. The United States has set a goal to replace all aviation fuel with sustainable aviation fuel by 2050. Japan also plans to increase the proportion of sustainable aviation fuel blended with conventional aviation fuel to 10% by 2030.
South Korea has set a goal to have 1% of its total aviation fuel be sustainable aviation fuel by 2027. The oil refining sector points out that the government's target for introduction is low. According to the International Air Transport Association (IATA), sustainable aviation fuel accounts for only 0.2% of total aviation fuel (as of 2023), and the current price is 2-3 times that of conventional aviation fuel.
A representative from the oil refining sector said, "Increased demand for sustainable aviation fuel is necessary to produce it on a large scale, achieving economies of scale and reducing the unit cost of sustainable aviation fuel."
Sustainable aviation fuel is viewed as a future revenue source for refiners, but the impact of falling international oil prices has worsened performance, leaving them without investment capacity. The four major domestic refiners—SK Innovation, GS Caltex, HD Hyundai Oilbank, and S-Oil—plan to produce sustainable aviation fuel through a co-processing method, blending oil-based and bio-based raw materials in existing refining facilities instead of establishing dedicated sustainable aviation fuel facilities. A representative from the oil refining sector stated, "The yield of dedicated sustainable aviation fuel facilities is 60-80%, but the yield for co-processing is only about 10%."
The oil refining sector argues that institutional measures are necessary to promote the establishment of sustainable aviation fuel dedicated factories. The United States provides production subsidies of 440-615 won per liter under the Inflation Reduction Act (IRA). Consequently, 107 factories dedicated to sustainable aviation fuel, representing 30% of the global total of 359, are located in the United States. Japan offers a tax credit of up to 40% on corporate taxes for investments in sustainable aviation fuel facilities. Additionally, it plans to establish a fund of about 29.2 billion yen to provide a tax credit of 30 yen per liter for sustainable aviation fuel production.
Cho Sang-beom, director of external affairs at the Korea Petroleum Association (KPA), said, "If the introduction of sustainable aviation fuel spreads, sustainable aviation fuel exports will replace conventional aviation fuel. If a tax credit is implemented, refiners without investment capacity will also be able to invest in sustainable aviation fuel."