Parliament has enacted the Sustainable Aviation Fuel Act 2026, receiving Royal Assent on 5 March 2026. The legislation, published on legislation.gov.uk, creates revenue certainty contracts for UK-produced sustainable aviation fuel (SAF) and sets up a levy on aviation fuel suppliers to fund the scheme. Section 1, which enables the Secretary of State to direct contracts, begins after a two-month commencement period on 5 May 2026.

The price support is CfD-style. When a contract’s strike price sits above a market reference price, the designated counterparty tops up the producer for qualifying UK-produced volumes; when the market reference price runs higher than the strike, the producer pays back the difference. Both flows are calculated on the spread between strike and reference prices, stabilising revenue without open-ended windfalls. The Act defines UK-produced as any fuel where any part of the feedstock-to-fuel conversion occurs in the UK.

Contracts are not automatic. The Secretary of State can instruct a designated counterparty to offer a contract to a named producer, with terms, timing and an acceptance window all specified. That direction power runs for 10 years from 5 March 2026 and can be extended by up to five years at a time through regulations. Directions can be revoked before acceptance if policy or project conditions change.

The designated counterparty will be a government-owned company limited by shares, each held by a Minister of the Crown. The Secretary of State designates it by notice, can replace it if needed, and may direct how it performs its functions. If replaced, property and liabilities can move under a statutory transfer scheme so contracts continue without disruption. Financial assistance to the counterparty can be provided via grants, loans, guarantees, indemnities or insurance.

Funding comes from a levy on relevant suppliers of aviation fuel, defined by reference to those subject to Renewable Transport Fuel Obligation rules when supplying aviation fuel. Levy regulations can scale contributions by market share, set exemptions, require payments on account and charge interest for late payment. The counterparty may also build reserves so cash is available when top-ups fall due, smoothing volatility between periods.

To protect collection and scheme liquidity, levy regulations can require suppliers to post collateral in cash, securities or other forms, with terms set by the counterparty. The Act creates information duties: suppliers can be required to provide data to the counterparty and the Secretary of State. Disputes may be routed to arbitration or appeal as provided in regulations, keeping enforcement predictable for compliance teams.

Non-compliance carries teeth. The Secretary of State can fine a person who breaches specified levy or information requirements up to the lower of £100,000 or 10% of turnover, with the cap adjustable for inflation by regulation. Process matters: a notice of intent, time to make written representations, a final notice, and a right of appeal to the High Court (or Court of Session in Scotland) are all set out in the Schedule.

Transparency is built in. Regulations can require a public register and the publication of contracts or their key details, with redactions allowed either under the contract’s own terms or by ministerial decision. That aims to balance commercial sensitivity with public accountability around strike prices, volumes and payment flows.

For producers, the cash-flow logic supports bankability. Imagine a strike price of £1,000 per tonne and a market reference price of £700 per tonne: the counterparty pays £300 per qualifying tonne. Flip the market and the producer pays £300 per tonne back. This stabilises revenue expectations and can support project finance by reducing commodity-price risk. These figures are illustrative; actual levels will be set in secondary legislation and contracts.

Who ultimately pays? The levy lands on fuel suppliers, not airlines, but the cost is likely to pass through wholesale prices. As a rule of thumb, a 1 pence per litre levy adds roughly 20 pence to a typical short-haul ticket and about £2–£3 on a long-haul fare, depending on fuel uplift and load factor. Airlines with newer fleets and higher load factors will blunt the effect; older aircraft deepen exposure.

Levy cash is not a one-way flow. If the counterparty ends a period in surplus, regulations can require payments back to levy payers, and recipients can be obliged to pass benefits on to customers. In practice, that means retail prices should fall, or rise more slowly, when producer paybacks exceed top-ups. The scale will hinge on how the market reference price is defined and on reserve policy.

What matters next is the detail. Secondary legislation will set the first levy period, the market reference price methodology, any exemptions, collateral rules and publication standards. Strike price-setting, volume obligations and verification against sustainability criteria will determine which projects clear lenders’ hurdles. The Act requires consultation with the devolved administrations on key regulations, pointing to more clarity through spring and summer.

For CFOs and treasurers, planning starts now. Airlines should model pass-through scenarios in pence-per-litre terms and revisit fare and surcharge policies. Suppliers will need to review collateral capacity and data systems ahead of new information duties. SAF developers should prepare offtake-linked bids and line up lenders, with directions to offer contracts possible from 5 May 2026.