British Airways owner warns UK green fuel targets could raise air fares

International Airlines Group (IAG) chief executive Luis Gallego has warned that rising environmental compliance costs could push up fares and leave European carriers at a disadvantage to global competitors.

Gallego, whose group owns British Airways, told the Financial Times that the supply of sustainable aviation fuel (SAF) was falling short of what planned requirements would demand.

“We have mandates for things that do not exist,” he said.

“All the European airlines will have a major cost disadvantage to global competitors and this is going to have consequences,” Gallego added.

The warning comes as the UK government considers changes to a cap due to take effect in 2027 on the use of the most widely available type of SAF to meet the mandate.

UK fuel suppliers face tighter rules in 2027

The Department for Transport (DfT) has set a trajectory for SAF to account for 3.6% of total UK jet fuel supply in 2026, rising to 5.2% in 2027 and 10% in 2030.

Fuel suppliers bear the legal obligation. They can use tradable certificates to show compliance or make a buyout payment to cover a shortfall.

From 2027, the mandate is due to limit how much SAF made from oils and fats can count towards compliance. The cap applies to fuel made using hydroprocessed esters and fatty acids (HEFA) and aims to encourage production from other sources.

Used cooking oil is one HEFA feedstock. The DfT said competition for these feedstocks is likely to increase as more countries adopt SAF policies. The amount of HEFA fuel that counts towards the UK mandate could still rise as the overall target increases, even as its permitted share falls.

The DfT sought evidence over the summer on the availability of alternatives. In an October parliamentary answer, Keir Mather said the DfT was consulting on potential changes to the cap, monitoring supply and assessing possible buyout costs.

The department said it had modelled the potential effect on air fares and buyout payments if supply fell short. 

“The level of any buyout payments and resulting impacts on consumers will depend on a range of factors, including future SAF availability, market conditions and compliance behaviour,” Mather said.

If eligible fuel is scarce, suppliers can pay a set rate for any shortfall in certificates. That limits what they have to spend to comply, but airlines could still face higher fuel bills if suppliers pass on the cost.

EU targets rise on a different timetable

Under ReFuelEU Aviation, the minimum SAF share at covered EU airports stays at 2% through 2029, then rises to 6% in 2030.

The UK is due to introduce a separate requirement for synthetic aviation fuel in 2028, two years before the EU. The Financial Times reported that UK ministers were preparing to ease rules, with changes due to take effect next year.

In 2027, UK suppliers face a higher overall target and a new restriction on the fuel they can use to meet it, while the EU’s minimum remains at its 2025 level.

UK projects work to diversify supply

IAG reported that its airlines used more than 291,000 tonnes of SAF in 2025, up 79% from 2024 and equivalent to 3.3% of the group’s total fuel use.

In 2023, British Airways announced a partnership with Nova Pangaea Technologies and LanzaJet called Project Speedbird, which secured £9 million from the Government’s Advanced Fuels Fund (AFF) competition. The partners aim to produce 102 million litres of sustainable aviation fuel annually from agricultural waste and wood residues. 

As Advance reported in August, project partner Nova Pangaea Technologies completed endurance trials of its waste biomass process at its Teesside demonstration plant.

“The latest trials have validated our technology,” said Nova Pangaea chief executive Stewart Stewart.

The runs lasted up to 72 hours and exceeded target yields. The process turns materials such as sawdust and wheat straw into ethanol, which can then be converted into aviation fuel.

The company plans further trials in 2027 to refine the design of its first commercial plant.