Why Biofuels and Sustainable Aviation Fuels are an Investment Opportunity

The energy sector, which is responsible for 73% of global greenhouse gas (GHG) emissions, must transition rapidly to cleaner alternatives if global climate targets are to be met. While renewable energy sources such as solar and wind are reshaping power generation, the transport sector—particularly aviation—remains one of the most difficult to decarbonise.

Sustainable aviation fuels (SAFs) and biofuels are emerging as a viable solution, offering lower-carbon alternatives to traditional fossil fuels. However, their adoption is not without challenges, ranging from production scalability to environmental trade-offs.

The Rise of Biofuels

Biofuels are renewable fuels derived from biological materials such as plants, algae, or waste. Common biofuels include bioethanol, biodiesel, hydrotreated vegetable oil (HVO), and sustainable aviation fuel (SAF). These fuels have gained traction due to their ability to reduce lifecycle emissions compared to conventional fossil fuels.

According to the International Energy Agency (IEA), biofuels accounted for over 3.5% of global transport energy demand in 2022, with the potential to supply up to 27% of world transportation fuel by 2050. Their flexibility is a key advantage—they can be blended with conventional fuels without requiring major modifications to existing infrastructure or engines.

However, biofuels are not a silver bullet. Their production has raised concerns about land use, food security, and deforestation, particularly when feedstocks such as palm oil or soy are involved. First-generation biofuels, which rely on food crops, are particularly controversial due to their competition with agriculture for land and resources.

Sustainable Aviation Fuel

Aviation accounts for approximately 2-3% of global CO₂ emissions but is one of the hardest sectors to decarbonise due to the high energy density required for long-haul flights. While electrification and hydrogen fuel are being explored, these technologies remain years away from large-scale viability.

SAFs offer an immediate pathway to reducing aviation emissions. Produced from feedstocks such as waste oils, algae, or synthetic processes, SAFs can deliver up to an 80% reduction in lifecycle emissions compared to conventional jet fuel. Crucially, SAFs are “drop-in” fuels, meaning they can be used in existing aircraft without modifications.

Despite their promise, SAFs face major barriers:

• High production costs: SAFs are significantly more expensive than traditional jet fuel, making widespread adoption challenging without policy incentives or subsidies.
• Limited supply: Current production levels are insufficient to meet aviation demand. In 2022, SAF accounted for just 0.1% of global aviation fuel consumption.
• Regulatory uncertainty: While mandates for SAF usage are increasing, policy frameworks vary widely between regions, creating uncertainty for investors and producers.

The Investment Case for Biofuels and SAFs

As the world accelerates its transition away from fossil fuels, biofuels and SAFs present a growing investment opportunity. The sector is supported by tightening regulations, corporate decarbonisation commitments, and technological advancements improving efficiency and scalability.

Biofuel production is expanding rapidly, with increased adoption across road transport, aviation, and even maritime industries.

Government incentives, such as the EU’s Fit for 55 package and the US Inflation Reduction Act, are further driving investment in the sector.

However, investors must navigate significant challenges:

• Feedstock sustainability – Ensuring biofuels are sourced from sustainable, non-food feedstocks will be critical to avoiding negative environmental and social impacts.
• Market volatility – Biofuel prices are influenced by fluctuations in agricultural commodity markets, creating price uncertainty.
• Infrastructure adaptation – Scaling SAF production requires investment in new refining infrastructure, which may take years to develop.

Looking Ahead

The transition to SAFs and biofuels is not a simple one. While they represent a critical stepping stone towards net-zero transportation, their long-term viability depends on technological innovation, supportive regulation, and investment in sustainable feedstocks.

For investors, biofuels and SAFs offer both risks and opportunities. Those willing to navigate the complexities of the sector may find compelling growth potential, particularly as global decarbonisation targets push industries toward low-carbon alternatives.

As governments, corporates, and financial markets align to drive the energy transition, biofuels and SAFs are set to play a pivotal role. The challenge now lies in scaling their adoption while ensuring their sustainability credentials remain intact.