India’s draft policy mandates 1% green fuel in jet fuel from 2027, rising to 5% by 2030. Since this fuel costs two to three times more, airlines face rising expenses. Analyst Jainam Shah said, "At a 1% blend, the direct increase in the fuel bill should be relatively small."
The draft policy would put 1% green fuel in jet fuel from 2027, rising to 5% by 2030. The fuel costs two to three times more, so analysts expect a small initial hit that grows as targets rise.
The government wants airlines to use 1% green jet fuel from 2027, a draft policy shows, and that will cost carriers more at a time when fuel is already hurting them.
The civil aviation ministry's draft, which Mint has reviewed, raises the share to 2% in 2028, 3% in 2029 and 5% in 2030. The green fuel is made from farm waste and used cooking oil, and it costs two to three times as much as regular jet fuel.
Analysts say the hit will be small at first and will grow as the share increases. Airlines are already stretched. IndiGo, India's largest carrier, reported a net loss of ₹1,879.1 crore in the September quarter, when its fuel bill rose 67.2% to ₹9,966.8 crore. To get fuel companies to produce more green fuel, the government is planning support measures, including a ₹500 crore innovation fund.
SAF is made from sources such as agricultural waste and used cooking oil. Depending on how it is produced, it can reduce lifecycle emissions by up to 80% compared with conventional jet fuel. Unlike ethanol-blended petrol, it can be used in existing engines if it meets standards.
The ministry's proposal is part of a global effort to reduce aviation's carbon footprint. Under the Carbon Offsetting and Reduction Scheme for International Aviation (Corsia), the UN aviation agency's scheme for offsetting carbon emissions from international flights, airlines must monitor emissions and offset growth above a set baseline.
India is a signatory, which makes implementation of blended aviation fuel mandatory from January 2027.
Air India and IndiGo did not respond to queries from Mint.
Paying for the green fuel
The draft estimates SAF could cost two to three times as much as conventional jet fuel, but a 1% blend would mean only a small increase in airlines' fuel bills.
"At a 1% blend, the direct increase in the fuel bill should be relatively small, assuming the price premium is within this range. However, the impact could become more meaningful as blending requirements increase to 5% by 2030 and beyond," said Jainam Shah, aviation analyst at brokerage firm Equirus Securities.
For carriers, higher fuel costs could put pressure on profit margins, particularly if they are unable to pass on the increase through fares.
If the additional cost is passed on, ticket prices could rise marginally, depending on competition and demand.
Immediate impact on airfares could not be independently verified.
The impact on passenger airfares and costs will also depend on SAF availability and the government support provided to keep costs affordable.
"The actual cost increase will depend on the price difference between SAF and conventional aviation fuel," Shah said. If domestic production does not keep pace with the proposed blending targets, limited availability could push SAF prices higher and increase airlines' costs.
Africa Abajas, senior manager for aviation at ICF, an international consulting firm that advises on aviation sustainability and regulation, said that the cost impact of SAF depends on the scheme design and on the availability of the green fuel. In Europe, she said, an early adopter of SAF, supply exceeded the mandate, limiting the effect on costs.
Compliance charges and penalties could also feed into fuel prices, she said.
The supply obligations are on fuel companies, and the onus is on airlines to use the fuel.
Suppliers can meet the target by blending SAF into jet fuel or buying credits. Airlines would have to buy at least 90% of the fuel they use for international flights from Indian airports.
The draft estimates India could produce about 10 million tonnes of SAF annually by 2040, requiring $70-85 billion in investment.
Aslam Allugundu, an independent aviation adviser, said SAF would work only if the entire supply chain was ready.
"SAF only delivers when the entire supply chain is ready: production, quality certification, storage, blending, airport fuel facilities and the fuelling of aircraft, with every litre tracked from start to finish," he said.
The draft policy is expected to undergo consultation before it is finalised.