South Korea to provide tax breaks to refiners, mandate 1% SAF use from 2027

South Korea will provide tax breaks and other incentives to local refiners to invest in sustainable aviation fuel to lower production costs, as the country aims to mandate the use of 1% SAF blend for all departing international flights from 2027, its government announced Aug. 30.

“The government will also ease regulations for local refiners to make it easier to use waste plastic pyrolysis oil, waste lubricants and biomass in the refining process as well as waste cooking oil and food waste as feedstock for biofuel production,” according to a joint statement by South Korea’s energy and transport ministries.

"As the world's biggest exporter of aviation fuel, South Korea needs bold policy support to prepare for the SAF market as a promising new growth engine,“ the ministries added, while noting that global SAF demand is forecast to expand to 18.35 million metric tons/year in 2030, up from merely 240,000 metric tons in 2022.

These initiatives are part of the country’s SAF Expansion Strategy announced Aug. 30 at a meeting between the two ministries as well as the country’s oil refiners and airlines, as the country aims to reduce its carbon emissions.

The airlines taking part in the strategy included Korean Air, Asiana, Jeju Air, Jin Air, Eastar Jet, T'way Air, Air Busan, Air Premia and Aero K, while the refiners were S-Oil, SK Innovation, HD Hyundai Oilbank, GS Caltex and Hanwha TotalEnergies.

Of them, refiners like SK Innovation, GS Caltex and S-Oil are already producing SAF for local consumption and exports.

The introduction of tax breaks comes as local refiners have long called for incentives for biofuel production.

“The use of sustainable aviation fuel has increasingly become a necessity, not an option. But local refiners are not ready to enjoy the boom due to a lack of incentives and infrastructure,” said Korea Petroleum Association’s general manager Cho Sang-bum.

“With cracking margins uncertain, South Korean refiners have been more focused on SAF and other biofuels for providing local carriers and overseas shipments,” another refinery official told S&P Global Commodity Insights.

“Local refiners will push for exports of SAF and other biofuels to Europe and elsewhere where demand of the clear fuels is expected to climb,” the official added.

SAF operations begin

On the same day, flag carrier Korean Air commenced the use of 1% SAF blend for a single international route departing from Seoul’s Incheon airport, the airline said.

Asiana Airlines and T'way Air's will follow suit next month, while another three South Korean low-cost carriers will do so for selected international routes from Incheon airport later this year.

“The government plans to smoothly implement the policies included in this strategy by consolidating inter-ministerial capabilities to preempt the global SAF market,” its trade, industry, and energy minister Ahn Duk-geun said.

“We will also continuously discover additional support measures by establishing a close cooperation with the oil refining and aviation industries.”

“Starting with this policy announcement and the first commercial flight using domestically produced SAF fuel, we will actively pursue international aviation decarbonization policies and strive to establish our country’s status as a leading country in carbon neutrality in the aviation sector,” said its land, infrastructure and transport minister Park Sang-woo.

Among other Asian countries, Singapore has mandated the use of SAF from 2026, while Japan has committed to using 10% SAF by 2030.

Platts, part of S&P Global Commodity Insights, assessed Asia UCO-based SAF cost of production at $1,715.99/metric ton Aug. 29, up $4.50/t on the day.