Atlantic SAF Policy Gap Widens While Ethanol Expands and Biodiesel Margins Suffer

Momentum continues to build on both sides of the Atlantic for sustainable aviation fuel (SAF), but the divergence in approach is striking. In Europe, the aviation sector is openly lobbying Brussels for a centralized SAF push, highlighting a growing frustration with fragmented incentives and an absence of price guarantees. Despite 40+ proposed e-SAF projects, none has reached FID (Final Investment Decision). Bio-based SAF, on the other hand, is scaling with over 1.2 million tonnes expected this year not including co-processing volumes. The industry is calling for a robust offtake architecture, Carbon Contracts for Difference (CCfD), and feedstock security to avoid derailment of decarbonization targets.

The U.S. SAF industry is taking a quieter, incentive-led path, although the latest legislative action (BBB) has lowered SAF incentives to the same levels as transportation biodiesel. A new bill in Congress seeks to harmonize federal SAF policy, but for now, it's state programs, RIN generation, and LCFS economics driving deployment. Term contracts dominate, leaving little spot liquidity. Prices have nonetheless firmed — HEFA-SPK is now assessed at $2,058/mt FOB ARA, tracking stronger gasoil and higher aviation demand. In the U.S., while spot SAF values are less transparent, strong RD output and rising D4 generation suggest increasing SAF co-processing, though the pace is nowhere near Europe's trajectory.

Outside aviation, a global pivot toward higher ethanol blends is shifting the center of gravity in fuel decarbonization. India has locked in E20 and is now aiming beyond — toward E22 and even Brazil-style E27.5% levels. This week’s news that ARAI is studying engine modifications signals that flex-fuel vehicles may soon scale in Asia. With the U.S. already allowing E15 year-round and Brazil firmly committed to E27.5, it seems only a matter of time before Europe follows. This structural shift diverts regulatory pressure from diesel and could leave biodiesel increasingly sidelined in national nested GHG strategies.

Heat Crack Margin

In the diesel complex, gasoil rallied sharply this week supported by a massive $36/bbl heat crack — a reflection of underlying geopolitical fragility more than structural supply. However, the chart setup remains weak: the 20-day WDMA is still below the 50-day, keeping momentum constrained. Biodiesel crush margins are stuck. Soybean oil has surged with crude and board crush dynamics, offsetting any benefit from firmer diesel. D4 RINs softened today, settling at 1.238 for Dec '25 despite elevated renewable diesel production reported in the latest EPA release.

ICE Gasoil

BOGO surged this week to +$516/mt but ended softer today as palm oil remains sluggish, with Malaysian export data awaited. The paper-physical premium gap in Europe is still wide, especially in the UCOME complex, indicating strong forward coverage and tight prompt liquidity. Traders and investors should be cautious: ethanol is gaining ground in the GHG accounting race, SAF is monopolizing policy and capital, and biodiesel — especially crop-based — may be forced to operate in the margins unless price signals shift dramatically. Spot moves matter, but the structural trend is speaking clearly.