Core Insights - The European Union (EU) has committed to investing at least €3.3 billion over the next two years to support the decarbonization of the aviation and shipping industries, focusing on the development of renewable and low-carbon fuel production systems [1][3] - The demand for Sustainable Aviation Fuel (SAF) is primarily driven by policy, with a target of 2% SAF blending by 2025 and a long-term goal of 70% by 2050 [1][2] - The price of high-end SAF in China has increased by 47.22% from $1,800/ton at the beginning of the year to $2,650/ton as of November 10 [1][7] Industry Demand and Policy - The EU has established comprehensive SAF application targets and carbon reduction goals, with the ReFuelEU Aviation Regulation mandating a 2% SAF blending requirement starting in 2025 [2] - IATA projects that SAF demand will rise significantly from approximately 1 million tons in 2024 to 18 million tons by 2030, reaching 350 million tons by 2050 [2] - By 2035, the EU will require about 20 million tons of sustainable alternative fuels, necessitating an investment of approximately €100 billion to meet this demand [2] Investment and Market Confidence - The EU's Sustainable Transport Investment Plan aims to reduce carbon emissions from transportation by 90% by 2050, requiring an investment of around €100 billion, with 60% allocated to aviation fuels [3][4] - The plan includes various funding initiatives, such as €2 billion for developing sustainable alternative fuels and €300 million from the European Hydrogen Bank to support sustainable aviation and shipping fuels [3][4] Market Dynamics and Price Trends - The high cost of SAF compared to traditional jet fuel has led to a general reluctance among airlines to adopt SAF, with major airlines requesting more time to comply with SAF blending mandates [5][6] - As of November 10, the average price of used cooking oil (UCO) in China was 6,448 yuan/ton, reflecting a 17.24% increase from the beginning of the year, driven by the scarcity of SAF raw materials [7] - Neste, a leading renewable fuel company, reported a significant increase in its third-quarter revenue and production, with total renewable fuel production reaching 113.3 million tons and EBITDA growing over 150% year-on-year [8] Investment Recommendations - Companies such as Jiaao Environmental Protection and Zhuoyue New Energy are highlighted as key players in the SAF market, with Jiaao Environmental Protection being a leading domestic SAF producer with a capacity of 500,000 tons [9]

Investment Rating - The report maintains an "Outperform" rating for the sustainable aviation fuel (SAF) industry, indicating expected performance above the market average [2][29]. Core Insights - The European Union (EU) has launched a €3.3 billion investment plan to support the decarbonization of the aviation and shipping sectors, focusing on the development of renewable and low-carbon fuel production systems [3][10]. - The demand for SAF is primarily driven by policy initiatives, with the EU aiming for a 2% blending target by 2025 and a long-term goal of 70% by 2050. The International Air Transport Association (IATA) projects SAF demand to reach 358 million tons by 2050, indicating significant growth potential [4][6]. - The EU's ambitious decarbonization goals necessitate an estimated €100 billion investment by 2035 to meet future SAF demand, with the recent investment plan signaling a commitment to stabilize investor confidence [4][10]. Summary by Sections Investment Plan and Policy Framework - The EU's Sustainable Transport Investment Plan (STIP) outlines a roadmap for promoting the use of renewable and low-carbon fuels, aiming for a 90% reduction in transport-related carbon emissions by 2050 [10][14]. - The plan includes specific investment allocations, such as €2 billion for developing sustainable alternative fuels and €1.53 billion for synthetic aviation fuels [14][16]. Market Dynamics and Pricing - SAF prices have surged due to high production costs compared to traditional jet fuel, with the price of high-end SAF in China reaching $2,650 per ton as of November 10, 2023, a 47.22% increase from the beginning of the year [4][18]. - The scarcity of SAF raw materials, such as used cooking oil (UCO), is expected to sustain high market demand and pricing [4][18]. Company Recommendations - The report recommends investing in companies like Jiaao Environmental and Excellent New Energy, which are positioned as leaders in the SAF market with significant production capacities [5][23]. - Jiaao Environmental has a SAF production capacity of 500,000 tons and has received export licenses, while Excellent New Energy is expanding its biodiesel and SAF production capabilities [5][23].