Incomplete policy, high cost beset Malaysia’s sustainable aviation fuel ambition, says BIMB

KUALA LUMPUR (Jan 2): Malaysia’s sustainable aviation fuel (SAF) ambition is being hemmed in by a lack of policy support and the high cost of production, BIMB Securities flagged.

While the European Union (EU) and the US have binding mandates to scale up the adoption of SAF, Malaysia’s current blending targets are voluntary and aspirational in nature, which risks turning the country into a production hub without parallel domestic use, the research house said in a thematic report.

“Malaysian policies currently lack binding enforcement and clear milestones”, which may delay adoption by domestic airlines, potentially undermining SAF’s competitiveness, BIMB Securities said.

SAF, produced by blending palm oil or used cooking oil with conventional petroleum-based jet fuel, has been identified by the aviation industry as the most significant lever to achieve decarbonisation.

Aviation regulators in the EU mandate that departing flights use at least 2% SAF in 2025 before rising to 20% in 2035 and 70% in 2050. In the US, tax credits are provided as incentives to producers of SAF meeting certain criteria.

Malaysia has also recognised the potential of SAF and set out to produce as much as one million tonnes by 2027.

The primary barrier to SAF adoption, however, is its high cost, estimated at around three times more than that of conventional jet fuel, limiting voluntary uptake by airlines in the absence of subsidies, tax incentives, or blending mandates, BIMB Securities flagged.

“Given the aviation industry’s thin profit margins, this cost differential has limited voluntary adoption, making policy interventions essential,” the research house said.