Starting at One Percent: How Japan Rewrote the Numbers on SAF

Yuka Amano | Director

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On July 23, 2026, Japan rewrote the premise of its sustainable aviation fuel (SAF) policy. Fuel suppliers will face a SAF supply obligation from FY2030, but the starting point is one percent of jet fuel supply volume. The level previously designed into the framework worked out, in volume terms, to ten percent. Is this a retreat, or a design corrected to fit reality? Using the final investment decision deadline now closing in at the end of 2026 as our anchor, we map where Japan’s biofuel policy actually stands.

The day the numbers changed

Measured the same way, in volume terms, the obligation falls from 10% to 1% — and caps out at 5% even after the phase-in.

A quick note on terminology first. SAF (sustainable aviation fuel) is jet fuel made from feedstocks like used cooking oil, fats and oils, or ethanol. Its big selling point is that it works in existing aircraft and fuelling infrastructure without any modification. There are two main production routes. HEFA hydrotreats fats and oils: it’s established technology, but feedstock supply is capped. ATJ converts ethanol, which in theory offers much more room to scale, except Japan has no large domestic ethanol supply, so the working assumption is that it would have to be imported. That’s why any conversation about domestic SAF eventually circles back to feedstock.

On July 23, 2026, Japan’s Ministry of Economy, Trade and Industry (METI) and Ministry of Land, Infrastructure, Transport and Tourism (MLIT) held the 9th Public-Private Council on Promoting the Introduction of Sustainable Aviation Fuel and put out a proposal requiring jet fuel suppliers to supply SAF starting FY2030. It covers international routes at seven airports, including Narita and Haneda, and sets the obligation at 1% or more of supply volume in FY2030, rising to 3% in FY2031, and 5% from FY2032 through FY2034.

On the surface, the yardstick differs from what came before. The target agreed back in FY 2024 by the Council and the Subcommittee on Decarbonised Fuel Policy, under the Act on Sophistication of Energy Supply Structures, called for supplying an amount equivalent to at least 5% of the greenhouse gas emissions from jet fuel produced and supplied domestically in FY2019 — an emissions-based target, not a volume one.

That target came with its math already worked out. According to the Agency for Natural Resources and Energy, the calculation was: FY2019 domestic jet fuel production and supply × a 10% SAF blend rate × a 50% GHG reduction effect. In other words, the old target was built, from the start, around a 10% blend by volume. It was framed as an emissions goal, but underneath, it was ten percent.

That’s what makes the two targets comparable at all. In volume terms, 10 % has become 1% — and even after the phase-in, it only reaches 5%. A tenth of where it started, half of where it ends up.

That said, the ramp-up is quick. The 1% figure only applies to the first year; jumping to 3% in FY2031 and hitting 5% by FY2032. The starting level dropped, but the pace of increase got steeper.

There’s another easy-to-miss change buried in this shift.

Why was the original target set in emissions terms rather than volume? The government’s own materials are explicit about this: the goal was to encourage not just swapping in SAF for jet fuel, but favoring supply with higher carbon-reduction value — including, eventually, e-SAF, fuel synthesized from CO2 and hydrogen. Measuring in emissions terms means fuels with deeper reductions count for more. The emissions-based framing was a deliberate nudge toward e-SAF.

A volume-based target doesn’t make that distinction. A litre of HEFA that cuts emissions by 50% counts exactly the same as a litre of e-SAF that cuts them by 90%. The headline change (the obligation level dropping) is the obvious story. What’s less obvious is that the mechanism designed to pull the technology forward went with it.

The earlier design was already specific in other respects: obligated parties were jet fuel producers and suppliers handling 100,000 kL or more per year, and the target period ran five years, FY2030 to FY2034 — a period the new proposal carries over.

Still, reading this purely as a retreat misses something important: an obligation only functions if it’s set at a level companies can actually build investment decisions around — set it too high, and you undermine confidence in the framework itself. So why 1%? Looking at the supply side, the reasoning starts to come into focus.

The current status of domestic SAF supply in Japan: the end-2026 deadline

Right now, only one SAF plant in Japan is actually in commercial supply. The other five all need to reach a final investment decision by the end of 2026 if they’re going to be ready in time for 2030.

As of April 2026, the only SAF commercial plant is Cosmo Oil’s facility in Osaka Prefecture (roughly 30,000 kL a year, online since April 2025). Behind it sit five major projects still in the pipeline.

Figure 1 ：Major Japanese domestic SAF Projects
Source：Agency for Natural Resources and Energy, “Current Status of Efforts on Sustainable Aviation Fuel (SAF),” April 17, 2026 (English translation by Codo Advisory)
Note: GX Economy Transition Bonds are Japanese government bonds that fund subsidies for GX-related capital investment; the Green Innovation Fund, administered by NEDO, supports technology development. Neither refers to debt issued by the companies themselves.

All five projects are currently at the FEED (front-end engineering design) stage, expected to wrap up at various points between early and late 2026. The next step is the FID — the final investment decision — which means committing tens of billions of yen to actually build them.

This decision has a real deadline attached. Construction takes two and a half to three years, and the support schemes won’t run forever. To claim the production-linked tax credit (up to ¥30 per litre of SAF), a project needs plan certification by the end of FY2026 — and certification requires an FID first. CAPEX support through the GX Economy Transition Bonds ends in FY2028, and Green Innovation Fund support for R&D wraps up in FY2029. The Agency for Natural Resources and Energy has said outright that FIDs need to land by around the end of 2026 at the latest if large-scale domestic supply is going to be ready by 2030.

Companies are racing that clock. Taiyo Oil says it’s pushing FEED toward an FID in 2026, with production targeted for 2029. Idemitsu Kosan and Cosmo Oil are also believed to be aiming for decisions within the year. But as of mid-August 2026, no company had yet announced an FID on a SAF plant.

Put simply: 2026 is the year that decides whether 2030 happens.

What is stalled is not capital, but contracts

Subsidies and tax credits are already in place. What’s actually holding back investment is the lack of settled purchase agreements with airlines.

Japanese government materials are candid about why FIDs have stalled just short of the finish line, and the logic cuts both ways: Refiners won’t commit to building a plant without some visibility on airline purchase agreements. Airlines, meanwhile, are already squeezed by fuel costs eating into earnings, and simply can’t take on domestic SAF unless it’s priced competitively by international standards. So negotiations sit open, with neither side able to move first.

The key instrument here is the offtake agreement: a long-term contract, signed before construction even begins, where a buyer commits to purchasing a set volume, over a set period, at a set price. SAF plants are hugely capital-intensive, with payback horizons stretching past a decade, and SAF itself costs three to five times as much as conventional jet fuel. Building the plant first and hoping to find buyers later just doesn’t work: there’s no guarantee anyone will pay that price once it’s built. An offtake agreement makes future cash flows predictable, which is what actually lets an FID go ahead and gives lenders something concrete to underwrite against. It’s the same logic behind power purchase agreements (PPAs) in renewables, or long-term LNG contracts.

No amount of subsidy moves the needle without an offtake. Right now, airlines can’t commit at the price on offer, so refiners can’t commit to building the plant.

So how big is that price gap, and do the current support measures actually close it? The math is straightforward. SAF costs three to five times conventional jet fuel, which means the gap itself runs two to four times the conventional price. Say jet fuel is ¥100 per litre — the gap is roughly ¥200-400. Against that, a production tax credit of up to ¥30 per litre only closes 8-15% of it. And that proportion barely moves whether jet fuel is priced at ¥80 or ¥150. In other words, the credit is really more about helping recover upfront investment than actually closing the price gap. Who ends up covering the rest is still up in the air.

That same math also points to a second reason behind the 1% figure: at a low blend rate, the price gap gets spread thin across the entire fuel bill.

Blend rate	Increase in total fuel cost
1% (FY 2030)	+2~4%
3% (FY 2031)	+6~12%
5% (FY 2032 ~ 2034)	+10~20%

Table 1：SAF blend rate and fuel cost increase (Codo estimate, assuming SAF at three to five times conventional fuel)

A few percentage points in year one is something a broad, thinly spread user contribution scheme can realistically absorb. But once it hits 5% from FY2032 onward, the numbers start to matter in a different way. So the 1% starting point isn’t arbitrary — it’s set at a level refiners can actually commit to, and one where a user-contribution scheme is still politically workable. The real test of this whole framework won’t come in FY2030, but in FY2032.

What’s notable is that the framework anticipated this. Back in the 2024 flexibility provisions (banking and borrowing target volumes, transfers between group companies), failing to close a deal with the demand side was already listed as one of the circumstances beyond an operator’s control that could justify lowering or waiving the target — right alongside things like equipment failure or capital cost inflation. Seen this way, rolling out the supply obligation and the user-contribution scheme together on July 23 looks like a deliberate attempt to unstick the problem from both ends at once: the obligation locks in demand, while the user contribution means airlines aren’t left absorbing the price gap alone.

The three shifts in the feedstock picture

Feedstock is what ultimately determines whether SAF pencils out economically. Japanese domestic supply has a hard ceiling, Europe already imports nearly 70% of its own, and the US has started ring-fencing feedstock within North America.

Feedstock is the underlying factor that determines the price at which any contract can actually be signed and over the past year, conditions outside Japan have clearly gotten tighter.

First, the domestic ceiling. Japan produces roughly 500,000 tonnes of used cooking oil a year. ENEOS itself has pointed out that running its Wakayama plant at full capacity alone would require collecting essentially all of it. Commercial used cooking oil is already collected at close to 100%, and about 70% of it currently goes to livestock feed — so redirecting it toward SAF would disrupt existing supply, demand, and pricing elsewhere. The realistic levers are expanding household collection and bringing back volumes currently being exported, but both have limits.

Second, what Europe’s experience shows. Under the ReFuelEU Aviation Regulation, the EU requires fuel suppliers to blend 2% SAF starting in 2025, rising to 6% by 2030 — a binding mandate running five years ahead of Japan’s. And yet, according to EASA’s 2025 technical report, 98% of SAF supplied in the EU in 2024 was bio-based, with 81% of that coming from used cooking oil, and 69% of the feedstock was imported, principally from China (38%) and Malaysia (12%) . In other words, leading on mandates doesn’t automatically mean building a domestic supply chain.

Third, the US turning inward. In March 2026, the EPA finalized record-high Renewable Fuel Standard volume obligations for 2026 and 2027, so demand is only growing. At the same time, the 45Z clean fuel production credit now restricts qualifying feedstock to material produced or grown in the US, Mexico or Canada for fuel produced after the end of 2025. So demand is rising just as feedstock gets locked inside North America — and there’s no sign the global scramble for waste oils and fats is letting up.

ANA and JAL’s joint report from May 27, 2026, “Towards Net Zero CO2 Emissions in Air Transport by 2050 (2nd edition),” responds to exactly this picture. It reframes SAF procurement as a matter of economic security rather than corporate environmental policy, and warns that Japan risks being passed over entirely if it can’t secure adequate domestic SAF. The same report notes that global SAF supply in 2025 was just 0.6% of total jet fuel.

The gap is even starker for e-SAF. IATA estimates from June 2026 put global SAF production for the year at around 2.4 million tonnes: just 0.8% of aviation fuel use. EU and UK mandates call for roughly 0.6 million tonnes of e-SAF by 2030, but global capacity either operating or under construction sits at only about 0.02 million tonnes, with a single site actually running. Hitting the mandated volume, by IATA’s own calculation, would require something like twenty commercial-scale plants. The association was unusually blunt in criticizing the 2030 e-SAF targets, arguing that mandating volumes before production capacity even exists gets the whole sequence of market creation backwards.

Japan, notably, has no volume target for e-SAF at all. Its stated goal is simply commercialization of synthetic fuels sometime in the first half of the 2030s — moved up from 2040 back in 2023 — alongside a Green Innovation Fund program aiming to demonstrate a 300 BPD pilot plant by 2028. So on one side, a mandate lowered to match reality; on the other, a mandate criticized for departing from it. The point isn’t which approach is right, it’s that both examples of how obligation levels play out in practice are sitting side by side right now.

The view from the refiners

For Japan’s refiners, SAF isn’t so much an environmental investment as it is a destination for a shrinking core business — and just one option among several in a broader transition plan.

Revisiting the picture from the supply side brings a different outline into view.

Domestic fuel demand in Japan has been declining for years, and a SAF plant is one of the few transitions that actually puts existing refinery infrastructure and workers to use. ENEOS stopped refining at its Wakayama plant back in 2023, and the SAF facility would be built right on that site. Idemitsu’s Tokuyama project plans to reuse existing units and tankage, and Taiyo Oil’s Okinawa project is starting from idle land with infrastructure already in place. So SAF isn’t really an environmental add-on here: it’s more of an answer to the core business shrinking.

That’s exactly why the decision is being weighed so carefully. If the investment fails, the whole transition path becomes shaky. Profitability here comes down less to plant efficiency than to feedstock cost: the competitive edge shifts from refining technology to who can lock in feedstock on long-term, stable, affordable terms. That’s why ENEOS partnering with Mitsubishi Corporation, or Idemitsu factoring in supply from overseas projects, both make sense.

SAF is also just one piece of a much bigger transition. In May 2025, ENEOS revised its Carbon Neutral Basic Plan, pushing its target for carbon neutrality in Scopes 1 and 2 from FY2040 out to FY2050. Its carbon intensity target changed as well from 44g-CO2/MJ by FY2040 to a 20-50% reduction versus FY2020. In the medium-term plan released alongside this, the company said that while it still believes in the direction of decarbonization, growing energy security concerns and less predictable project economics mean stable, affordable energy supply — including petroleum — now matters more.

Investors have taken notice. On February 20, 2026, eight Japanese and international environmental NGOs sent a letter to fifty financial institutions holding ENEOS shares, urging them to press the company on restoring its FY2040 carbon neutrality target and pulling out of new fossil fuel projects, including Papua LNG, and to consider divestment if those changes don’t happen within a set timeframe. Recipients ranged from major global asset managers to Japanese asset management firms and life insurers.

What this reveals is that the SAF investment decision sits inside a wider question about the credibility of a company’s transition plan. The same company weighing a plant costing tens of billions of yen is being asked by its shareholders about the pace of its transition. An FID on SAF is a calculation about fuel economics and, simultaneously, a question of how the transition plan is explained.

A 1% starting point carries two meanings for refiners. It creates demand that is small but legally certain. It also falls far short of supporting the economics of a large plant on its own.

What the investment case looks at, however, is not the first year. One percent in FY2030, three in FY2031, five from FY2032. The period in which plants come online and ramp towards full output broadly coincides with the period in which the obligation climbs. Planned capacities of 400,000 or 250,000 kL a year look oversized against a 1% market; against 5%, they make sense. Which also means that if the gradient slips, the basis for the economics goes with it.

Which specific projects actually reach FID isn’t something anyone outside the companies can really predict, but the factors that will decide it are visible enough: how much of the long-term feedstock supply is already locked in, whether there’s a contractual mechanism for absorbing the price gap, and how much reusing existing equipment brings capital costs down. Projects that check all three boxes are the ones most likely to move first.

That uncertainty extends further up the supply chain. For used cooking oil collectors and any prospective domestic ethanol producers, a 1% starting point is a weak signal to justify investing in new collection networks or production facilities. Feedstock supply chains need to be built out before the mandate scales up — and right now, that’s a timing mismatch policy hasn’t figured out how to solve.

What this means for corporate planning, IR and sustainability teams

SAF reads as aviation news, but for companies with business travel and air freight it is a cost arriving in FY2030 and a Scope 3 disclosure matter.

SAF tends to be considered as an aviation industry matter. However, there are three impacts on business:

A foreseeable cost, and when to build it into planning: On July 23, MLIT outlined a new scheme where air transport users would contribute broadly, with those funds going toward supporting airlines’ SAF use. The likely shape of this is a distance-linked contribution on international routes starting FY2030. Design work is still underway at the Expert Panel on Sustainable Aviation Decarbonisation, with hearings for airlines, refiners, forwarders, and foreign carriers scheduled for August 28, and a conclusion expected within the fiscal year. If your company has meaningful international travel or air freight exposure, this is a cost you can see coming in FY2030 — the real question is just which version of your mid-term plan should account for it.

A direct tie to Scope 3 accounting and disclosure: Business travel falls under Scope 3 Category 6, and air freight sits within the upstream and downstream transportation categories. How the emissions-reduction benefit from SAF should actually be counted is still unsettled in the accounting rules but there’s already a practical starting point: MLIT has published SAF Use Visualisation Guidelines and 358 companies and organizations combined are already participating in ANA’s SAF Flight Initiative and JAL’s Corporate SAF Program. With SSBJ-based disclosure phasing in from the fiscal year ending March 2027, deciding when and how to start purchasing environmental value is something to think through alongside your disclosure design.

An opportunity and a timing question for feedstock suppliers: For companies in food, restaurants, or retail, used cooking oil is shifting from being waste to being feedstock. This is exactly where the 1% starting point matters. Early offtake prices and demand growth will probably stay fairly mild for a while. But it’s clear competition is going to intensify as 2030 approaches: that’s true whether you look at the ceiling on domestic volumes or at what’s already playing out in Europe and North America. The real question is whether a collection ecosystem can get built before prices start climbing. Joining a collection scheme does double duty: it’s a circular-economy story worth disclosing, and it’s also an early claim on part of the supply chain. Given how this interacts with existing uses like animal feed, the time to rethink waste flows is before demand tightens.

Conclusion

Back to the question this piece started with: is this a retreat, or a design change? It’s a design change, but one that comes with a real cost attached.

Looking at where supply actually stands, it’s clear a 10% obligation was never realistic. Only one plant is in commercial supply; the other five haven’t even reached FID yet. And an obligation that goes unmet doesn’t just fail: it undermines confidence in the whole framework. Starting at 1% and climbing to 5% within three years sets the obligation at a level companies can actually plan investment decisions around, and in that sense, it’s a rational design choice. It could be read as refiners winning a concession but a real concession would have lowered the end point as well. Ramping up to 5% within three years actually signals an intent to lock in demand, not soften it.

The real cost is in the yardstick. The original target was framed in emissions terms specifically to pull in e-SAF, with its much deeper reductions. Switch to a volume basis, though, and a litre of HEFA cutting 50% counts exactly the same as a litre of e-SAF cutting 90%. Most of the debate has focused on the obligation level dropping, but the mechanism that was supposed to pull the technology forward went quietly along with it. Combining that with the fact that Japan has no volume target for e-SAF at all, the picture that emerges is one where Japanese SAF policy through the first half of the 2030s is now built around scaling up established technology.

For companies, the focus is not the headline figure. It is how the bottlenecks of the supply chain — contracts, feedstock, and who bears the cost — get built intoa company’s own transition plan. And how much explanation those plans require is, in turn, a judgement for investors. Numbers move. What does not move so easily is the structure holding them up.

There are three things to watch from here: FIDs by the end of 2026; the user-contribution scheme, to be settled within the fiscal year following operator hearings on 28 August; and the legislation of supply targets under the Act on Sophistication of Energy Supply Structures. Once those three are in place, the shape of 2030 is largely fixed — though the framework’s real test comes in FY2032, when the blend rate reaches 5%.

Glossary

SAF (Sustainable Aviation Fuel): Aviation fuel made from feedstocks such as used cooking oil, fats and oils, or ethanol. Its defining feature is compatibility with existing aircraft and fuelling infrastructure.
HEFA / ATJ: SAF production routes. HEFA hydrotreats fats and oils — established technology, limited feedstock. ATJ converts ethanol, which in Japan implies imported feedstock.
FEED / FID: Stages of plant development. FEED settles specifications and costs; FID is the decision to proceed to construction. Nothing is built before FID.
Offtake agreement: A long-term purchase commitment signed before construction. It makes future revenue visible, and underpins both investment decisions and financing.
Price gap: The difference between SAF and conventional jet fuel, currently three to five times. Who absorbs it is the central question in scheme design.
Act on Sophistication of Energy Supply Structures: Japanese law promoting non-fossil energy use by energy suppliers. SAF supply targets are set within this framework.