Japan’s key role in the SAF industry

opinion

by Fayaz Hussain

July 11, 2025

The aviation industry emits roughly 2% to 3% of global CO2 emissions. Sustainable aviation fuel (SAF) has emerged as a critical solution for reducing the carbon footprint of air travel without requiring radical changes to aircraft, infrastructure or consumer habits. In Asia, a region experiencing significant air travel growth, SAF development is gaining momentum, led prominently by Japan.

Challenges across the SAF value chain begin with feedstock procurement from often small, dispersed and less-than-creditworthy-suppliers. From there, these challenges progress

Jess Webster

to complex offtake arrangements with airlines and air freight companies that are not accustomed to procuring aviation fuel on long-term, bankable structures. The value to be derived from Scope 3 emissions^[1]reductions and other environmental attributes help the parties bridge that gap but introduce further complexity.

Technology licensing, engineering, procurement and construction (EPC) arrangements and potential project-on-project risk with site and terminal owners are key considerations that will affect the viability of a SAF project. Japan’s experience with complex energy infrastructure projects, and its emerging commitment to the development of SAF, will make it well positioned to face these challenges.

Japan’s strategic commitment to SAF

Japan has committed to replacing 10% of jet fuel consumption with SAF by 2030, aligning with international frameworks such as the International Civil Aviation Organization’s (ICAO) Carbon Offsetting and Reduction Scheme for International Aviation, which aims to reduce CO2 emissions in international aviation. Japan’s SAF strategy serves Japan’s wider decarbonisation goals, such as achieving net zero emissions by 2050.

The Japanese government, through its ‘Green Growth Strategy’, is providing subsidies and tax incentives to accelerate SAF development. In recent years, the Ministry of Economy, Trade and Industry (METI) has increased funding for SAF projects, reinforcing the policy support, including through various of Japan’s ‘GX’ (Green Transition) policies, critical to de-risking early investments.

Japan is positioning itself as a regional hub, presenting major opportunities for Japan’s technology and engineering sectors. By developing exportable SAF capacity and expertise, Japan could increase its supply of SAF, and technologies associated with the production of SAF, to other markets, particularly those with growing aviation sectors but limited feedstock or production capacity.

The success of SAF in Japan is underpinned by a number of multi-stakeholder initiatives, such as ‘Act for Sky’, a coalition of over 15 companies including JAL, Mitsubishi Heavy Industries, JGC, Toyo Engineering and IHI Corporation. The group’s mission is to promote the expansion of domestically-produced SAF.

Similarly, in the public sector, the Japanese government established the Public Private Council to Promote the introduction of SAF in 2022. Council members include government agencies, oil refineries and retailers, airlines and airports, fuel storage and plant design companies, trading houses and related industry associations. Most of the private sector members are already engaged in pilot SAF production projects.

Production and industrial investment

Angus Rankin

Against that backdrop, Japan is investing heavily in domestic SAF production. Multiple large-scale projects are currently in development or operation, including a 400m litre per year capacity SAF plant in Wakayama, a 250m litre per year capacity SAF plant at the Tokuyama petrochemical complex in Yamaguchi Prefecture, and a 100m litre alcohol-to-jet (ATJ) technology project in Chiba. These facilities are designed not just to meet domestic demand, but also to create export opportunities across Asia as regional SAF demand expands.

Japanese companies are also teaming up with international partners both on the technology side to investigate new feedstocks and SAF production processes, and also with developers of new SAF facilities around the world.

Despite this progress, challenges remain. SAF remains 2 to 5 times more expensive than conventional jet fuel. While scale and technological advancement may reduce costs, continued government subsidies and carbon pricing mechanisms will be crucial. Project developers will need to structure their projects to maximise the benefit of tax and other incentives. Similarly, developers will need to consider how best to attract investment, whether from beneficial tax treatment (in jurisdictions where applicable) or commercial lenders familiar with established technologies used for SAF production and in fuel markets.

A key bottleneck in SAF production is securing sustainable feedstock. Various feedstock options are available, both biogenic (such as fats, oils, and greases, municipal solid waste, agricultural residues, woody biomass and algae) and non-biogenic (including recycled carbon fuels and renewable electricity (renewable electricity is used in an electrolysis process to extract hydrogen from water, which, along with captured carbon, is used as the feedstock to create e-SAF)).

Analysis shows significant domestic feedstock availability in Japan, with capacity to produce 11m kilolitres (2,906m gallons) of SAF by 2050.[2] However, as other countries also vie for limited feedstock, Japan’s SAF producers may face increased competition to obtain feedstocks and will need to explore unique domestic sourcing strategies. With limited agricultural land and output, Japan is already exploring innovative biogenic feedstock solutions, for example:

Used Cooking Oil (UCO): The ‘Fry to Fly’ campaign, backed by JGC Holdings, Cosmo Oil and other industry partners, collects UCO from restaurants and households. Japan produces around 260,000 kilolitres (68.7m gallons) of UCO annually, which would otherwise be discarded as a waste product.
Biomass and Microalgae: Ongoing research by both private-sector companies and Japanese government agencies is focused on utilising microalgae and woody biomass — abundant and renewable sources with high carbon capture potential.

Achieving the rapid development of SAF feedstocks in Japan (both novel and the more established sources) will require support from government, and careful consideration from industry stakeholders. Thought will need to be given to how best to manage developing new supply chains, mitigating risks associated with developing these technologies, developing new facilities and facilitating widespread production. Looking further ahead, establishing a national SAF distribution network across Japan, from collection of feedstock to refining and airport delivery, will also require substantial infrastructure investment and coordination.

Alan Alexander

Still, these challenges present opportunities for Japan’s technology and engineering sectors, already a prominent exporter of high technology. Japan should continue to take steps to support the early adopters of SAF to build the knowledge, skills, and expertise that can ensure the Japanese SAF industry is competitive in the global market.

Conclusion

Japan’s ambitious and forward-looking approach to SAF reflects its broader environmental ambitions and industrial strengths. With robust government support, private sector leadership, and innovative feedstock strategies, Japan is poised to not only meet its own SAF targets but also to lead Asia in the transition toward greener skies.

[1] Scope 3 emissions represent all indirect greenhouse gas emissions that occur outside of a company’s direct operations, but within its value chain.

[2] IFC, ‘Charting the Path: SAF Ecosystem in Japan’ (April 2024), japan_saf_ecosystem_es_web.pdf.

Authors: This article was authored by Angus Rankin and Alan Alexander, Partners, and Jess Webster, Senior Associate, at Vinson & Elkins.