Airfare and the Net Zero bill: who will pay for decarbonizing aviation?

Airfare prices and the aviation sector’s green transformation are becoming tightly linked as airlines face a steep decarbonization bill. With historically thin margins, carriers must restructure financial leverage and secure long-term capital to fund sustainable aviation fuel (SAF) and carbon compliance, while Vietnam’s policy direction and the redirection of foreign direct investment (FDI) and private equity (PE) are reshaping the economics of the SAF value chain.

SAF is the main cost driver

The aviation industry accounts for roughly 2.5% of global CO2 emissions and about 4% of the Earth’s warming impact, according to the Kearney Energy Transition Institute (2025). IATA data show that total industry net emissions in 2024 reached 933 million tonnes. IATA also reports passenger demand (RPK) rising by 5.3% in 2025, lifting the load factor to a record 83.6%. Even with higher aircraft occupancy reducing emissions per seat, overall traffic volume continues to outweigh efficiency gains, making Net Zero 2050 an urgent cost problem.

BloombergNEF’s Net Zero 2050 scenario forecasts that SAF must meet more than 70% of energy demand, reflecting range limitations for electric and hydrogen aircraft. IATA expects SAF to contribute 65% of total emission reductions.

However, supply remains constrained. Global SAF production in 2025 is about 1.9 million tonnes (2.4 billion litres), nearly double 2024 but still only about 0.6% of total fuel demand. The resulting shortage is pushing up transition costs.

Price premium and rising fuel bills

The biggest hurdle for SAF is price. SAF costs about 2x Jet A-1 and can be as much as 5x in markets with blending mandates. IATA’s late-2025 calculations estimate that SAF has increased the industry’s fuel bill by about USD 3.6 billion, with policy gaps accounting for about USD 2.9 billion of the premium.

Without measures to narrow the price gap, fuel costs could rise from 25–30% of total costs today to around 45% by 2050.

ICCT’s 2026 study on European data highlights the cost structure: fossil fuel costs hover around EUR 0.60 per litre, while HEFA-SAF production from waste oil is around EUR 1.11 per litre—nearly double, even before considering emissions trading system (EU ETS) costs.

Carbon allowances and EU ETS cash-flow effects

The EU allows 20 million free emission allowances to support SAF, but ICCT projects these allowances will be absorbed by HEFA fuel by 2030 and will not provide enough room to finance more advanced SAF options such as e-kerosene or Fischer-Tropsch.

From 2026, the EU ETS will sharply reduce free allowances. For intra-block flights, airlines will need to buy nearly all allowances, generating auction revenue of more than EUR 2 billion per year. While this revenue helps, ICCT argues it may still not fully offset SAF costs and the financing of new technology.

CORSIA adds a further layer of offsets

On a global level, ICAO’s CORSIA adds additional costs. From 2024 to 2035, airlines must offset emissions beyond 85% of 2019 levels using carbon credits or compliant fuels, tracked in three-year cycles.

IATA estimates that in the 2024–2026 cycle, the industry will need to purchase between 146 and 236 million tonnes of offset credits. For airlines with heavy international networks, this scale could become a meaningful cash drain.

Industry costs and margin pressure

IATA puts total industry costs for 2025 at around USD 913 billion. Fuel is a major component, representing about 25.8% of total costs. In addition, airlines face new environmental compliance costs: USD 1 billion for CORSIA and USD 2.9 billion for SAF-related costs. These items are booked as operating expenses. If they cannot be passed through to passengers via surcharges or ticket price increases, margins could be seriously eroded.

Net margins remain thin

IATA’s December 2025 report indicates that even with industry revenues exceeding USD 1 trillion, net profit margins are forecast at only 3.9% and operating margin (EBIT) at 6.6%. Return on invested capital (ROIC) is 6.8%, below the weighted average cost of capital (WACC) at 8.2%.

This negative economic margin leaves little room to absorb green transition costs. Any surcharge from SAF, ETS, or CORSIA that cannot be passed to passengers through higher fares would directly erode net profit.

Airlines begin isolating environmental costs

To manage the cost burden, airlines have started isolating and passing environmental costs onto passenger tickets. Since 2023, Lufthansa has introduced Eco fares in Europe, using SAF to reduce 20% of emissions and purchasing carbon credits for the remaining 80%. By mid-2024, Lufthansa expanded with an environmental cost surcharge of up to EUR 72 on flights departing from the EU, the UK, Norway and Switzerland from 2025. The surcharge targets offsetting the 2% SAF mandate, ETS quotas, and CORSIA fees.

IATA modeling suggests that if SAF prices remain 2–5 times Jet A-1 without a breakthrough in technology, the share of fuel costs could rise to 45% by 2050 despite fleet efficiency gains. With an industry-wide net margin of only 3.9%, the inability to transfer green costs to passengers would erode EBIT on a per-flight basis.

A March 2026 ICCT study in the Netherlands also points to limits on cost pass-through. Even with strong government support—covering 40% of CAPEX for a SAF plant with a 50,000 tonne/year capacity—the remaining cost gap for e-kerosene is reduced by only 56%, and by 87% for Fischer-Tropsch SAF. The remaining premium would need to be shared between airlines and passengers, creating a risk of margin erosion amid inflation-constrained demand.

Capital needs for the Net Zero transition

Beyond operating costs, the Net Zero path to 2050 requires major investment. IATA estimates total capital needs for fleet, infrastructure, and SAF supply chains to range from USD 3.8 trillion to 7.9 trillion.

Both IATA and BloombergNEF warn that if CAPEX burdens rise alongside operating costs driven by SAF, ETS, and CORSIA, margin compression is likely unless there is a transparent cost-sharing mechanism among states, the supply chain, and passengers.

Vietnam: timing, policy targets and financing constraints

Vietnam’s aviation sector faces the challenge of how quickly and how far green transition costs will affect financial statements. Under Decision 1191/QD-BGTVT (September 2024), the transport sector must cut greenhouse gas emissions by 5.9% below business-as-usual by 2030, equivalent to a cumulative reduction of 45.62 million tonnes of CO2.

The Ministry projects aviation emissions under BAU to rise from 1.1 million tonnes in 2014 to 4.3 million tonnes by 2030. Aviation emissions are lower than road transport, but aviation has the fastest emissions growth rate in the sector.

Vietnam’s decarbonization plan prioritizes road transport, while aviation remains inventory-based for now. As a result, macro risks from ReFuelEU and CORSIA could translate into a double drag on corporate financials. The burden would show up in two core line items: higher fuel surcharges and carbon compliance costs from purchasing credits. For airlines with thin cash flows, this could threaten liquidity if costs cannot be passed through to ticket prices.

Capital expenditure is also a major issue. Moving to next-generation aircraft such as A321neo/B737 MAX and A350/B787 can improve fuel efficiency, but delivery delays can force carriers to operate older fleets, increasing maintenance costs. Investment pressure across new aircraft, green infrastructure, SAF purchases, and carbon credits could push leverage ratios higher as balance sheets recover from the pandemic.

On the supply side, Vietnam has domestic SAF capacity but trails regional hubs such as Singapore or Thailand. In the near term, limited capacity may lead airlines to rely on expensive imported SAF or to refuel at international hubs, reducing cost competitiveness.

To address the gap, Vietnam is accelerating the formal operation of a domestic carbon trading platform from 2029, per Decree 119/2025/ND-CP. However, even with domestic credits, the immediate challenge is to standardize MRV (measurement, reporting, verification) to meet CORSIA and EU ETS requirements.

Who will fund the skies?

With costs rising from multiple angles, raising fares alone is not expected to cover the transition. The article argues that the green finance ecosystem must play a central role.

SAF is described as a core technology pillar of the Net Zero aviation roadmap. To meet projections that SAF accounts for more than 65% of aviation energy by 2050, a large pool of capital is needed for refining, biomass, and clean hydrogen infrastructure.

Project finance and development finance

In emerging markets, SAF projects can be financed through project finance rather than relying primarily on equity. In December 2024, the Asian Development Bank (ADB) and IFC arranged an USD 86.2 million loan for a SAF plant in Pakistan capable of 145,000 tonnes per year using waste oil.

IFC also uses the TRIPS platform to finance sustainable transport through green loans, sustainability-linked loans, and green/blue bonds. With a commitment of USD 1 billion per year, IFC’s transport portfolio totals USD 2.9 billion, with aviation/airports accounting for about 30%. The loans can be tied to emissions-reduction KPIs to support refinancing of new fleets or SAF infrastructure in Vietnam.

Green bonds and carbon-market-linked lending

Domestically, the Green Bond Readiness program coordinated with the Ministry of Finance has mobilized more than USD 300 million for green projects. GGGI has also joined with the Ministry of Planning and Investment (now the Ministry of Finance) to implement the 2024–2028 cooperation framework.

The article notes that the carbon market could create a new asset class, enabling banks to provide green lending and use proceeds from credit sales to service debt. When aligned with Paris Agreement Article 6 and CORSIA, Vietnam could transfer credits to international aviation.

FDI and private equity opportunities

For FDI and private equity, the SAF supply chain in Vietnam is positioned at the intersection of abundant biomass (straw, cassava by-products, waste oil), booming domestic demand, and existing refining infrastructure. S&P Global forecasts Asia-Pacific to become the world’s SAF hub by 2050. If policy frameworks on technology and risk sharing are established early, Vietnam could attract substantial FDI/PE flows.