The Welfare Effects of Increasing Demand for Category 3 Animal Fats Induced by SAF

Abstract

This study aims to investigate the effects of increased demand for edible animal fats that are not intended for human consumption, specifically as feedstock for sustainable aviation fuel (SAF) as suggested by the SAF mandate, on the welfare of the market participants of the European animal fat industry in 2025 and the environmental implications of the growing demand for category 3 animal fats in the context of SAF production. A partial equilibrium analysis was conducted using a supply and demand model of the European category 3 animal fat market. The analysis considers the effects of increased demand for category 3 animal fats on consumer surplus, producer surplus, and overall market welfare. The study finds that an increase in demand for category 3 animal fats results in a significant increase in price and a reduction in consumer surplus for all consumers due to inelastic demand and supply. However, there is a positive effect on market welfare due to the increase in producer surplus outweighing the reduction in consumer surplus. The animal feed sector is the most highly negatively impacted sector, followed by the oleochemical and biodiesel sectors, due to their higher initial demand for category 3 animal fats. Overall, the study highlights the potential negative impacts of increased demand for category 3 animal fats as feedstock for sustainable aviation fuel on the welfare of consumers of category 3 animal fats. In addition to the welfare analysis of the market participants of the animal fat market, the study also examined the environmental implications of the growing demand for category 3 animal fats in the context of SAF production. The results showed that while there were high displacement emissions resulting from diverting animal fats from their existing uses, the overall emissions associated with using tallow-based bio-kerosene were significantly lower compared to fossil fuel kerosene. This indicated a clear environmental advantage of utilizing tallow-based bio-kerosene in terms of emission reduction.