The carrier has signed a memorandum of understanding with IdunnH2 for 45,000 tonnes of SAF from 2028, which it said would account for "around a 10% reduction" in carbon emissions from its international route network.
IdunnH2 will produce the fuel at its facility near Iceland’s only international airport, Keflavik, which will then be blended with conventional jet fuel.
The move forms part of Icelandair’s aim to reduce its emissions by 50% per operational ton kilometre by 2030, compared with 2019 levels of emissions, and a longer-term ambition to achieve net-zero by 2050.
Icelandair has already begun refreshing its fleet with new, more fuel-efficient Boeing 737 Max aircraft, but has warned it will take "a combination of further measures" to achieve its targets, stressing SAF would be "key to this development".
IdunnH2’s SAF is produced from green hydrogen and recycled CO2. Icelandair said Iceland was an ideal location for commercially scaled production of e-fuels.
"The island’s power grid is both competitively priced and renewable," said the carrier, adding: "The 300MW facility will allow for meaningful reductions in emissions and bring Iceland closer to reaching its climate goals."
Chief executive Bogi Nils Bogason said the deal underlined the airline willingness "to pull its weight" and support the adoption of SAF.
"We at Icelandair have set ambitious goals to reduce carbon emissions and have already invested significantly in fleet renewal, which is currently the most effective measure to reduce emissions.
"It is, however, going to be the utilisation of sustainable aviation fuels that will play an important role on this journey in international aviation over the next years.
"The challenge is that there is not enough production in the world today and therefore not enough supply. We believe there are great opportunities for Iceland to start such production."
