With net zero by 2050 now an established objective for aviation worldwide, the sector faces a huge challenge to decarbonise.
At the 41st Assembly of the International Civil Aviation Organization (ICAO) in October 2022, states adopted a collective long-term aspirational goal of net-zero carbon emissions by 2050. To put this ambitious vision into practice and quickly curb aviation emissions — expected to rise fast as the sector recovers from COVID-19 disruptions — the ICAO, national governments, airlines and industry will need to work even closer to reduce the climate impact of flying and associated ground operations.
A large share of aviation’s CO2 emissions arise from the combustion of kerosene, known as Jet A-1, in aircraft engines. To avoid this tailpipe CO2 completely, a range of solutions from hydrogen to batteries are possible, but these will require a full redesign of aircrafts and new refuelling infrastructure, and may therefore become widespread only after 2050.
Fuelling a sustainable pathway
Sustainable aviation fuel (SAF) is available today, and can be used without the need to develop new planes or engines.
These greener jet fuels deliver substantially lower greenhouse gas emissions than Jet A-1. These emissions are saved throughout the production process as feedstocks used to make SAF have lower lifecycle carbon emissions than fossil jet.
However, the current predominant SAF type (i.e. biofuels) faces real availability and scalability challenges, as well as supply chain bottlenecks and questions over the sustainability of feedstocks. With these barriers in mind, our view is that Power-to-Liquid (PtL) synthetic fuel, obtained from low-carbon hydrogen and CO2, represents the most scalable product for long-term use and an untapped solution for the aviation market.
As PtL fuel is significantly more expensive than other SAFs, realising its potential cannot be achieved without major investment in electrolysis and carbon capture technology development and deployment.
Rising demand for sustainable aviation fuel
Voluntary demand for SAF among airlines is rising rapidly, driven by significant CO2 savings, corporate carbon reduction targets, mounting policy attention and passenger interest.
Many airlines are already seeking to secure supplies over multi-year periods. This demand will firm up during the 2020s as national SAF mandates come into effect, especially from 2025 onwards.
Mandates are likely to start low but tighten rapidly during the 2030s and beyond. EU regulators are leading the charge: jet fuel supplied to EU airports will need to consist of 2% SAF by 2025, increasing at 5-year intervals to reach 63% in 2050 — of which 28% will consist of e-fuel.
Where demand mandates do not yet exist, the industry is taking some voluntary initiative, with a number of partnerships announced between major airlines and fuel suppliers to trial or regularly use SAF. Governments are also aware that domestic SAF production offers fuel security as an additional benefit.
To meet increasing demand, SAF production facilities are being constructed, announced or developed around the world. At present, the dominant SAF feedstock is vegetable oil. GHG savings are achieved when the feedstock is grown, as it captures CO2 during the process.
Headwinds in capacity and supply
The technology to convert vegetable oil into biofuel (synthesised paraffinic kerosene) through hydroprocessed esters and fatty acids (HEFA) is already commercial, and HEFA is the simplest and cheapest form of SAF, but its availability is limited by overall feedstock supply.
Feedstock prices, hard hit by the Ukraine war, currently represent the majority of the final SAF price. Their volatility can therefore create feedstock supply problems for producers.
Many HEFA feedstocks are monocrops, reliant on fertilisers that suffer from biodiversity reduction and are vulnerable to climatic and geopolitical price shocks.
In the lead-up to 2030, we expect to see a surge in the supply of fuel made from alternative biogenic and non-biogenic waste feedstocks, including agricultural residues, used tyres and municipal solid waste (MSW). These will be transformed into SAF through more advanced processes such as alcohol-to-jet, pyrolysis and Fischer-Tropsch gasification.
Greenhouse gas savings are more complex to assess in cases where non-biogenic waste is used, though other benefits can be realised such as avoided waste to landfill. However, feedstock constraints are once again a risk: wastes including MSW are sought by other sectors, such as incineration and bioenergy with carbon capture and storage, making supply finite and competitive.
The constraints faced by these waste-to-fuel production pathways mean that the total SAF yield globally will increase but will still be relatively limited, especially in the coming decade.
A synthetic opportunity takes flight
To achieve significant SAF scale-up an exponential expansion of e-fuels or power-to-liquid fuels will be needed.
E-fuels are produced using low-carbon hydrogen (produced from biogas or renewable/nuclear electricity electrolysis) and captured CO2 and can achieve over 90% of lifecycle carbon savings compared with fossil Jet A-1.
In theory, e-fuels also have a far higher supply potential than other SAF types as electricity and CO2 are not restricted by feedstock availability in the same way. The catch is that e-fuels are highly energy-intensive to produce, very expensive and dependent on the rapid expansion of clean electricity production (renewable and/or nuclear) and carbon capture technology globally.
More positively, this interaction with electricity and CO2 sources potentially broadens the landscape for investors, with options to look along the value chain, from energy generation and hydrogen production to e-fuel synthesis.
Among the SAF types, PtL offers a great opportunity for decarbonisation at scale. It produces a high energy-density fuel that is more scalable and cleaner than other SAF types, when the energy used for the conversion processes is derived from low-carbon sources and the carbon from climate-neutral sources.
Importantly, PtL plants also offer an opportunity to hedge against the eventual likely demand for different fuel types.
The race for cleaner skies
At present we are seeing a race by airlines to secure access to HEFA supplies, both to meet immediate voluntary demand and as a natural hedge against expected supply mandates from 2025.
Meanwhile, a number of advanced fuel technologies have already evolved from concept and prototype to demonstration phase, and are seeking further investment to achieve commercial scale. Wider commerciality of these facilities will reduce cost and increase the affordability for end-users, but this is contingent on multiple feedstocks challenges being solved.
PtL could be instrumental to unlocking greater SAF use, and investors will need to consider this long-term technology outlook alongside promoting sustainable, short-term HEFA supply. Different market players are facing different barriers.
Read on to find out how markets, industry, airlines, regulators and policymakers can capitalise on opportunities and accelerate investment in SAF, particularly PtL.
Airlines: Investing in and using SAF will help reduce the environmental impact of flying and ensure corporate sustainability commitments and increasing expectations from passengers are met.
Fuel producers: For existing refineries and oil and gas majors, SAF represents a significant opportunity to retain and utilise existing expertise and infrastructure, while driving decarbonisation of the business, diversifying from oil investments and providing a positive story. There are also opportunities for new market entrants to gain visibility and secure early-mover advantage.
Energy generators: The availability of excess renewable electricity or nuclear power offers an opportunity to energy generators and utilities to optimise and flex supplies, diversify investment portfolios and tap into a new market. Generators can benefit from early-mover advantage, efficient energy and fuel integration and a strong track record that can facilitate investment.
Airports and fuel distributors: Ensuring availability of SAF close to airports serving the most carbon-intense routes and, in the future, more capillary distribution can reduce logistic barriers and facilitate SAF usage.
Lessors and investors: SAF, especially PtL fuel, provides an opportunity for the aviation finance community to diversify risk within a sector they already understand well, pre-empting future environmental scrutiny on the wider aviation value chain.
Regulators and policymakers: SAF is key to decarbonising air transport. Its widespread use contributes significantly to national and international carbon emissions reduction targets. Local SAF production and use can improve a country’s fuel security and foster domestic supply chains, retaining fuel expertise, infrastructure and skills and creating new jobs, industrial development and additional inward investment.Airlines: Investing in and using SAF will help reduce the environmental impact of flying and ensure corporate sustainability commitments and increasing expectations from passengers are met.
Actions to scale up SAF supply
Airlines: Secure early SAF supply by using floating market indexed pricing mechanisms and consider potential for strategic investments in SAF production. Push for stronger SAF sustainability credentials and ensure transparency when promoting the technology to passengers to secure their buy-in. Advocate for government support and strategic clarity on advanced fuels technologies.
Fuel producers: Secure offtake agreements with airlines — de-risk by courting new sources of funding such as from the aviation finance and green finance community. Ensure project development plans represent credible propositions to achieve commercialisation and provide confidence to investors. Work jointly with competitors to share lessons learnt at different stages of plant development (from feasibility to commercialisation), helping to reduce technology risk and reassure the market that SAF can be delivered.
Energy generators: Partner with SAF producers to de-risk SAF investment, acquire expertise and technology and familiarise with fuels and aviation markets.
Airports and fuel distributors: Prepare and ensure the supply chain can accommodate both fossil jet and SAF, and that the latter can be delivered timely and safely to the airport or to the aircraft, if requested. Ensure SAF is available, where demand requires, by expanding delivery and storage infrastructure, both in proximity of main hubs and, in the future, in more remote locations. Facilitate SAF traceability and reporting initiatives. Absorb some of the cost premium airlines bear for SAF by introducing innovative refuelling schemes (e.g. reduction in landing charges).
Lessors and investors: Consider opportunities to explore low carbon fuels through commercial due diligence and market screening of suitable technical partners.
Regulators and policymakers: Plan for ambitious SAF uptake targets to set the direction for the market, drive investment and facilitate SAF scale-up. Introduce both supply side incentives and demand mandates, and book and claim certification schemes. Ensure regulatory clarity and support policies that penalise actors who are non-compliant. Align national policies internationally, where possible, including structures for traceability, reporting, verification, point of sale and generating credits. Fund research and trials to strengthen scientific evidence on the non-CO2 impacts of SAF, rewarding non-CO2 savings appropriately and supporting operational efficiencies and air space modernisations to maximise the advantages of SAF.
Actions to drive PtL investment
Airlines: Jointly prioritise offtake agreements with SAF projects that primarily use or aim to incorporate PtL. To reduce higher PtL costs in the short term that may deter airlines’ investment, airlines could partner up to reduce the size of each airline’s contribution.
Fuel producers: Scale up development of standalone PtL plants or integration of PtL within other facilities to share infrastructure (e.g. Fischer-Tropsch). Explore ways of capturing CO2 from the SAF production process and reutilising or selling it to produce PtL. Explore partnerships with industrial clusters.
Energy generators: Trial conversion of renewable electricity or nuclear energy to fuel during off-peak times to showcase PtL as an available and viable technology. Plan, alongside regulators, for greater electricity grid capacity to sustain significant green electricity demand from PtL.
Airports and fuel distributors: Facilitate the distribution of PtL fuel ensuring PtL plants and airports are well connected and logistical barriers reduced.
Lessors and investors: Support the establishment of innovative ways of financing that reduce PtL fuels’ technology risks and drive cost reductions.
Regulators and policymakers: Introduce submandates or tailored incentives (e.g. ad-hoc funding) to drive uptake of PtL.
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