The Sustainable Aviation Fuel Market
Aviation is a fast-growing source of emissions, and it is one of the most difficult to control. The airline industry pledged to achieve net zero carbon emissions by 2050. However, this will be a challenge, as it will take until the 2040s for a significant number of electric and hydrogen aircrafts to be in operation. More time is required to make electric and hydrogen vehicles widely available. Because of this, emissions reductions in the near future will largely come from replacing the 450 billion litres of the kerosene that is used today with sustainable aviation fuel (SAF).
What exactly is sustainable aviation fuel?
SAF is a biofuel produced from sustainable feedstocks, such as solid waste from commercial or residential buildings that would otherwise be incinerated or end up in a landfill, forestry waste, and waste oils from animals or plants.
However, while it may be the most cost-effective way of increasing sustainability, there are problems with deriving SAF from food crops. There is the potential for SAF to catalyse a surge in deforestation as land is cleared to create a more habitable environment for bioenergy crops. This could threaten both food security and biodiversity.
Palm oil is a particular problem. The European Union has banned the use of palm oil for aviation fuels and biodiesel from 2030. As of now, it is unclear whether other jurisdictions will follow suit. Indonesia, for example, has plans to increase their production of aviation fuels made from palm oil to commercial volumes.
To resolve this issue, some companies are devising ways to produce their own alternatives, such as making jet fuel from captured CO2. LanzaJet, an Illinois-based airline, is doing this with the CO2 they capture from a steel plant in China. The airline has also started an operation that will produce jet fuel from ethanol at a plant they will open in Georgia in 2023. Investors like Shell and British Airways have already backed this project.
Microsoft also announced plans to invest $50 million in the Georgia facility. In addition to this, they pledged to power Microsoft data centres with the renewable diesel produced by the plant.
Chair Jennifer Holmgren believes LanzaJet could potentially supply one third of the over 13 billion litres of SAF the US hopes to produce by 2030.
How will SAF become more mainstream?
While SAF results in reduced carbon emissions, it is more costly than traditional fossil jet fuel. In fact, it is currently two to five times more expensive. Given that the use of SAF is currently at just 100 million litres, it will need to be dramatically scaled up. Policymakers, corporations, and biofuel companies are increasingly committing to reducing emissions, which will work to make SAF more widely used.
Evidently, policy is crucial when it comes to making SAF ubiquitous. Last year, the European Union proposed a law that would require fuel suppliers to include SAF in the fuel supplied to airports in the EU. This would progressively increase SAF use from 2% in 2025 to 63% by 2050. The UK plans to hit 10% SAF use by 2030.
Contrastingly, airlines argue that policy alone will not be sufficient in driving uptake. In order to make up for the high price point of SAF, incentives will also be necessary. The US added a blenders’ tax credit to the infrastructure bill that passed in November 2021. Biden’s administration challenged the industry to replace 5% of demand for conventional jet fuel with SAF by 2030. This would add over 10 billion litres of SAF to the overall production in the US.
The private sector is arguably pushing the hardest for SAF. Companies are realising that aviation emissions contribute significantly to their carbon footprint. Thousands have already committed to net-zero. For example, at last year’s COP26, Deutsche Post DHL partnered with a Finnish renewable fuel company. The partnership allows for 200 airfreight flights a week to fly on SAF from England’s East Midlands Airport.
The SAF market
The demand for greener aviation is growing. By 2026, the sustainable aviation fuel market is expected to grow to 5.6 billion USD. That is a 1.4 billion increase from 4.2 billion USD in 2021. The Clean Skies for Tomorrow Coalition, an alliance with 60 members, specifically formed to achieve the goal of powering global aviation with 10% SAF by 2030.
Of course, aviation has faced numerous challenges throughout the past two years due to the pandemic. But as business continues to pick up, reducing the aviation industry’s carbon footprint will help give green-compliant airlines a competitive edge when consumers are making investment and travel choices.
Private Client Consultancy puts sustainability at the centre of our investment process. You can read our sustainability commitment here. If you have any questions about how we can help you diversify your portfolio, contact us today.