Sustainable Aviation – how to get there

A long way to go
During the last decade, aviation has increasingly caused concerns about its impact on the climate, especially due to its emission of carbon dioxide, other greenhouse
gases and additional effects. Confronted with the rising pressure, the industry’s key strategy used to be “efficiency” – reducing fuel consumption per passenger or freight kilometre. Lately, an additional measure in terms of “compensation” has been added. Thus, ICAO’s target is to reduce “net emissions” of CO2 to 50% of the 2005 emissions by applying efficiency, new technologies and compensation mechanisms.

No alternatives to SAF
Currently, though, these strategies do no longer seem adequate to achieve the 1.5° climate warming goal of the Paris agreement. The EU wants to go further and aims at carbon neutrality by 2050. Limited by physical restrictions of energy density, the only direct measure for aviation to become truly carbon neutral is to substitute all fossil
kerosene with sustainable aviation fuel (SAF). However, this strategy is extremely costly and requires more than the usual political measures, such as R&D funding or mandatory quotas.
SAF is not a homogeneous type of fuel. It can be derived from a variety of different feedstocks and via various pathways, with many of them still in an experimental phase. The two basic pathways that are mainly pursued today are based on

• different types of biomass and waste products (bio-kerosene),
• sustainable sources of power (e-fuels).

Enormous complexity is a big stumbling block
These pathways differ widely in their technology readiness levels (TRL) and regarding the current and expected costs of the end product. So far, only some types of fuels have a certification for the use as jet fuel, and usually just for blending with fossil fuel. Heterogeneous and uncertain regulations in different countries regarding
feedstock, sustainability criteria as well as taxes and levies add even more complexity and limit the availability of this kind of fuel. Also, there is extraneous demand for some intermediate products of these pathways, e.g. hydrogen, methanol, biogas etc., which causes additional competition.
Today´s CO2 abatement costs when using SAF are extremely high: 300–1.000 € per ton of CO2 for agricultural or advanced bio-kerosene and up to more than 1,500 € per ton of CO2 for e-fuels. Technological development will probably lead to a substantial decline in unit costs. However, limited availability of sustainable biomass and challenging technological requirements for e-fuels (e.g. direct air capture processes, use of catalysts) suggest limits that will be hard to overcome. Thus, future costs may well remain around 500–800 € per ton of CO2 which equals 1,500 to 2,500 € per ton of SAF.

High prices are still the biggest hurdle
What does this mean – for the industry and for policymakers?
Today, fuel costs amount to 25% of an airline’s total costs. If the price of kerosene triples, this would lead to an increase of 50% in total costs. Even assuming an annual
efficiency increase of 1.5% , the cost increase would still amount to more than 20% in 2050. This price increase will probably have an impact on demand and competition. Airlines and policymakers have to be prepared for that.

Push strategy vs…
To boost SAF development and usage, governments currently try to stimulate supply, e.g. by setting national quota and by massive funding of R&D investments and operational expenses. But the focus on a national and government-driven push strategy involves significant risks for the transformation. It destroys the level playing field for airlines and does not take into account the heterogeneous structure of SAFs, leading to an inefficient allocation of resources.

… demand incentives…
Stimulating demand is another option. However, the current compensation multiplier of 1.2 for using SAF and CO2 emission certificates at prices of about 25 € per ton are economically not sufficient to stimulate demand. So far, the only cost covering
instrument is the offer of compensation vouchers for SAF to ecologically minded passengers and business customers. But the volume sold is still negligible.
So, all these options have major handicaps.

…vs “Alliance of the Willing”
There is a different approach that might be more promising: Governments should team up as an EU-wide “Climate Club – Alliance of the Willing” and set up a framework, processes and rules that will enable industry and entrepreneurship to manage this transformation on their own.
A clear target needs to be defined for a “carbon neutral and sustainable aviation in 2050 with economic health and fair competition in the global business,” as William Nordhaus states3.  
Key element is a robust framework for the transformation: a well-defined phase-out plan for fossil jet fuel up until 2050 with defined targets in between. This will automatically lead to an increasing demand for SAF. It will stimulate investors to fund the development of e-fuels and to invest in production plants. The phase-out could be steered via aviation-specific and exclusive EU ETS certificates. Monitoring and controlling processes could make use of the EU ETS MRV processes and institutions already in place.
Revenues from this ETS should go into a “European Aviation Fuel Transformation Fund” that is used to finance venture capital and contracts for difference for SAF. Airlines, investors, and regulatory bodies should jointly conduct auctions and tenders to procure SAF for overall European usage. Such a procedure is more flexible, allows for different technological developments and stimulates competition among the suppliers.

Pan-European solution is required
A Europe-wide solution should ideally comprise a European target/share for SAF and an overarching accounting mechanism to avoid intra-European market distortions and costly logistics for distribution. Political support to speed up processes in
certification and approval procedures is highly desirable. It is also needed to support investment in production sites outside the EU.
Given the outstanding importance of fuel costs for airlines’ operation and competitiveness in the global business, the transformation of the EU´s aviation
industry must be sheltered from non-complying competitors in non-participating countries. This could be achieved by a carbon border tax or non-tariff measures (e.g. reduction of traffic rights). After all, this is what a Club is all about: there are rules and benefits for its members. And if you are not a member you have to pay extra or stay out.   

Author: Bernhard Dietrich, Trade & Invest, Hessen State
   
We thank Mr. Dietrich for this contribution whose key points he presented to around 100 representatives of the logistics and air freight industry at the recent meeting of the Air Cargo Community Frankfurt. HS

1. 1 ton of kerosene causes 3,15 tons of CO2 emissions
2. 1,5% annual efficiency goal by IATA until 2050; actual gains 2010 to 2019 is 1%, see IEA Report on Aviation, Energy intensity of passenger aviation
3. See William Nordhaus; “Climate Clubs: Overcoming Free-riding in International Climate Policy” in American Economic Review 2015, 105(4): 1339-1370
4. A contract for difference covers the price difference between fossil fuel and SAF

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