IATA - Aviation Risks Ignored in SAF Discussions

There is growing frustration at IATA about the slow commitment from the oil industry to sustainable aviation fuels (SAF). While the quantities to be produced in the next few years seem to satisfy demand, the lack of financial commitment to expanding the production capacity is a concern. Hopefully, the general framework at the recent ICAO conference convinced investors to invest in SAF, but the energy industry needs to ramp up. That was the message of the International Air Transport Association (IATA) at Wednesday’s Global Media Day in Geneva, which was attended by AirInsight. Especially Marie Owens Roberts, Senior Vice President of Sustainability and Chief Economist, shared her frustrations with the media in what could be seen as an attempt to pressure the industry. But Owens Thomsen also threaded her words carefully, as IATA is fully aware that the airline industry isn’t getting nowhere on SAF if it distances itself from the oil industry. What’s the situation now? But where does SAF production stands now? With only a few weeks to go until 2023 is over, IATA estimated that between 0.45 and 0.5 million tons (Mt) or 625 million liters of SAF will have been produced this year. That’s 240.000 tonnes more than in 2022, so a doubling of production. That sounds great, but this could have been more without the lower output from several refineries. The 0.5 Mt of SAF also is just 0.2 percent of the 286 Mt of jet fuel used by the airline industry this year. Again, it is a doubling, but a very small one. Only three percent of all refinery output is for SAF. “When we say that in 2023 half a million tonne of SAF fuel has been produced, I hope you understand what kind of tiny, tiny little number that is,” said Marie Owens Thomsen. For 2024, IATA forecasts another doubling or maybe even tripling of SAF output to 1.5 Mt or 1.875 billion liters. That would represent six percent of refinery output and 0.5 percent of total fuel consumption, which is guided at 301 Mt next year. Incentives versus mandates Then there are the national and regional policies for 2030 and 2050, the year aviation wants to become net zero. For instance, the European Parliament voted on a mandate last year for two percent of SAF in 2025, six percent in 2030, 40 percent in 2040, and 85 percent in 2050. ICAO laid out a global vision during the recent CAAF/3 conference in Dubai for a five percent reduction in emissions from international flights in 2030. “When we do the analyses, we can project that in 2030, the emissions would total 682 Mt of carbon dioxide. To meet this vision, that means we would need to reduce emissions by 34 Mt through the use of SAF or Low-Carbon Aviation Fuels (LCAF). That would mean that we need access to 14 million tonnes of SAF,” said Hemant Mistry, IATA’s Head of Net Zero Transition. Ideally, IATA’s SAF roadmap that was published in June at the AGM in Istanbul mentions 24 Mt that should be required in 2030. Right now, national and regional policies around the world target the production of a combined 17 Mt of SAF in 2030. Most of that or 10.3 Mt is coming from incentive schemes by governments and collaboration between energy producers, with the US incentivizing 9.0 Mt mainly through the Inflation Reduction Act and the SAF Grand Challenge. Canada is responsible for 0.8 Mt and the UAE for 0.5 Mt. The remaining 6.7 Mt should come from mandates, notably in the European Union under the ReFuelEU program that is part of the Fit for 55 projects: 3.5 Mt. The UK is committed to 1.2 Mt of SAF production, Japan 0.9 Mt, the Nordic countries in Europe 0.5 Mt, India 0.4 Mt, and Brazil to 0.2 Mt. Mistry reiterated IATA’s position that it prefers incentives over mandates, as it thinks the former is more effective. He referred to the SAF Grand Challenge project: “There is a good mechanism as you have all the major players involved. You have got feedstock providers, you have got producers, suppliers, and airlines, all collaborating with the government to define how best to ramp this up and where that investment needs to be made. But we equally need to see mandates to be successful. Just because you have a mandate doesn’t mean that you have the production volume. This is a misconception in many cases,” said Mistry. “Ideally, what we want from any policy measure is the progress towards functioning markets for SAF supply and availability. That is what we need, that is the goal.” This commitment to 17 Mt of SAF through incentives and mandates corresponds with around 13 Mt that airlines will require in 2030. IATA identifies 43 airlines that are committed to between 5 and 30 percent SAF uptake in 2030, with most of them committed to around 10 percent. They include airlines in most parts of the world, but US and European carriers and at a level scale a number of airlines spread around Southeast and South Asia are in the lead. IATA is optimistic that supply will be able to meet demand. Mistry showed that the oil industry has committed to 63 Mt in production capacity for renewable fuels by 2030. Again, North America and South America are leading the world with a projected capacity of 32.32 Mt, again thanks to coordinated policies built on incentives. For the EU and UK, the number is 14.35 Mt, while Southeast Asia and Australia intend to produce 10.41 Mt. Northeast Asia is guided at 3.69 Mt, the Gulf region and Africa at 2.42 Mt. “Some of these projects may fail, some new ones might come in. But this is a good baseline for us, but the key question is: what is the output of SAF? If we can head towards a cut of 30 percent, that not only would be a good ambition in terms of demand and expectations. It also aligns with what would be the optimum output in the HEFA refining process,” said Mistry. Again, this year, output will be just three percent. HEFA stands for Hydroprocessed Esters and Fatty Acids and is the technology or pathway used to produce SAF from cooking oils and other fats. It is the dominant production method. IATA and other analysts warn that the feedstock for HEFA is not unrestricted and insufficient to satisfy long-term demand. That’s why Mistry and Owens Roberts said that the industry urgently needs to adopt other pathways that are already available but often more expensive, like Alcohol to Jet (ATJ), Fischer Tropsch, and Power to Liquid (PTL) but other pathways as well. Mistry stressed that IATA’s criteria for SAF rule out feedstocks that are competing with food production or have other adverse effects on nature and water requirements. However, SAF made from coal to ethanol, as Virgin Atlantic partly used on its 100-percent SAF flight from London to New York on November 28, doesn’t seem to meet sustainability criteria. “What is important is for us is that we are able to uphold the stringency for SAF on a global scale. This will have to be coordinated within ICAO, but we will see how this develops overall.” Lack of progress from the oil industry So while there is reason for optimism, IATA is concerned and frustrated by the lack of progress made on SAF output. Hermant Mistry warned that aviation is in danger of becoming “the forgotten cousin”, in which other sectors get support and aviation is forgotten. This situation could occur if incentives to produce sustainable fuels like bio-diesel for cars and trucks get priority over SAF for aviation. “It is really important that aviation has balanced incentives compared to other renewable fuels. Otherwise, we will not get what is the optimum output in terms of SAF from the refineries. It is a pretty obvious argument but unfortunately, it is not what is being looked into right now. We need all stakeholders to sit back and say: how do we make this work for aviation as well as for other sectors?,” Hemant Mistry explained. This is not what’s happening right now. As Marie Owens Thomsen pointed out, the oil and gas industry is not stepping up efforts to invest more in SAF production capacity. The $20 billion invested in 2022 represents just three percent of the total capital budget and just one percent of what is globally invested in clean energy. To meet demand, the aviation sector would need $150 billion per year of the $800 billion in oil and gas investments the companies are making this year. “What they have spent on distributing dividends to their shareholders and buying back their own shares is multiple times that. I am sorry if the outrage in my outrage is tangible,” she said. “This clearly has to change. We (as the airline industry) are on our own not large enough to motivate that change, because aviation represents only about eight percent of refining output. So they can totally go ahead and profit-maximize without us. Somehow, we have to make that change.” Owens Thomsen noted a change among ICAO member states at the CAAF/3 conference. They seem to realize that they have to act to make sure the airline industry can be the target for sustainable fuels: “I have heard so many times that airlines have to de-risk the investments so that the oil and gas companies are going to invest in renewable energies. That just doesn’t make sense. Their net profit margins are between 11 and 13 percent, ours in the low single-digit at 2.6 percent. How on earth can it be up to the airline industry to de-risk those investments? It has to come from the member states. On that score, it is really welcome that the member states at CAAF/3 have imposed some kind of pressure upon themselves. In that sense, we are pleased with the outcome of the ICAO conference.” Accounting system One element of the CAAF/3 global framework of which IATA is happy is the introduction of a SAF registry and accounting system. “We really need a system that allows all airlines to use their SAF purchases for claims against their decarbonization obligations. Today, there are decarbonization obligations under the ICAO CORSIA offsetting system and the European Union’s Emission Trading System ETS. We can anticipate that there will be more such systems in the future. But if all airlines need to be able to use their SAF purchases against these obligations, not only the airlines that are lucky enough to be located in a country or on a continent that produces the physical SAF,” said Owens Thomsen. “The accounting system can separate the production and physical delivery of the fuel from the environmental attributes of that fuel. You could be an airline in Africa and buy SAF from a producer in Singapore and get a certificate with the environmental attributes of the purchase that you made. The atmosphere doesn’t care where we use the SAF, it is beneficial to everybody.” Even when the energy and oil sector will put their weight behind SAF, meeting the targets remains challenging. Demand in 2050 is expected to grow to 500 Mt per year. “We are going to need a 1.000 more times of 2023 output. That is the phenomenal challenge that we all face. Many think this is absolutely not possible, certainly those who think that we will only rely on the current production process of HEFA. That’s why we need to multiply these production processes and develop new ones,” Owens Thomsen stated. Mistry said: “There is a lot of action that is required, from ourselves as the airline association and the airlines, and from different stakeholders, including governments. We will continue to push on that, but we do see a very workable trajectory to get there.” So where does the industry stand, taking into account that the world is currently discussing climate change and the need for action at COP28 in Dubai? Is aviation getting somewhere? “This is the cup half full, half empty-question. It is definitely more empty than full. I really don’t know that the world needs to realize that this (ramping up SAF production) is urgent. The only explanation I can find for the delay in making more accelerated progress on renewable energies is the profits you can make from oil. The investment proposition has to be attractive. ESG investing and ratings only intervene at the margin when you have two equally attractive investment propositions to choose from. Then you would choose the one with the best ESG matric, otherwise you would choose the most profitable one. This has to change, although it has changed since the war in Ukraine.” “When it comes to becoming net zero by 2050, 26 years still seems very, very long for most people, whereas for our industry where we are trying to get there, we can totally feel that fire under the soles of our feet. We are in a hurry.”

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