Aviation sector sees greener fuel as crucial to net-zero goals

Nanna Baldvinsdóttir has become used to being inundated with unsolicited calls after speaking at industry conferences.

The co-founder and chief executive of Icelandic start-up IðunnH2 has something to offer that is in high demand across the aviation industry: plans for a commercial scale, sustainable aviation fuel (SAF) production facility. 

“I get cold calls afterwards,” says Baldvinsdóttir. “I am asked: how much? When?”

How to secure adequate supplies of SAF — low-carbon alternatives to conventional fuels — and at what cost have become two of the biggest questions for the aviation sector as it seeks to reduce its carbon footprint. 

Climate change poses a commercial threat to aviation, which accounts for 2-3 per cent of global carbon dioxide emissions. The sector’s visibility has made it a high-profile target of policymakers and environmental campaigners in recent years. 

“The sector needs to deliver,” says Tim Alderslade, chief executive of industry group Airlines UK. “There is no question that, if we fail to do so, governments will act to make aviation smaller.”

Airlines, aircraft manufacturers and other industry stakeholders have pledged to achieve net zero emissions by 2050 through a mix of new fuel technologies, including the use of SAF and hydrogen, as well as more efficient aircraft and engines.

Airbus, Europe’s aerospace and defence champion, has committed to flying a hydrogen-powered aircraft by 2035. The plane maker, along with US rival Boeing, is also exploring new aircraft designs. Meanwhile, government-backed initiatives such as the UK’s Aerospace Technology Institute are researching lightweight materials and wing technology. However, breakthrough technologies, such as hydrogen- or electric-powered aircraft, are still years away from being commercially viable. 

In the interim, the industry is looking at other levers to cut emissions. Better air traffic management is one. In the UK, for example, industry stakeholders are forecasting a 4.7 per cent reduction in carbon emissions through airspace changes by the middle of the century. 

Ian Jopson, sustainability director at Nats, the UK’s National Air Traffic Services — and the highest scoring company in this year’s Europe’s Climate Leaders survey — says improvements have already been made by using technologies that can reduce time-consuming holding patterns for aircraft above airports, and optimise the spacing between arrivals. 

“We have these things in our toolkit now,” says Jopson, adding that greater benefits will come from large-scale modernisation of the airspace. 

But the industry is placing its biggest bet on SAF as a way to reduce emissions in the near to medium term. It can emit as much as 80 per cent less CO₂ over its life cycle than traditional aviation fuel and, crucially, is largely compatible with existing engines. 

Last year, Virgin Atlantic became the first commercial airline to operate a transatlantic flight powered exclusively by SAF. And Airbus and Boeing have pledged that their planes will be able to fly on 100 per cent SAF by 2030. 

Looking further ahead, a review of 14 net zero transition road maps by industry group the International Air Transport Association found that they all assume SAF will be responsible for the greatest amount of CO₂ reductions by 2050 — contributing to between 24 and 70 per cent of the reductions needed. 

However, this wide range of possible contributions under the different road maps underlines the uncertainty over securing enough supply at an affordable price. SAF currently makes up less than 0.1 per cent of global jet fuel volumes and is at least three times more expensive. 

The sector needs to deliver. If we fail to do so, governments will act to make aviation smaller

Today, the majority of SAF is made from waste such as cooking oil and plants, but other sources include biomass that absorbed CO₂ when it was alive. In the longer term, the industry is also pinning its hopes on scaling up nascent technology to create synthetic SAF by combining CO₂ sourced from the air with so-called “green” hydrogen, which is derived from water using renewable energy. 

Thanks to its base in a country with access to ample supplies of renewable energy, IðunnH2 is promising to have a commercial-scale synthetic fuel facility in operation by 2028. The company will produce its “e-kerosene” by combining green hydrogen with CO₂ from the atmosphere or from an industrial source. Icelandair, the country’s national carrier, has agreed to take up to 45,000 tonnes of fuel from 2028.

So, IðunnH2, which launched in 2020, is already in talks with potential investors to help fund the next phase of development, which will decide the technical requirements and the overall cost of the project. However, despite the demand, funding SAF plants is proving a “bit of a challenge”, Baldvinsdóttir says. 

Airlines are typically not willing to sign up for offtake agreements for the fuel that are longer than 10 years. This makes it difficult to convince investors to back a project, as their time horizons are typically longer. 

Nikhil Sachdeva, global lead for sustainable aviation at consultants Roland Berger, says developing a business case for investors to come in is one of the hurdles for the nascent market. 

“An SAF facility will last up to 20-25 years, but airlines are not willing to sign up for longer than 10-12 year offtake agreements,” he explains. “What happens to the SAF producer when that agreement runs out and the technology has improved? It’s the curse of the earlier mover.” 

Another challenge, says Sachdeva, is that the regulatory landscape is “quite clunky”. 

In Europe, governments are introducing mandates to make airlines progressively to switch to using more SAF, while in countries such as the US tax breaks are spurring production.

In the EU, all aircraft fuel at EU airports will have to be blended with SAFs, starting at a minimum level of 2 per cent in 2025 and being increased every five years to reach 70 per cent by 2050. The UK government published its own SAF mandate earlier this year. 

“The demand is clearest in Europe, with massive fines, but production makes most sense at scale in the US or other regions with cheaper energy,” points out Sachdeva. 

In the UK, for example, investors and fuel companies have complained that they cannot start building SAF plants until the government is clearer on what kind of support it will give. So far, the government has announced a consultation on a “revenue certainty scheme” to guarantee a pre-agreed price for SAF. 

Luis Gallego, chief executive of International Airlines Group, recently welcomed the UK SAF mandate, but warned that “mandates alone are not enough”.

“Now is the time to support critical industries in the transition towards net zero,” Gallego wrote in an article for the FT. “Providing incentives for SAF to scale will in turn attract private sector investment, create jobs — and deliver long-term economic growth.”

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