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Aviation has moved center stage in the climate change debate. A
major challenge for the aviation industry is how to simultaneously
meet the increased demand to move people and goods by air while
also decarbonizing. In its study on the future of aviation,
Reinventing the Aircraft, IHS Markit expects the demand for
aviation to almost triple between 2018 and 2050. At the same time,
the International Air Transport Association (IATA) has set an
aspirational goal to halve CO2 emissions generated by international
aviation by 2050, compared with 2005 levels. Unlike other
industries where there are multiple viable decarbonization
pathways, the options in aviation are limited - not only by
economics, but also by what is physically possible and can be
certified as safe in time to be commercialized at scale before
2050. These challenges have resulted in a focus on sustainable
aviation fuels (SAF) as the primary mechanism to ensure in-sector
decarbonization1 by the International Civil Aviation Organization
(ICAO), the United Nations body that oversees international
aviation.
Today the bulk of fuel demand in aviation is kerosene.
International aviation demand is approximately 4 million barrels
per day (b/d), with domestic aviation accounting for a further 3
million b/d. IHS Markit estimates that total CO2 emissions from
international aviation are approximately 600 million tons, close to
1.5 times the 2005 levels. SAFs have the potential to curb
emissions from the sector due to their lower carbon intensity.
There are essentially two main SAF options. One possibility is
biojet fuel made from agricultural or waste feedstock using various
production pathways. A second option is low-carbon intensity
synthetic fuel, made from hydrogen. This fuel is produced via
large-scale electrolysis, which is fed by renewable energy and
carbon, captured either directly from the air or from a
concentrated source such as a large industrial installation.
Low-carbon intensity synthetic fuels have the largest potential to
reduce CO2 emissions from aviation due to their very low -
potentially zero or even negative - carbon intensity. In fact, the
IHS Markit study found that if the aviation sector is to achieve
the aspirational goal of a 50% reduction in CO2 emissions by 2050
versus 2005 levels via in-sector developments, low-carbon intensity
synthetic fuels will have to account for a significant share of
fuel demand in 2050. However, the key technologies required to
develop these fuels at scale - large-scale electrolysis, direct air
capture of carbon, and carbon capture and storage - are still
either unproven at scale or prohibitively expensive. Although this
is expected to change in time, these challenges mean that in the
short to medium term, biojet will be the most viable SAF
option.
Biojet can take several forms and can be categorized by both
feedstock and production pathway. To date four biojet pathways
(leading to six sustainability certifications) have been approved
by standards organization ASTM International2 for blending with
conventional jet fuel as outlined in the table.
IHS Markit estimates that the current demand for SAF is
approximately 150 thousand tons per year, well less than 1% of
total aviation fuel demand. Today, beyond the mandated levels in
Norway and Sweden, uptake of SAF has been very limited. SAF demand
under the US Renewable Fuel Standard (RFS) amounts to volumes
contracted by United Airlines in California, while demand in the EU
has so far been limited to volumes associated with marketing
initiatives launched by certain airlines, such as KLM and SAS. The
reasons for the limited uptake of SAF are threefold: SAF are more
expensive than conventional alternatives, there is limited
dedicated production capacity, and existing regulation incentivizes
or mandates pushing biofuels into the road sector.
For SAF to take off, regulators need to create a framework that
mandates their use and incentivizes production of biofuels for use
in aviation. The ICAO previously tried and failed to implement a
global SAF blending mandate. However, regulators at the regional,
national, and local level are starting to develop policies to
support the penetration of biojet. Aviation is included in the EU's
Emission Trading Scheme (ETS) and SAF made from non-crop feedstock
can also be used to meet the targets under the EU Renewable Energy
Directive (RED I until 2020; RED II for 2020-2030). Norway and
Sweden have also imposed SAF blending mandates to cut greenhouse
gas (GHG) emissions from aviation. In the US, SAF can be used to
meet the advanced biofuel targets under the Renewable Fuel Standard
(RFS), a federal mandate for the road transport sector. In
California, the Air Resources Board (CARB) has approved a pathway
that allows the voluntary use of hydroprocessed esters and fatty
acids (HEFA) under its Low Carbon Fuel Standard (LCFS). This
cap-and-trade system targets a 7.5% decline in the carbon intensity
of its transport fuel emissions from 2010 levels by 2020 (-20% by
2030). In Southeast Asia, governments and researchers are
discussing the use of palm oil in aviation, although this remains a
highly controversial pathway for many airlines and aircraft
manufacturers.
Although directionally positive for SAF, most of these policies
stop short of imposing the mandates that will be necessary to boost
demand for SAF. Even if that were to happen, regulators would also
need to consider that SAF supply has been limited. In fact,
standalone SAF plants are hard to find. Part of the reason for this
is that although large volumes of HEFA could be supplied by various
hydrotreated vegetable oils (HVO) plants3, legislation currently
incentivizes the use of these biofuels in the road transport
market. They also compete there with fatty acid methyl esters
(FAME) and other liquid biofuels. Worldwide, more than 5 million
tons per year of HVO production capacity is available. Part of that
could switch to SAF, but only if regulation is supportive.
Despite the headwinds, the number of standalone projects with
industrial-scale SAF production has grown in recent months. IHS
Markit identifies two projects in the EU: the Altalto project in
the United Kingdom, which is due to produce SAF from 500,000 tons
of solid waste per year and is backed by Velocys, British Airways,
and Royal Dutch Shell); and the Delfzijl project in the
Netherlands, which has a planned output of 100,000 tons per year
and is run by a consortium consisting of SkyNRG, the Amsterdam
Airport, and KLM. In the US, fuel ethanol and isobutanol supplier
Gevo is targeting industrial-scale alcohol-to-jet (ATJ) production,
and BP and Fulcrum BioEnergy are building a waste-based SAF plant
in Nevada.
Theoretically, global SAF production could be significantly
higher than today's 150,000 tons per year. However, legislation
will also have to secure feedstock. This mainly relates to the
waste feedstock category in the EU and partly also to the US. In
terms of tonnage, IHS Markit estimates that more than 10 million
tons of biodiesel were produced from waste feedstock worldwide in
2018. Of this, almost 4 million tons were made from used cooking
oil (UCO). Increases are expected, especially in the EU, where the
RED II asks for higher renewable energy shares with caps for
crop-based products.
The bottom line: despite biofuel-derived SAF currently being the
sole viable route to in-sector decarbonization of the aviation
sector, regulation does not currently support either the production
or use of biojet in the aviation sector. As a result, a quick
build-up of SAF plants cannot be expected. If the road sector
electrifies faster than expected, some biofuel currently being
blended into road fuels could be rediverted to the aviation sector.
However, at the moment, this is more a faint opportunity than a
credible growth story. In the longer term, if biojet and SAF more
generally are to gain a significant share of the market, usage
mandates will be required. 1-The ICAO is also proposing a
market-based mechanism, the Carbon Offsetting and Reduction Scheme
(CORSIA) as a means to offset emissions from international aviation
outside of the sector. 2-ASTM D7566 Annexes 1-6 3-The often-used
term HVO is misleading as these plants also process other feedstock
like animal fat, UCO, etc.
Claus Keller | Senior Commodity Analyst
Daniel Evans | Vice President - Head of Global
Refining and Marketing Research, IHS Markit
Posted 06 March 2020 by Daniel Evans, Vice President, Global Head of Refining and Marketing, S&P Global Commodity Insights
As the markets evolve, so do we. That’s why IHS Markit Energy & Natural Resources and S&P Global Platts merged to f… https://t.co/jM7Fdk3a5Y
Jun 08
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