How net zero aviation is preparing for take-off
Talk about headwinds: the paradox of the aviation sector is that few industries have worked so hard to reduce their environmental impact and yet have so much left to do.
Because fuel has always been the single biggest cost borne by airlines, they are constantly upgrading their fleets, optimising routes and shaving the weight of planes in order to reduce its consumption. By passing on virtually all those gains via lower ticket prices, they have spurred rapid traffic growth of some 5.3% per year since the 1990s. “While that is not a bad thing in itself of course, it has more than offset greater fuel efficiency”, points out Yann Sonnallier, Global Head of Aviation Finance at Societe Generale.
The result is that aviation’s carbon dioxide emissions have been increasing by around 2.5% annually – significantly less rapidly than air traffic (measured in revenue-passenger kilometres) or even worldwide GDP, but still growth in absolute terms – making the sector responsible for around 2.5% of global CO2 emissions. Most transportation emissions are tricky to deal with, but the kerosene burnt high in the atmosphere by jet engines counts among the hardest to abate.
Still, IATA, the industry’s trade association, committed itself to achieving net zero carbon emissions by 2050. The question is whether it is realistic and what needs to be done, in practical terms, to achieve this.
The first thing to keep doing, argues Mr Sonnallier, is renewing fleets. Each generation of aircraft is some 15-25% more efficient than the preceding one. Yet only about a fifth of today’s operational aircraft are from the Airbus 320neo/Boeing Max families (for narrowbody jets) or B787s/A350s/A330neo (for widebodies). Relentless upgrades should contribute to circa 10% of the global decarbonization effort by 2050. Meanwhile, optimising routes, integrating flight control systems – especially in Europe – and reducing emissions at airports from taxiing and ground handling operations is worth a few more percentage points.
The big gains – one half to two thirds of the total decarbonization effort – will, however, come from the switch to sustainable aviation fuel, or SAF. The challenge here is less the aircraft technology itself than the need for SAF production at scale and the investment required to build that scale. Early attempts to produce sustainable fuel by planting vast fields of crops like rapeseed actually turned out to be environmentally damaging. Today, most SAF is made by collecting waste like used cooking oils that is then converted into SAF and blended with traditional jet fuel (up to 50% today and soon more) and pumped straight into an aircraft’s wing tanks.
This ‘waste to wingtip’ process, is well established and can reduce lifecycle CO2 emissions by 80% compared to the fuel it replaces. The problem is that even if additional feedstock can be utilized, like municipal waste, there is ultimately not enough feedstock available to address the 2050 decarbonization objectives.
New aviation fuel sources (1)
There is a third generation of SAF in the making, also known as e-fuels (or power-to-liquids). These are produced with green electricity and carbon capture and there is therefore no limitation on the feedstock per se. However, building enough renewables and hydrogen capacity to produce that green electricity will take time, will require massive investment in renewable electricity production and hydrogen infrastructure, and is currently still very expensive.
Before last autumn’s energy price surge and the Ukraine conflict, SAF typically cost three to eight times as much as kerosene. The industry needs to invest around $10 trillion between now and 2050 to increase overall SAF production, including the retooling of conventional refineries, as well funding the development of new e-fuels technologies at scale.
Total required investment in aviation sector (1)
Another technology-led approach is to develop hydrogen- or battery-powered aircraft, with Airbus promising an H2-fuelled zero emission demonstration model by 2035, and other “disruptive” manufacturers are currently developing hydrogen and electrical aircraft concepts. While those technologies have great potential, the lead times are long and they will be confined to shorter haul models for many years to come, while the bulk of emissions are generated by long-haul flights. At best, this will contribute up to 10% of the 2050 decarbonization effort. That leaves somewhere between 5-20% which will have to be eliminated by carbon capture and offsets, such as planting forests or developing other carbon capture utilization and storage (so called CCUS) solutions.
So while reaching net zero in aviation is technically feasible, it will require unprecedented effort and cooperation from all value-chain stakeholders, ie. airlines, lessors, manufacturers and capital providers; strong government support, both in the form of sticks, like European rules to increase SAF blending over time and carrots like US tax incentives; and staggering amounts of money.
The good news, says Mr Sonnallier, is that everyone is now convinced that SAF is here to stay. As a result, big energy companies are investing in refining, not least as part of their own net zero journeys. Meanwhile, start-ups financed by private equity and venture capital are also developing SAF technology and building greenfield capacity. Some airlines, such as AF-KLM or JetBlue have been investing in these ventures even in the midst of the pandemic, demonstrating how strategically important it is for them to secure long-term access to new fuels.
The contribution of corporates as they reduce their own business travel will also be critical. This has already started with several solutions offered either by airlines or SAF producers (so called SAF corporate programs) and enables companies both to reduce their own carbon footprint and to support the development of the SAF ecosystem.
Still, when it comes to finance, much of the heavy lifting will have to be supported by traditional lenders like banks. It is notable therefore that six of the biggest in the aviation sector, including Societe Generale, alongside Bank of America, BNP Paribas, Citi, Crédit Agricole CIB and Standard Chartered Bank, recently launched the ‘Climate-Aligned Finance (CAF)’ project to set common standards to promote decarbonisation in the aviation sector – similar to the 2019 Poseidon Principles for shipping, which Societe Generale also helped found.
James Mitchell, a Principal at the Rocky Mountain Institute (RMI), which is developing the methodology behind the CAF framework, says: “These initiatives succeed if the most important financial institutions, industry players and NGOs support them. In that sense, Societe Generale has been enormously influential and is helping us recruit backers. The objective is to forge a common language between capital providers and their clients to make this decarbonization effort achievable.”
In the maritime sector, Mr Mitchell notes, the 11 original signatories to the Poseidon Principles have grown to 29, representing over half of senior shipping debt. Sister principles have been launched by marine insurers and charter companies and more than $2 billion of sustainability-linked financings have been issued in just two years. Aviation is just at the start of its journey but is likely to rapidly overtake shipping. Planes are faster than ships, after all.