Sustainable Aviation Fuel: Momentum Accelerates

Looking ahead, what are the key barriers to a transition to Sustainable Aviation Fuel?

By Prabhu Rajamani
Published October 6, 2023 | 5 min read

Key Points

  • As aviation fuel consumption rises, Sustainable Aviation Fuel (SAF) represents a promising growth market capable of facilitating the widespread decarbonization of the aviation industry.
  • Multiple technology pathways are currently in development to produce SAF – the processes are still in early-stage in terms of large-scale development, but momentum is accelerating.
  • A number of major airlines have committed to sourcing SAF by the end of the decade.
  • While some mandates and policies exist worldwide, continued governmental support is needed to ensure the aviation industry and fuel producers receive necessary incentives.
  • Looking ahead, what are the key barriers to a transition to SAF?

Sustainable Aviation Fuel (SAF) is renewable jet fuel that could reduce aviation lifecycle emissions by up to 80%[1]. SAF provides an alternative to fossil fuels and is generally made from organic feedstocks, such as used cooking oil, soybean oil, and waste fats from the meat industry. Additionally, alternative feedstocks can potentially be sourced from Municipal Solid Waste (MSW), forestry waste, ethanol, and CO2 through direct air capture. While the nascent SAF market faces multiple challenges, including cost, scale, and policy support, there are strong signs that momentum is accelerating. A number of airlines - including United Airlines, American Airlines, and Delta Airlines have made substantial progress to source SAF; as regulatory requirements around net-zero emission targets expand globally, the importance of decarbonizing the aviation industry is only growing. 

Currently, SAF offers the sector the only realistic near-term option to significantly lower emissions, so can we expect to see key airline players committing to developing this technology? And what role will both public sector incentives and consumer demand play in the transition?

The runway to SAF

There is growing investment in the future of SAF, in part because of its potential to decarbonize the aviation industry where other technologies such as electric planes can’t yet provide a solution: the batteries needed to power flight are currently not capable of sustaining long-distance flights; and hydrogen, posed as another potential solution, may only be feasible to fuel shorter flights or smaller aircrafts in the medium term.

Despite technology being in the early stages, there are a number of pathways to producing SAF; some more effective than others. The most widely used and efficient is a technological process called Hydrotreated Esters and Fatty Acids (HEFA). This meets a key requirement of SAF technology: its ability to act as a “drop-in fuel,” fitting into existing infrastructure without requiring costly and energy-consuming changes to engines and equipment. SAF produced using the HEFA process refines waste feedstock that comes primarily from the meat industry, where animal fat and waste is produced – converting this waste into fuel. Used cooking oil is also one of the most well-established resources and soybean oil makes up a large portion of feedstock sources. However, feedstock availability remains a concern and relying on a limited supply of waste products from other industries and aggregating these waste products has been challenging to scale. Currently, multiple fuel producers, including Valero, Chevron, Neste and World Energy, use this technology for the production of renewable diesel and SAF.

The production of SAF using Alcohol to Jet (AtJ) technology is a promising area where the availability of corn-based ethanol is abundant and there are existing syngergies with the downstream refined fuels market. Other production pathways include Power to Liquid (PtL) where renewable energy and C02 are used to generate SAF. What remains to be seen is how broadly will these technologies get adopted and how scalable they can be to produce sufficient volume. It is widely believed that the development of multiple technologies is essential to meet global demand in SAF and while there will be certain advantages of using some technologies over others they will likely co-exist – some in large development formats and some in niche formats.

SAF sourcing on the rise

Multiple airlines signed offtake agreements or memorandum of understanding (MoU) with SAF producers in the first half of 2023, with most deliveries expected to begin by 2025. Notable commitments include United Airlines, which has committed to buying almost a billion gallons of SAF, British Airways, Boeing, Airbus, and many other major airlines. The UK’s low-cost carrier has also invested in a bioenergy plant in the UK, which will use household waste as feedstock. It aims to procure 200 million liters of SAF over a 15-year period beginning in 2027. Similarly, Malaysia Airlines’ parent company will source 230,000 tons of SAF from 2027, and from 2029 Hawaiian Airlines will receive 50 million gallons of SAF over a five-year period. Meanwhile, a partnership between Thai Airways, and the Bangchak energy company will see investment in the production of SAF from cooking oil. Feasibility studies for the use of SAF in commercial flights are also taking place in China, Japan and India.[2] The uptake of SAF will also be facilitated in jurisdictions where appropriate incentives are in place. The EU has agreed on SAF targets as part of its Fit for 55 green transition plan and India and Japan may soon implement SAF mandates.[3]

The aviation sector is expected to drive oil demand in the near future, with increases in jet fuel predicted to double by 2050, due to increased air travel. As a result, emissions from the international aviation industry are soon to exceed the UN’s CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation) baseline.[4] But, as of 2021, SAF accounted for less than 0.1% of global aviation fuel demand,[5] largely due to the limited availability of SAF today. Annual demand for jet fuel is currently around 100 billion gallons and this is only growing every year. The addressable market for SAF remains large and whether production can keep up with demand is yet to be seen.

Scaling up solutions

So, in what ways can production scale up to meet demand? While SAF and more broadly renewable fuel production relies heavily on government subsidies and incentives being in place, consumer buy-in will also be key as any additional costs in the procurement of SAF must be adequately priced into ticket prices to work effectively. However, airlines are sensitive to the potential impact of ticket pricing on their margins. But, giving the consumer an option to choose between a regular ticket and a SAF ticket may ultimately drive a lot of demand and further support production. While the economics are yet to play out, many large corporations in a variety of industries including technology, airline manufacturers, and financial institutions have publicly stated their commitments to procuring SAF.

Seeking sustainable mandates

While government incentives exist, increased policy support worldwide is necessary to help facilitate the transition to SAF — particularly considering that the cost of producing SAF is substantially higher than conventional jet fuel. Moreover, big fossil fuel players are unlikely to make the switch without regulatory requirements in place, and consumer engagement will also be important.

For SAF, barriers to widespread production and adoption remain. These include challenges around cost, scale, regulatory approval, additional policy support, and global competition for limited feedstock. There is no one fix to these challenges. Everything must work in parallel: the feedstock must be cheaper, the supply of feedstock should be abundant, and the technologies should be able to produce fuel economically and at scale.

Working together economically may drive symbiotic relationships between a feedstock producer and the refiner that produces fuel. There have been a series of joint ventures between the agricultural industry and the energy industry to co-develop renewable fuels from organic feedstock. Concerted global efforts to overcome these challenges are needed, and the potential benefits of SAF for both people and planet means the technology requires timely investment to facilitate the large-scale decarbonization of the aviation industry.

SAF is the only way to pursue a large scale decarbonization of the aviation industry, and we need to do it now. There are more planes flying today, and more people will continue to fly. The time is now.

[1] ‘Sustainable Aviation Fuels: Pathways to Production’, BloombergNEF, 2021.
[2] 1H 2023 Decarbonization Outlook, BloombergNEF
[3] 1H 2023 Decarbonization Outlook, BloombergNEF
[4] 1H 2023 Decarbonization Outlook, BloombergNEF
[5] ‘Sustainable Aviation Fuels: Pathways to Production’, BloombergNEF

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Prabhu Rajamani
Prabhu Rajamani
Managing Director, Energy Transition, RBC Capital Markets

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