FORBES MONEY MARKETS Is Europe’s 2050 Sustainable Aviation Fuel Quota Unsustainable?

by Gaurav Sharma
Senior Contributor
I cover energy markets & sustainability often debunking risk premiums

If recent form is anything to go by, Europe’s airlines have been queuing up to buy sustainable aviation fuels (SAFs). And for good reason. That’s because the European Union wants the continent’s carriers to use progressively increasing amounts of SAFs.

The EU’s latest published ambitions have the assigned quota for SAFs usage within the 27-member economic bloc to increase to 70% by 2050, from a starting point of 2% in 2025. In the main, airlines have shown their willingness to respond in kind to the target.

Their overtures gathered momentum in 2019 and picked up further pace during fleet groundings caused by international lockdowns that followed the Covid-19 pandemic in 2020.

Many pledged to halve their carbon emissions by 2050 from 2005 levels by scaling up the usage of SAFs. International Airlines Group (IAG) – the owner of British Airways, Iberia, Aer Lingus, Vueling and Level – led the pack then and still continues to.

In February, IAG and Berkley, California, U.S.-based carbon transformation firm Twelve signed what the airline group described as its “largest” SAF partnership to date.

Under the deal, Twelve will supply IAG with 260 million gallons (nearly a billion liters or 785,000 tons) of synthetic aviation fuel e-SAF made from CO2, water and renewable energy, by deploying a next generation power-to-liquid technology. The 14-year agreement will see all of the group’s five airlines supplied with Twelve’s e-SAF.

Lufthansa Group, Air France–KLM, and Virgin Atlantic have also made loud overtures, and practically every major airline on the continent has made some foray or the other on the SAF front.

Unsustainable target

However, for all its combined efforts, the European industry will most likely fail in meeting the EU’s 2050 quota target, because the target itself is not very realistic, according to the boss of the company operating one of Europe’s largest airports.

Stefan Schulte, Chief Executive Officer of Fraport, the operator of Frankfurt airport, recently suggested the problem is not about willingness on part of the aviation industry, but rather that SAFs production just cannot keep up pace with the 2050 target and the trajectory for achieving it.

SAFs – typically made from bio-based manufacturing like wood chips, solid waste, biomass, used cooking oil or electrolysis of water using renewable power – have the capability of reducing the aviation industry’s carbon emissions by up to 80% when compared with conventional jet fuel.

They are considered to be key pillars for making the aviation sector more sustainable. “However, there is not enough sustainable fuel to meet the quotas,” Schulte said at an event on June 18. “Production is not ramping up fast enough,” he added.

Availability issues aside, procurement costs are pretty high too. At present, SAFs typically cost three to five times that of conventional aviation fuel. Unsurprisingly, they currently account for less than 0.5% of global jet fuel usage.

Pricing creates its own demand conundrum too with manufacturers remaining cagey about how much to invest in and production volumes to ultimately aim for in a capital intensive industry.

Therefore, oversupply remains as much of an area of concern for SAFs sellers as undersupply remains one for the buyers. Bridging the anxiety gap may just be up to the policymakers. Perhaps having more realistic targets might help.