Can new EU policy finally unlock sustainable aviation fuels?
In January, as part of its “Fit for 55” climate and energy package, the European Commission proposed legislation to ensure a level playing field for sustainable air transport. The ReFuelEU Aviation initiative was designed to overcome some of the market barriers faced by sustainable aviation fuels (SAF).
The proposal is currently making its way through the legislative process, with liberal Danish MEP Søren Gade, lead on the dossier in the European Parliament, publishing his recommendations in February 2022.
Energy monitor spoke with Thorsten Lange, head of renewable aviation for Finnish oil company Neste, about what the industry would like to see to increase the adoption of sustainable aviation fuels.
What is Neste doing in the field of sustainable aviation fuel? Is there confidence that this is a growing business?
People understand that there’s something wrong with flying if you’re not working on the sustainability side, so we’re stepping up our sustainable aviation fuel business. Before 2020, we had rather limited volumes [of SAF production capacity] available for production at our refinery, but this will change dramatically at the end of Q3 2023 when we have a refinery in Singapore [turning renewable raw materials into renewable fuel]. This will be enriched by an additional 500,000 tonnes
This is an option. If the [EU regulatory] framework for sustainable aviation fuels does not exist, we still have the capacity to produce renewable diesel [for road transport] in the same refineries. It cannot be taken for granted that every producer will jump on the sustainable aviation fuel bandwagon. Ultimately, we are also responsible to investors. Anything we can’t do on the aviation side, we’ll do on the renewable diesel side. The Rotterdam refinery is currently being modified so that it can also produce SAF within the existing capacity. This gives Neste the flexibility to produce SAF or renewable diesel.
We are [a fuel supplier] at Singapore, Amsterdam, Frankfurt and Munich airports with a branded distributor partner in Tokyo. There are other upcoming airports that I cannot reveal yet. We will certainly also do a white label activity where we will resell our [SAF] product to other distributors.
We want to provide [airports] with the possibility of making sustainable aviation fuel widely available, but we also want to help companies meet the [sustainability] mandates that engage. In France, Norway and Sweden, they already exist. There are not too many producers who can meet the requirements, but we are ready and willing to supply them with sustainable aviation fuel.
The EU is currently discussing how sustainable aviation fuels can be incentivized. What do you think of MEP Søren Gade’s draft report published in February?
We fully welcome ReFuelEU Aviation’s approach. The whole “Fit for 55” package is heading in the right direction. [But] we also believe that the level of mandate that everyone is aiming for is not ambitious enough – 2% [sustainable aviation fuels] in 2025 will not generate the demand we need to launch a sustainable, successful and widespread aviation fuel business.
That said, increased production requires a pool of raw materials that allows you to produce enough fuel. Here we see the ReFuelEU proposal being stricter than what the EU itself has introduced so far with its revision of the EU Renewable Energy Directive [because it’s a proscriptive regulation rather than a goal-oriented directive]. This is what we believe is appropriate and should be used for sustainable aviation fuels. I don’t see the need for a stricter aviation regime. This would create too much difficulty for the industry and would not trigger additional investment.
Sustainable aviation fuels can be blended with normal fuels, but the cost is still too high to make this economically viable. What do you need from decision-makers to scale up deployment?
We need certainty. There are different patterns that we see globally. The EU has a mandate-based approach. This is the right way to go, to hold the aviation sector accountable for its own emissions. It won’t make sustainable aviation fuels cheaper, but it will help drive demand. Compare that to the US market [which has market incentives].
European airlines say US-style incentive market [Renewable Fuel Standard] that’s what we need, with a low-emission fuel standard and a tax credit for incorporating sustainable fuel.
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What people don’t understand is that this [money] comes from a mandated sector, the road sector. The road sector finances the aviation deficit. This does not further reduce greenhouse gases (GHGs) because you are only replacing diesel with sustainable aviation fuels. The mandates, on the other hand, would increase the overall price of fuel and the industry would have to bear the extra cost itself. Currently there is no additionality because behind the scenes the renewable fuel standard facilities are used for SAF, but when, for example, at the federal and state level, incentives are adopted to bridge the gap between renewable diesel and SAF, this could help provide additional GHG reductions and encourage the production and use of SAF.
There is a desire from passengers and businesses to make up the difference. HEFA [biofuel] the technology we currently use is by far the cheapest alternative fuel. It’s not cheap, but compared to others, it’s cheaper. We have to push the [airline] industry to invest in sustainable fuels. If we make a rough calculation, adding 1% sustainable aviation fuel generates a price difference of between €1 and €1.30 [per percentage of SAF blended with fossil jet fuel and per ticket]. It’s 10 to 15 € more for a ticket. In relative terms, it’s not that much. The price gap between fossil and alternative fuels is huge, but that does not take into account the GHG costs of these fossil fuels.
Do state subsidies in the form of fossil aviation fuel tax breaks discourage investment in sustainable alternatives?
I do not think so [increasing taxes on fossil aviation fuel] is the right way to go. At European level, this would generate too many distortions compared to competing areas. Where the cost of fuel would significantly increase total fuel costs, airlines always have the option of taking more fuel to other locations outside of Europe where fuel might be cheaper. Taxation never helped get things started. Can you be sure that once the taxes have been collected, you will be able to delimit them? Where are they going? I think it’s better to encourage the use of sustainable aviation fuel than to put an additional burden on fossil fuels. The aviation sector has been suffering for two years now [due to Covid-19], and now we have the war in Ukraine. Raising taxes would not help.
How do sustainable aviation fuels compare to other alternative fuels like electrification and hydrogen fuel cells?
Electrification and hydrogen are part of the equation, but it’s important to understand that with electrification you have a weight issue. How much power can you supply with what weight is the key to electrification. I clearly see a role for electric flights over short distances, but that does not help our GHG problem. Only 25% of flights are short-haul and generate 3 to 4% of emissions.
On hydrogen, we’ll see hydrogen planes from 2035, I think. More importantly, you need new infrastructure. If you understand that the aviation industry has taken 30 to 40 years to build adequate fossil fuel infrastructure, you can see the challenge. It will be there, we need it, but it will play a limited role. What I can see is that we’re moving from hydrogen to e-fuels, and that’s just another type of sustainable aviation fuel because it’s an instant fix. The course is already certified, audited and free.
The International Air Transport Association projects that 63% of GHG emission reductions in aviation will come from sustainable aviation fuels in 2050, which means the remaining 37% is hydrogen, electrification, efficiency gains and optimization of air traffic management.
How do you respond to those who suggest that sustainable aviation fuel is being used by airlines as a fig leaf to resist the obvious alternative, which is that we all fly less?
The straightforward answer is that flying isn’t the problem, it’s the exhaust. If you replace fossil fuels with sustainable fuels, you have the solution. I always believe that aviation is not only a bridge between cultures, it is a peacekeeper. Coming out of Covid, we see how quickly aviation is picking up.
Aviation will not reduce, especially when it comes to long distance. Even with short haul flights, if you plan to replace flights with 3-5 hour train rides, people don’t calculate the full cost. If you replace a Hamburg-Munich flight with a train journey, you must add an additional overnight stay, with a cost and with emissions. Why not put that money for the extra night in the plane ticket, making sustainable aviation fuels immediately available?
I don’t think we should fly less; we need to fly more consciously. There’s room for improvement, but we’ll see more flight, and for good reason. The forecast is that we will return to the old growth trajectory in 2024 or 2025. There is nothing wrong with that if we mobilize to produce enough [sustainable] nurture and provide a regulatory environment that keeps sustainability criteria high on the agenda.
In the Clean Skies for Tomorrow Coalition, we have pledged to produce two million tonnes of [sustainable] raw material available. If you look further into the future, to fully replace fossil fuels with sustainable aviation fuels by 2050, to me the path is pretty clear and we can fly more sustainably.