ICAO's carbon offset scheme fails to promote sustainable aviation fuel use

Under the Carbon Offsetting and Reduction Scheme for International Aviation, also known as CORSIA, the International Civil Aviation Organization allows airline to either acquire carbon credits or use sustainable aviation fuels that meet its environmental standards.

In May, Neste delivered the first batch of CORSIA-certified SAF to American Airlines at San Francisco International Airport and claimed the fuel could achieve up to 80% reduction in lifecycle greenhouse gas emissions versus kerosene-based jet fuel.

But the Finnish producer sees strong economic and regulatory challenges for a wide-scale adoption of SAF under the UN decarbonization scheme, a view share by some analysts.

In ICAO's 2022 environmental report, Neste said SAF demand is curbed by high costs as its prices are generally much higher than its fossil counterpart and more economic incentives are needed.

Too expensive

Platts, part of S&P Global Commodity Insights, assessed waterborne jet/kerosene prices on US West Coast at 326.03 cents/gal and SAF inclusive of environmental credits at 834.912 cents/gal on Aug. 10.

Assuming that the consumption of 415 liters of SAF can reduce emissions by 1 mt, and a cost premium of $0.62 per liter for SAF, the nonprofit International Council on Clean Transportation's fuels program lead Nikita Pavlenko said the cost of GHG abatement for airlines would be roughly $258/mtCO2e.

In contrast, CORSIA-eligible carbon offsets were assessed at $3.86/mtCO2e on Aug. 11.

"SAF, which is expensive to produce and cost much more than petroleum fuel, is a much more expensive route of achieving GHG reductions than buying carbon offsets," Pavlenko told S&P Global.

"An obligation by ICAO to...purchase SAF would create a much more meaningful push for SAF but also be very expensive and would not be favored at ICAO or by airlines."

Jo Dardenne, nonprofit Transport & Environment's aviation director, is also dim on the prospects of ICAO incentivizing the shift to SAF financially.

"CORSIA...remains a cheap offsetting scheme with huge amounts of cheap offsets ready to be bought in exchange to continue polluting," Dardenne said. "Fundamentally ICAO is an organization meant to protect and promote the aviation industry, which is why it was so successful in defining safety and security rules, but it's not an institution meant to decarbonize it."

Single certification

ICAO currently approves two certification schemes for SAF, one operated by the International Sustainability and Carbon Certification and the other by the Roundtable on Sustainable Biomaterials.

However, one batch of SAF can only have one certificate at a time, so once the batch is certified for CORSIA it cannot be deemed compliant with the standards of the US and the EU -- the two largest markets for the fuel.

"With still a limited supply of SAF available and cost of SAF generally 3-5 times higher than conventional jet fuel, market dynamics will draw the supply of SAF to the economically most attractive schemes," Neste told S&P Global in an email. "The economic incentive for CORSIA is less competitive compared to other schemes."

In Europe, France, Norway, and Sweden have imposed 1% SAF blending mandates on their jet fuels sales. The EU is reviewing its proposal to introduce a 2% blending mandate from 2025

In the US, the federal government issues fuel credits known as Renewable Identification Numbers to support SAF sales aside from state-level subsidies.

For more SAF to be certified under CORSIA and lower administrative costs, Neste suggested that more standardized certification process across jurisdictions will be preferable.

"Uniform certification standards will help simplify this process, keep the costs down as well as the administrative and reporting burdens for all stakeholders involved, resulting in a faster adoption of CORSIA," the producer said.

But S&P Global's biofuels analytics manager Corey Lavinsky said harmonizing the SAF certification process globally would be "a pipe dream." For example, the EU prefers waste-based SAF while other regimes generally allow ethanol-based SAF.

"Many biofuel programs were enacted specifically to support agricultural and rural communities," Lavinsky said. "Though fuel made from waste or cellulosic material have greater greenhouse gas savings, efforts to eliminate agricultural feedstock will never achieve universal acceptance."

Future outlook

A CORSIA regime that can effectively promote SAF usage could be still preferable by industry participants. CORSIA, which started in 2021, will impose mandatory emissions caps on international flights from 2027.

American Airlines, which aims to replace 10% of its jet fuel consumption with SAF by 2030, said airlines should have both options available to meet the CORSIA obligations.

"CORSIA was developed as an offset program, but it was anticipated that SAF would one day become a more viable option to reduce emissions," the company said. "It is true that today CORSIA-eligible carbon credits are much cheaper than SAF, but that could change in the future."

"We will be buying SAF in greater quantities in the future, and we'd like that fuel to qualify for CORSIA," it added.