Decarbonizing aviation: Passengers likely to shoulder price of SAF

Travelers will have to stomach a permanent increase in airfares if the industry is to successfully transition to sustainable aviation fuel, according to industry experts.

SAF, an alternative to fossil jet fuel produced with renewable feedstocks, has been earmarked as one of the only options for air travel to decarbonize. Yet with limited global availability and several industries banking on biofuels solutions, high costs are unavoidable.

"We won't see costs come down," said Robert Campbell, head of energy transition at Energy Aspects, a research consultancy, speaking at the Financial Times' Energy Transition Summit Nov. 2.

Both SAF and renewable diesel, or HVO, are mainly produced from used cooking oil or animal fat, specially grown crops or, in smaller volumes, waste feedstocks from forestry or landfills.

Competing for feedstocks

As a the premium product of the two, involving additional refining and lower yields, SAF prices must stay high to compete for feedstocks.

S&P Global Commodity Insights assessed the cost of SAF production in Northwest Europe at $1,903/mt Nov.1, contrasting with $1,746/mt to produce renewable diesel.

To date, production volumes remain meager, and S&P Global Commodity Insights forecasts European SAF capacity at around 115,000 b/d by 2030.

Significant ramp-ups will therefore depend on supplier confidence that high costs can be passed to consumers in sufficient volumes.

While some have pinned hopes on the nascent "efuels" market, fundamental production inefficiencies remain problematic. The production process, which combines hydrogen and carbon dioxide, requires 3 million tons of carbon for every 1 million tons of fuel supplied, Campbell said.

"The idea we won't be using SAF or kerosene in 2050 is ludicrous because those planes are being commissioned now," he said.

Travel to stay resilient

Air passengers will therefore remain at the mercy of SAF prices as regulatory controls tighten, but analysts expect demand stickiness.

Fuel costs account for around 30% of airfares, meaning any pivot from conventional jet fuel will see prices rise exponentially.

S&P Global Commodity Insights assessed Northwest European SAF at a premium of $1,996/mt o CIF ARA jet fuel Nov. 1.

"We need to absorb the cost of doing this into our way of life," Campbell said, citing passengers' willingness to travel when airfares spiked 20%-30% in the 1980s.

Rebecca Ross, marketing and innovation director at Johnson Matthey, added that it's unlikely fares would become prohibitive but noted that "short-term discretionary travel" could decline.

Mandates to take the wheel

Successful emissions reductions hinge on coordinated regulatory measures, sources said.

California's Low Carbon Fuel Standard has been credited with increasing renewable diesel consumption to 50% of the state's total diesel use by enforcing a cap and trade system for low carbon fuels and thereby penalizing traditional diesel consumption.

Similarly, EU mandates on production volumes have been praised for pushing suppliers to scale production in tandem.

Under the RefuelEU aviation rules, fuel suppliers will need to blend SAF into aviation fuel in increasing amounts, from 2% of overall fuel supplied at EU airports by 2025 to 70% by 2050.

While producers such as Brazil and Indonesia have also pushed for blending mandates, the US has taken a less aggressive approach based on incentives.

"It's the carrot vs. the stick in the US vs. Europe," Campbell, who advises the latter, said. "Having a mandate plus some sort of structure that allows some kind of equalization between SAF and petroleum fuel goes a long way."