TLDR: United: Sustainable AF. Sustainable jet fuel is having a moment. But why? And what exactly is SAF again?
This week, United Airlines operated the first-ever passenger flight using 100% sustainable aviation fuel (SAF). The Boeing 737-900 flew over 100 passengers from Chicago to Washington, D.C., running exclusively on alternative fuel. While regulations prohibit planes from carrying more than 50% SAF, United chose to fly burning only the SAF carried in one of its two fuel compartments in order to demonstrate “there are no operational differences between the two (SAF and regular jet fuel) and to set the stage for more scalable uses of SAF by all airlines in the future.”
This marks an important moment in alternative fuel adoption in transportation. Fresh off the heels of COP26, where the U.S. committed to net-zero aviation by 2050 via the release of its Aviation Climate Action Plan, the timing of this demonstration couldn’t be more intentional. As the industry continues to make pledges and forward-looking statements, flight milestones, new investments and SAF production growth are the only indicators of real progress.
While small in volume (500 gallons), this flight could very well be a tipping point that accelerates market adoption. Most carriers, not wanting to be left out while competitors tout their own green standards, are already scrambling to lock up future supply. Long-term offtake agreements are becoming common in the space, as a way for carriers to signal intent and fuel producers to finance new builds/expansion. Delta has partnered with Gevo, Southwest with Veloycs, American Airlines with Aemetis, among others. And there are many more agreements in place both in the U.S. and internationally. There is a real risk to these carriers of falling behind because current volumes are in such short supply. After all, today we see only around 5 million gallons of SAF produced in the U.S. annually. Globally, all SAF supply represents less than 0.1% of the total jet fuel demand.
So why does any of this matter? Is SAF really going to move the needle in lowering airfreight emissions? Please allow myself to introduce my … SAF (wow, maybe the worst Austin Powers reference ever).
SAF 101 Q&A
Q: Why do we need a low-carbon jet fuel anyway?
A: Aviation emissions meaningfully contribute to climate change. In 2018, it’s estimated that global aviation emitted 1.04 billion tonnes of CO2, representing 2.5% of total CO2 emissions. If the airline industry were a country, it would be the sixth-largest emitter, falling somewhere in between Japan and Germany. This is also a worrisome trend given growth projections of the industry, which is expected to double by 2050 to 8 billion passengers each year.
Despite the many improvements to the fuel efficiency of aircraft in recent decades, the fact remains that to move goods and people quickly over long distances requires a significant amount of fuel and, therefore, emissions. As in other modes of transport, the asset operators have few economic options available to dramatically reduce emissions. That’s a large part of why public firms making emission-reduction pledges are transparent about what they can control and what they cannot.
Photo: American Airlines
Q: What is SAF?
A: SAF stands for sustainable aviation fuel. It’s produced from sustainable feedstocks, such as used cooking oil and other non-palm waste oils from animals or plants (including soy, canola, corn, camelina as well as fats such as tallow and grease) and solid waste from homes and businesses, such as packaging, paper, textiles and food scraps that would otherwise go to landfill or incineration. Other potential sources include forestry waste, such as waste wood, and energy crops, including fast-growing plants and algae. SAF is a desirable option for the industry because it is considered a drop-in fuel and is very similar in its chemistry to traditional fossil jet fuel (see United above going all-in). A great source for additional detail can be found at energy.gov.
Q: How much carbon does it really save?
A: Using SAF results in a reduction in carbon emissions compared to the traditional jet fuel it replaces over the life cycle of the fuel. SAF gives an impressive reduction of up to 80% in carbon emissions over the life cycle of the fuel compared to traditional jet fuel it replaces, depending on the sustainable feedstock used, production method, and the supply chain to the airport.
Q: Great, I want more. But what will it cost?
A: Owing to a combination of low supply and developing technologies, today SAF costs represent a substantial increase above traditional jet fuel, around 3x the cost.
The chart below represents a comparison of SAF prices on the U.S. West Coast compared to jet fuel and with/without carbon credits. Many national and subnational policies, such as California’s LCFS and the federal Renewable Fuel Standard, incentivize the production and/or consumption of alternative fuels through tax breaks or environmental attribute programs. For example, a gallon of SAF in California is able to sell near parity with fossil-based jet fuel because it receives over $3 per gallon in credits from LCFS, RFS, and a blender’s tax credit. Usually, the lower the carbon intensity of the feedstock (municipal waste < used cooking oil < soy oil, for example), the more value generated in credits.
Chart: S&P Global Platts
For now, we have big ambitions and little supply at a high cost. Deployment at scale will be heavily reliant on short-term policies (hopefully more carrot than a stick) that allow these new technologies sufficient runway (yes, pun intended) to steal market share from traditional jet fuel.
Until next week, stay curious and keep improving.
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