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August 28, 2023

Clearing the runway for SAF takeoff – is existing legislation enough?

In 2022, the entire amount of sustainable aviation fuel (SAF) produced was 300,000m³ – just a small fraction of the estimated production capacity needed by 2050 if the aviation industry is to reach its decarboniaation goals. Although production capacity will increase with the maturation and upscaling of approved SAF pathways, challenges with cost competitiveness, technological investment hesitancy, and feedstock availability remain obstacles to achieving necessary production levels, say Elena Scaltritti and Sylvain Verdier from Topsoe.

The regulatory and incentive frameworks, especially in the US and EU, will be crucial to overcoming barriers and unlocking innovation.

An abridged version of this article was featured in August 2023 on the FORESIGHT Climate & Energy website.

The Biden Administration aims to increase the production of SAF through various measures. In September 2021, it launched the Sustainable Aviation Fuel Grand Challenge, which has an aspirational target to ramp up to over 11 million cubic meters (m³) of SAF annually by 2030. 

Crucially, in August 2022, Congress adopted the Inflation Reduction Act (IRA) containing two consecutive tax credit schemes for SAF production. The lower a fuel’s carbon intensity score, the higher the potential credit. Additionally, Renewable Identification Numbers (RINs), which are credits generated when a qualifying renewable fuel is produced or imported, are also available. Currently however, RINs are only valid for aviation biofuels and not for e-jet.

At a state level, further incentivization can be found. The California Low Carbon Fuel Standard (CA-LCFS), established in 2009, was updated in 2019 to recognize SAF as an eligible fuel to generate credits based on its quantified greenhouse gas benefits via lifecycle assessment. These credits can incentivize SAF production as they can then be sold to other obligated parties under the CA-LCFS. Elsewhere, in January 2023 Illinois state lawmakers approved legislation that creates a $1.50/per gallon SAF tax credit which airlines can use to satisfy all or part of state use tax liabilities.

The European Union and Fit-for-55

Across the Atlantic, to ensure that the European Union cuts its CO2 emissions by 55% in 2030 (compared with 1990 levels), the European Commission, Parliament, and Council are currently negotiating Fit-for-55, a legislative package with three elements that will have a significant impact on the decarbonization of aviation.     

The EU Emissions Trading System (ETS) covers CO2 emissions from intra-EU flights, with airlines receiving or buying emission allowances for their operations. The ETS incentivizes aircraft operators to use SAF by attributing zero emissions to SAF, therefore reducing the number of ETS allowances they need to buy. 

The reform of the Emissions Trading System (ETS) was finally approved in April 2023. The approved reform brings forth a series of notable highlights that are poised to shape the future of aviation emissions.

One key aspect is the phasing out of free aviation emission allowances, commencing in 2024 and culminating in a complete elimination by 2026. To incentivize the adoption of SAF, the reform reserves an allocation of 20 million free allowances, estimated at €1.6 billion, depending on CO2 prices. 

Two other notable provisions introduced are the mandatory disclosure of non-CO2 climate effects by airlines, effective from 2025, and that flights travelling to or from destinations outside the European Economic Area (EEA) will be covered by the United Nation's CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation) framework. Flights to countries not applying CORSIA will also come under the scope of the ETS from 2027.

Next, the Renewable Energy Directive (RED II) has been revised to include rules for producing and accounting for renewable fuels of non-biological origin, such as e-jet fuel.    

Finally, the ReFuelEU Aviation deal, struck in April 2023 but still awaiting a formal vote, will legislate for the aviation fuel made available to EU airports should contain 2% SAF, increasing to 6% by 2030, 34% by 2040 and 70% by 2050. 

Long-term legislation and incentive frameworks are crucial for SAF take-off

The need for clear and long-term legislation to de-risk investment in technology is essential for increasing the production of SAFs as it reduces the perceived risk associated with investing in fresher technology, which may be in the early stages or need to be upscaled. SAF production technologies are relatively new and investors are cautious about investing in untested technologies due to uncertainties surrounding commercial viability, scalability and regulatory hurdles.

To increase SAF production, there needs to be a significant investment in research and development and private sector investment will play a critical role.      

If we consider that refinery lifespans are around 30 years, many incentive programs – including the recent Inflation Reduction Act (IRA) – end just a few years after a new facility would begin operation. In a world of shifting legal frameworks and production incentives, many innovative technologies have limited opportunities to scale without government guarantees available. We need to move to a place where policy incentives, offtake agreements and investment horizons match.

Where should policy support the SAF industry

While important to acknowledge and appreciate the leadership shown by the US and EU in providing an increasingly clear regulatory framework overall, more ambitious actions are necessary to ensure the swift and effective implementation of these policies. 

Firstly, financial incentives are crucial for de-risking private investments and creating a robust market. This will not only contribute to democratizing air travel but also prevent it from becoming a luxury accessible only to a privileged few. In the US, we urge the extension of SAF tax credits beyond 2027. Additionally, the EU should consider increasing the budget of the European Hydrogen Bank to support the production of renewable hydrogen for e-SAF and redirect revenues from the Emissions Trading System (ETS) towards price support mechanisms that bridge the gap between SAFs and fossil fuels.

Secondly, there needs to be a focus on the development and adoption of third-generation feedstocks. This can be achieved through increased investment in research and development as well as industrialization. In Europe, it is crucial to include SAF technology as a strategic category in the proposed Net-Zero Industry Act to unlock key support mechanisms currently unavailable. Furthermore, expediting the approval process for new ASTM-approved* SAF technology pathways is imperative, as the current timeline of 3-6 years for pathway approval exceeds our carbon budget for achieving the 1.5C target.

Lastly, the challenge of adapting SAF to airport fuel infrastructure at scale within a limited timeframe requires substantial support. Governments must explore concrete policies to aid the aviation industry and facilitate the construction of necessary airport and pipeline infrastructure. By taking these recommendations into account, we can accelerate the transition toward sustainable aviation and ensure a more environmentally friendly future for the industry. The latest IPCC report showed that we are not on track with our climate goals – more focus and urgency is needed. This can and must be driven by regulation and incentivization across industries, and of course when it comes to decarbonizing the aviation industry. 

*ASTM International standards are applied globally to products as varied as petroleum and consumer goods.

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