Airlines worry about SAF supply shortage following revised EU ETS rules

While some European airlines fear high carbon costs coming from the low availability of sustainable aviation fuel (SAF), others are planning to profit by becoming producers.

Trade body Airlines for Europe (A4E) on 21 January warned of higher costs to consumers coming from the European Commission's proposed revisions to the EU Emissions Trading System (ETS), noting that "airlines will have no choice but to incur ETS costs that lead to higher prices for consumers" because SAF will be in short supply.

EU rules now under scrutiny by legislators will raise the EU ETS carbon costs for airlines, forcing them to stop flying routes to less-visited regions, said A4E.

A4E added that the costs, set to rise for airlines from 2025, would financially burden airlines so that they will be unable to invest in other low-carbon solutions.

The trade body proposes that instead of raising airlines' carbon costs, the EU should incentivize them to use SAF by providing free allowances to airlines using the fuel through 2030. Airlines currently receive 85% of their carbon allowances for free.

This move would "[mirror] the US federal and state-level tax credits … and support for carbon capture and storage (CCS)," it said, although observers point out the US decarbonization scheme has its flaws.

A4E also seeks a guarantee that all aviation allowance auction revenues go to supporting SAF production, among other things.

SAF can reduce aviation emissions by up to 80% compared with conventional kerosene during its life cycle, according to the International Air Transport Association.

One type of SAF, biojet, is produced using feedstocks such as used cooking oils that are not widely available.

Due to factors like these, biojet makes up less than 1% of fuel currently used by the aviation sector, said renewable trade body International Renewable Energy Agency (IRENA) in a recent report.

Future biojet supplies may come from more plentiful hydrogen feedstock, using technology that is still under development, said IRENA.

IHS Markit data shows that for the aviation sector to reach a 50% reduction in CO2 emissions by 2050, not only biojet but also low-carbon intensity synthetic fuels made from hydrogen will have to account for a significant share of fuel demand.

Spanish airliner targets biojet "affordability"

Within a few days of A4E's statement, two Spanish companies announced a deal they said was aligned with the EC's July proposals, specifically the RefuelEU Aviation initiative that aims to boost the supply of and demand for aviation biofuels by 63% by 2050.

A Spanish airliner, Iberia, signed an agreement that could see it research and potentially produce biofuel-based biojet with Spanish oil and natural gas company Cepsa.

Iberia in April joined four other airlines in a pledge to cut emissions, reaching net zero by 2050 while fueling 10% of flights with sustainable fuels by 2030, within the Spain-registered International Airlines Group (IAG).

Iberia sought to secure better ratings on sustainability indexes that investors use to evaluate companies.

It also sought to ensure "development, production, and distribution" of SAF are "affordable."

Iberia last week became part of a hydrogen marketing consortium unveiled by Spanish oil and gas producer Repsol and dubbed SHYNE (Spanish Hydrogen Network).

The partners are targeting 500 MW of renewable hydrogen production in 2025 and 2 GW in 2030. The 2-GW contribution from the companies would comprise half the requirements of the Spanish government's roadmap for hydrogen production.