In January, as part of its ‘Fit for 55‘ climate and energy package, the European Commission proposed legislation to ensure a level playing field for sustainable air transport. The ReFuelEU Aviation initiative was designed to overcome some of the market barriers that sustainable aviation fuels (SAFs) are coming up against.
The proposal is now working its way through the legislative process, with Danish liberal MEP Søren Gade, lead for the file in the European Parliament, publishing his recommendations in February 2022.
Energy Monitor spoke with Thorsten Lange, head of renewable aviation for Finnish oil company Neste, about what the industry would like to see to increase the take-up of sustainable aviation fuels.
What has Neste been doing in the sustainable aviation fuel area? Is there confidence that this is a growing business?
People understand there’s something wrong with flying if you’re not working on the sustainability side, so we’re ramping up our sustainable aviation fuel business. Before 2020, we had rather limited volumes [of SAF production capacity] available for producing in our refinery, but that will change dramatically at the end of the third quarter in 2023 when we have a refinery opening in Singapore [turning renewable raw materials into renewable fuel]. That will be enriched by another 500,000 tonnes (t) [of SAF] from the end of 2023 with the expansion of our Rotterdam refinery. Current SAF production capacity of 100,000t per annum will increase to 1.5 million by the end of 2023.
This is an optionality. If the [EU regulatory] framework for sustainable aviation fuels isn’t there, we still have the ability to produce renewable diesel [for road transport] at the same refineries. It cannot be taken for granted that every producer will jump on the sustainable aviation fuel bandwagon. At the end of the day, we’re also accountable to investors. Whatever we can’t do on the aviation side, we will do on the renewable diesel side. The Rotterdam refinery is currently being modified so it can also produce SAF within the existing capacity. This provides Neste with the flexibility to produce either SAF or renewable diesel.
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We are [a fuel supplier] at Singapore, Amsterdam, Frankfurt and Munich airports with a branded distributor partner in Tokyo. There are more airports to come that I cannot reveal yet. We will certainly also do a white label business where we sell our [SAF] product to other distributors.
We want to provide [airports] with the opportunity to make sustainable aviation fuel broadly available, but we also want to help companies meet the [sustainability] mandates that are kicking in. In France, Norway and Sweden these already exist. There are not too many producers that can meet requirements, but we’re ready and willing to provide them with sustainable aviation fuel.
The EU is currently discussing how sustainable aviation fuels can be incentivised. What do you make of the draft report from MEP Søren Gade published in February?
We fully welcome the ReFuelEU Aviation approach. The whole 'Fit for 55' package is aiming in the right direction. [But] we also think that the mandate level everybody’s aiming for is not ambitious enough – 2% [sustainable aviation fuels] in 2025 will not generate the demand we need to kick off a successful and widespread sustainable aviation fuel business.
Having said that, increased production requires a feedstock pool that allows you to produce enough fuel. Here we see the ReFuelEU proposal being stricter than what the EU itself has introduced so far with its revision of the EU renewable energy directive [because it’s a proscriptive regulation rather than a goal-oriented directive]. That’s what we think is appropriate and should be used for sustainable aviation fuels. I don’t see the need to have a stricter regime for aviation. It would create too much of a challenge for the industry and it will not trigger additional investment.
Sustainable aviation fuels can be blended in with normal fuels, but the cost remains too high for it to be economically viable. What do you need from policymakers to scale up deployment?
We need demand certainty. There are different models that we see globally. The EU has an approach based on mandates. That’s the right way forward, to hold the aviation sector responsible for its own emissions. It will not make sustainable aviation fuels less expensive, but it will help spur demand. Compare that to the US market [which has market incentives].
European airlines say the US-style incentive market [Renewable Fuel Standard] is what we need, with a low-emissions fuel standard and a tax credit for blending in sustainable fuel.
What people don’t understand is that this [money] comes from a sector with mandates, the road sector. The road sector is financing the gap on aviation. This does not deliver additional greenhouse gas (GHG) reductions because you are just replacing diesel with sustainable aviation fuels. Mandates on the other hand would increase the overall price of fuel and the sector would have to take care of the additional cost itself. Currently, there is no additionality as behind the scenes the facilities of the Renewable Fuel Standard are used for SAF, but when, for example, at the federal and state level incentives are adopted to close the gap between renewable diesel and SAF, these could help to deliver additional GHG reductions and encourage the production and use of SAF.
There is a willingness from passengers and the corporate side to compensate for the gap. The HEFA [biofuel] technology we are using now is by far the cheapest alternative fuel. It’s not cheap, but compared to others it’s cheaper. We have to nudge the [airline] industry to invest in sustainable fuels. If we do a ballpark calculation, blending in 1% of sustainable aviation fuel generates a price difference of between €1 and €1.30 [per percentage of SAF blended with fossil jet fuel and per ticket]. That’s €10–15 more for a ticket. In relative terms, it’s not that much. The price differential between fossil and alternative fuels is huge, but that’s not taking into account the GHG costs of those fossil fuels.
Are state subsidies in the form of tax breaks for fossil aviation fuel discouraging investment in sustainable alternatives?
I don’t think [increasing taxes on fossil aviation fuel] is the right way forward. At European level it would generate too much distortion compared to competing areas. When the cost of fuel would drastically increase total fuel costs, airlines always have the opportunity to take more fuel at other locations outside Europe where the fuel might be cheaper. Taxation has never helped to kick things off. Can you be sure that once taxes are collected, you can ring-fence them? Where are they going? I think it’s better to encourage the use of sustainable aviation fuel rather than putting an additional burden on fossil fuel. The aviation sector has been suffering for two years now [due to Covid-19], and now we have the Ukraine war. Putting up taxes would not help.
How do sustainable aviation fuels compare with other alternative fuels like electrification and hydrogen fuel cells?
Electrification and hydrogen are part of the equation, but it’s important to understand that with electrification you have a weight problem. How much energy can you provide with what weight is key for electrification. I clearly see a role for e-flying for short-haul, but that’s not helping our GHG problem. Only 25% of flights are short-haul and they generate 3–4% of emissions.
On hydrogen, we will see hydrogen aircraft from 2035 on, I think. Most importantly, you need new infrastructure. If you understand that the aviation industry took 30–40 years to build up proper infrastructure for fossil fuels, you can see the challenge. It will be there, we need it, but it will play a limited role. What I can see is that we go from hydrogen to e-fuels, and that’s just another type of sustainable aviation fuel because it’s a drop-in solution. The pathway is already certified, audited and free.
The International Air Transport Association expects 63% of GHG emission reductions in aviation to come from sustainable aviation fuels in 2050, which means the other 37% is hydrogen, electrification, efficiency gains and air traffic management optimisation.
What do you say to those that suggest sustainable aviation fuel is being used by airlines as a fig leaf for resisting the other obvious solution, which is that we all fly less?
The blunt answer is that flying isn’t the problem, it’s the exhaust. If you replace fossil with sustainable fuel you have the solution. I’m still of the opinion that aviation not only connects cultures, it’s a peacekeeper. Coming out of Covid, we see how quickly aviation is picking up.
Aviation will not reduce, especially when it comes to long distance. Even with short-haul, if you look at replacing flights with 3–5 hours in a train, people are not making a full cost calculation. If you replace a Hamburg-Munich flight with a train ride, you have to add an additional overnight stay, with cost and with emissions. Why not put that money for the additional night into the plane ticket, making sustainable aviation fuels available right away?
I don’t think we have to fly less; we have to fly more consciously. There is room for improvement, but we will see more flying, and for good reason. The forecast is that we'll return to the old growth trajectory in 2024 or 2025. There’s nothing wrong with that if we get our act together to produce enough [sustainable] fuel and provide a regulatory environment that keeps sustainability criteria at the top of the agenda.
In the Clean Skies for Tomorrow Coalition, we committed to making two million tonnes of [sustainable] feedstock available. If you look further into the future, to fully replace fossil with sustainable aviation fuels by 2050, for me the way is pretty clear and we can fly more sustainably.