Aviation and fuel sectors respond favourably to major EU policy initiative to boost sustainable aviation fuels
(photo: Air France)
Thu 30 Apr 2020 – The European Commission has received a largely enthusiastic response to its new roadmap initiative, ReFuelEU Aviation, aimed at boosting the supply and demand for sustainable aviation fuels (SAF) in the EU. The Commission acknowledges that without EU-level intervention, the demand for SAF – currently just 0.05% of total jet fuel supply – will likely reach just 2.8% by 2050. The objective, it says, is to reduce the sector’s environmental footprint in line with EU climate targets and the Paris Agreement. Policy options under consideration include a blending mandate to impose a minimum share of SAF, a revision of the multiplier under the EU’s Renewable Energy Directive, a central auctioning mechanism and a funding mechanism to encourage deployment and uptake of SAF. The Commission’s transport directorate (DG MOVE) has carried out an initial impact assessment (IIA) under the roadmap, which received over 120 responses from airline and aviation groups, oil and SAF producers, NGOs and government agencies.
Renewable and waste-derived advanced biofuels, as well as electro-fuels (e-fuels) produced using additional renewable energy, have the potential to make an important contribution to tackling aviation GHG emissions, says the Commission. However, the SAF production base in the EU is limited to a handful of producers and volumes do not exceed 100,000 tonnes. The current 0.05% use of SAF in total EU jet fuel consumption, around 57 million tonnes in 2017, is imported from or tanked in third countries, such as the United States.
With production costs at least twice as high as that of conventional jet fuel and higher than that of sustainable fuels used in other transport modes, in the absence of support, SAF are not an economically attractive substitute. The price volatility and limited availability of SAF feedstocks also contributes to market uncertainty and act as a disincentive to investment and scale-up of production. While EU policy can provide an incentive through the multiplier in the recast Renewable Energy Directive (RED II), its impact remains uncertain as Member States have until June 2021 to apply it and have a considerable degree of flexibility over implementation. The EU ETS also contains mechanisms to reward aircraft operators using SAF.
“The impact of these incentives on SAF supply and demand appears to be so far limited and may therefore also need to be reviewed,” concedes the Commission.
Incentives to develop food and feed crop based aviation fuels are undesirable, it says, and while waste-derived SAF can achieve emissions savings as high as 80% compared to conventional jet fuel, availability of waste-based feedstock is currently limited by suboptimal supply chains and can also be diverted to other more cost-effective usages. Electro-fuels are receiving increasing interest as they can achieve even higher emissions savings but require additional amounts of renewable electricity because of the suboptimal energy efficiency of the conversion process. In addition to the overall feedstock scarcity, there is a competing demand from the road transport sector where production costs for biodiesel and green diesel are lower.
On the technical side, the fuel approval process is a lengthy, expensive and challenging barrier to market entry of new SAF pathways, finds the Commission. These constraints can lead fuel producers to favour using their products in other lower-risk markets, such as road transport, where fuel approval is easier, it says.
Lastly, it notes, there is currently a lack of an effective framework for monitoring the supply and use of SAF in the EU, which makes it challenging to assess in a reliable manner the effectiveness of future policies aimed at boosting the SAF market.
These problems require EU action and cannot be solved by Member States acting alone, it argues. “The harmonised implementation of a common policy mechanism is important to avoid possible market distortions that could be caused by a patchwork of national policies. It is essential to take into account the complexities of the aviation Internal Market and ensure its proper functioning. Concretely, a policy mechanism for the uptake of SAF needs to be common across all Member States, to allow airlines and other market players to operate based on equal opportunities.”
DG MOVE has proposed eight possible measures for consideration:
● SAF blending mandate: A minimum share of SAF that would gradually increase over time, to be supplied to airlines and/or a minimum share of SAF to be used by airlines. This could create a stable policy framework over a sufficient time horizon to provide investors with the necessary confidence to invest in SAF production and for airlines to pursue an efficient fuels policy.
● Revision of the multiplier: Currently RED II provides for a 1.2 multiplier for aviation that allows Member States to count towards their national biofuel target 20% more than the SAF volumes provided. The approach could be further specified ensuring a harmonised implementation and the multiplier could be increased.
● A central auctioning mechanism: SAF producers would be invited by a central auctioning authority to bid at the lowest price to supply a certain volume of SAF to the aviation market over a certain period. Such schemes have been used in the field of renewable electricity.
● A funding mechanism: The EU would channel funds through one or more EU financial instruments with the aim of encouraging the deployment of SAF production facilities in the EU and accompanying the gradual uptake of SAF by the aviation market at competitive prices by helping bridge the cost gap and upscale production.
● Prioritisation: With feedstock used to produce sustainable transport fuels a scarce resource, these fuels should be directed to transport modes where they are needed the most in order to decarbonise. A degree of prioritisation of feedstock for SAF production could be necessary in this context.
● Voluntary agreements: Set up a collaborative platform to facilitate purchase agreements between SAF producers and airlines. It could also issue guidance on how to efficiently conclude purchase agreements.
● Technical facilitation and support initiatives: The objective would be to accompany SAF producers along the approval process, by providing the necessary technical support. An EU coordination platform could also be envisaged to bring closer together aviation stakeholders, SAF producers and regulators with a view to communicate and engage towards the common objective of developing the SAF market.
● Monitoring: A dedicated data stream could be put in place to better monitor the production and use of SAF in the EU. Key Performance Indicators could be designed to monitor the effects of SAF policies.
Independently from the instrument used to promote SAF, the Commission says it will be essential to ensure coherence with the existing sustainability requirements, definitions and methodologies set out for renewable fuels in the recast RED, as well as the EU ETS.
Aviation sector responds
The initiative has received positive backing from SAF stakeholders, including the aviation sector.
“IATA supports the ReFuelEU Aviation objective of designing effective policy to help reduce the environmental footprint of the aviation sector,” said the trade body in its submission, which noted that in the absence of support, SAF was not an economically viable substitute to conventional jet fuel.
“Specifically, the incentive-based approach is favoured which can support stable market demand and incentivise production. This approach can enable end users to make purchase commitments at prices which are competitive to conventional fuel,” it said.
However, IATA is cautious over mandate obligations on airlines and says key criteria need to be carefully assessed when designing mandate policies. It favours revising the RED multiplier as the mechanism has the potential to put SAF production on a more equal footing with ground transport sustainable fuels.
Airlines for Europe (A4E) responded that blending mandates should only be introduced under mature market conditions and coordinated at a global level through ICAO. “This approach should be part of the global CORSIA scheme, ensuring that airlines do not suffer competitive distortions as a result of regional mandates,” it said.
“Mandates implemented prematurely would lead to higher prices for the industry, since there is limited availability of SAF. Moreover, it would also stimulate a ‘race to the bottom’ and lower sustainability standards as users seek to fulfil their obligations under such a mandate. It could also lead to more tankering of fuel.”
A4E recommends a policy framework should last for at least 15 years in order to generate a solid business case and to create confidence amongst investors.
European regional airline association ERA also said the much higher prices of SAF meant they were unviable and the market uncertainty did not incentivise the investments necessary to increase production, which it hoped the Commission’s initiative would address. ERA added its support for a blending mandate that enabled gradual, minimum levels of SAF to be supplied to airlines.
US airline association A4A has also responded to the IIA, saying it had a strong interest in the EU initiative, which it applauded. It concurred with the Commission’s assessment on the lack of progress in the development of SAF “despite our concerted and continuing efforts”.
While it agreed that policy options for boosting the supply and demand for SAF in the EU need to be explored, it recommended the focus should be on providing incentives for the energy sector to increase SAF supply rather than mandating any SAF quotas on fuel suppliers or SAF usage requirements on airlines. The imposition of a blending mandate was premature, it argued, and had already led to a significant increase in the price of SAF in Norway, which introduced a mandate in January.
“As the roadmap acknowledges, SAF are still a long way from being commercially viable at scale,” says the submission. “Until they are, the Commission should focus instead on positive measures and incentives that are geared towards improving cost competitiveness, expanding supply and establishing the long-term commercial viability of SAF.”
While the RED 1.2 multiplier should help, A4A believes a 2.0 multiplier would do more to overcome the strong economic incentive for biorefineries to choose to produce lower-cost green diesel for road and marine transport over more complex and costlier-to-produce SAF.
It recommended an EU policy framework should prioritise SAF production and use over road and maritime transport, policy timeframes that matched return on investment 10-20-year timeframes, seek opportunities for public-private SAF production partnerships and provide continued support for SAF R&D.
The European Business Aviation Association said the Commission’s initiative was a critical future step in achieving industry and EU climate goals and emphasised that business and general aviation be included in order to provide a level playing field across the aviation sector in any recommendations and policymaking decisions.
It recommended incentivising the entire SAF value and supply chain, as well as additional R&D efforts on SAF technologies, and increasing the multiplier from 1.2 to 1.5; ensuring priority and allocation of SAF to general and business aviation as well as commercial aviation; providing an EU-wide ‘book and claim’ system, with credits granted to voluntary participants; and monitoring SAF purchase and use to obtain recognition in offsetting mechanisms such as CORSIA and the EU ETS.
In its response to the IIA, International Airlines Group, parent company of British Airways, which is partnering the Velocys Altalto project, said the highest sustainability standards should be the foundation for any future policy. It expressed concern that any policy that requires large volumes of SAF to be supplied in a short timeframe could lead to significant sustainability risks. IAG recommended the EU should align with ICAO’s developing broader standards that will be applied to CORSIA eligible fuels as this would reduce the administrative burden on airlines and fuel suppliers.
The group also warned of significant competitive distortion risks if the EU imposed a blending mandate that could lead to higher fuel costs for fuel uplifted in the EU. Among the IIA options, IAG supports a requirement for funding mechanisms and the prioritisation of aviation over road and marine transport. It also favours a higher multiplier than for marine fuels but said an auctioning mechanism would be of little value in an immature market.
Ryanair, Europe’s largest airline in terms of passenger traffic, said that while it broadly agreed with the ReFuelEU Aviation objectives, SAF should be regulated by one set of global rules, ideally established by ICAO, with methods of quantifying lifecycle CO2 savings that apply uniformly to all airlines. It also opposes introducing mandates in the near future and stressed that only a global mandate would be a solution as and when volumes of feedstock had reached a level that SAF production would benefit all airlines and not only selected ones.
“We appreciate the Commission’s efforts to provide a framework for enhancing supply of SAF in the EU and are closely monitoring the issue, so as to start using these fuels whenever a competitive price will be offered,” said the airline.
Aircraft and engine manufacturers Boeing, GE and Rolls-Royce responded favourably to the Commission’s initiative. Policy is a key instrument for incentivising SAF production because it reduces perceived risk for would-be investors and provides a clear path to commercialisation, said Boeing. Funding mechanisms could draw on the experience of the California Low Carbon Fuel Standard, the UK’s Renewable Transport Fuel Obligation and Brazil’s RenovaBio, it suggested. Boeing also supports increasing the RED multiplier but is against imposing a mandate.
GE Aviation recommended that any measures to be introduced should not create additional demand for SAF without equally ensuring simultaneous growth in supply, otherwise it would lead to an increase in the already expensive price of SAF. The EU initiative should therefore consider ways to incentivise the entire value chain related to the production and use of SAF to level the playing field, it added.
Rolls-Royce said investment in SAF production would need be in the hundreds of billions of euros, whichever the technological pathway, yet any SAF will be significantly more expensive than conventional jet fuel, regardless of production method. Potential SAF producers therefore needed to know that they will be able to sell the more expensive product.
“The greatest confidence for producers can be gained from a mandated percentage of SAF within all of Europe, increasing from 2030 to 2050,” it said, going against the recommendation of most other aviation sector respondents. “This is the highest priority and most effective action for the EU.”
The respondent suggested the EU could encourage SAF with the highest levels of CO2 benefit by applying blend mandates linked to overall GHG intensity rather than a simple percentage blend.
Support for a mandate also came from German aviation renewable energy association aireg, which said a binding quota should be introduced as soon as possible. “A GHG reduction quota at a European level seems to be a promising approach,” it recommended, suggesting a sub-quota to promote the early stage development of electro-fuels. Aireg also favours consideration of the central auctioning mechanism and changes to the EU ETS to allow for a more simplified and easily operationalised procedure for the crediting of SAF in the scheme.
SAF fuel sector
Major SAF supplier SkyNRG, which is leading a Dutch project to build Europe’s first commercial-scale SAF production facility, advised that in order to secure investment and to build additional facilities, an EU-wide blending mandate should be announced at least three years in advance. Preferably, the mandate should last for 10-15 years in order to generate confidence amongst investors and create an attractive business case. It was also important to impose a cost on non-compliance with the mandate that was higher than the cost of compliance, it said.
SkyNRG supports the use of a RED multiplier as an intermediate policy mechanism until an EU-wide policy mechanism is put in place. It also recommended the Commission adopt an encompassing approach to sustainability being at the forefront of the SAF industry, with lower carbon intensity fuels getting higher rewards, which is not the case at present.
Responses were received from SAF producers Gevo, Velocys, LanzaTech and Fulcrum. US alcohol-to-jet fuel company Gevo said an obligation to use SAF was the best way forward.
“Such a blending mandate should be modest and in line with what industry can supply in Europe – considering this is a global market – and be increased yearly,” it said. “A blending mandate is needed because voluntary action is taking too long and also the ICAO process is rather slow.
“The chosen policy needs to be stable and kept in place for at least a decade to trigger investment, and certainty of investment, for developing at scale the pathways, like ATJ-SPK, that are at a high enough technology readiness level. Gevo doesn’t think that an obligation to blend SAF requires a multiplier. A mandate is incentive enough to both produce and use SAF.
“High CAPEX and OPEX make SAF relatively expensive. A decent ROI and market prices are needed. An auctioning mechanism cannot deliver a reasonable price as long as liquidity in SAF is modest.”
In its response, Velocys said it was important to distinguish between the different routes to SAF production. Currently, the only plants producing SAF use the HEFA process, which requires natural oils as feedstock but these are a limited resource. Looking ahead, Velocys said the Fischer-Tropsch and ATJ routes offer access to a much broader feedstock base. These resources have low or no land use change impact and could be enough to meet more than half of global jet fuel demand, it claims.
“The key barrier for rollout of these routes to SAF is therefore not feedstock, but the financing of first-of-a-kind projects,” said the Velocys submission. “Once these early plants are in operation, much more capital can be deployed.”
A blending mandate could provide certainty of demand and thereby support investment, the company believes, but should be incentivised towards production of second-generation fuels or feedstocks listed in Part A Annex IX of RED II. A revision of the multiplier makes sense, it said, but requires Member States to translate it into incentives for industry. A funding mechanism would also be a good complement to mandates and/or revision of the multiplier, it added.
Prioritisation for aviation could become necessary in the long term but it believes it is difficult to get right due to uncertainties over future developments in technology, demand and resource supply. However, Velocys does not recommend a central auction mechanism and sees no need for a collaborative platform on voluntary agreements. It does though support a platform to bring together aviation stakeholders, SAF producers and regulators.
ATJ producer LanzaTech also supports a blending mandate, which it suggests should come into force after a minimum of three years, to enable implementation of commercial SAF projects and to allow airlines, airports and other stakeholders time to prepare. The mandate should persist for a minimum of 15 years in order to provide assurance for project financing, said it submission. The multiplier should also be set at a level that reflects the increased cost of SAF production and close to the price gap as production economics improve. Another mechanism to support the price gap could be a feed-in tariff where producers or buyers get a set contribution to cover part of the additional costs of SAF relative to fossil jet fuel. Again, to provide predictable economics for SAF projects, this should be available for an extended period, believes LanzaTech.
US-based Fulcrum BioEnergy, which is currently commissioning the world’s first commercial scale waste-to-SAF facility in Nevada, said it intends bringing its platform to Europe “once the supportive policy landscape is in place”. Scaling up the production of advanced waste-based SAF in the EU would require incentive support to enable a cost-effective price point for airline purchase while maintaining producer margins sufficient enough to attract the necessary project capital, said the company’s IIA submission.
Incentives should be based on net carbon reductions on a sliding scale and, to provide additional security to SAF development, an EU-wide backed loan guarantee programme should be employed to enable developers to attract the necessary financing, said Fulcrum. The company also supports the gradual introduction of long-term mandates, which should apply to existing fuel producers as well as end users to ensure both ends of the supply chain are incentivised to produce and purchase SAF respectively. Mandates and the multiplier should also relate to the type of feedstock being used, which reflect the overall costs associated with production.
Major oil producers Shell and Total, both of which have entered the SAF market, also responded to the IIA.
“The commercial development and rollout of SAF in Europe needs long-term clarity and legal certainty,” said the Shell submission. “In its assessment of policy options, the Commission should ensure supply side and demand side measures go hand in hand to allow the large-scale availability of SAF in the medium to long term. Scaling up SAF will require time-limited financial support to reduce costs and help emerging advanced biofuel technologies become ready for commercial deployment.”
The oil giant said it supported an EU-wide SAF mandate in order to strengthen long-term certainty for investors, with fuel suppliers as obligated parties, and should be set as a CO2 intensity target on a ‘well-to-wing’ basis. To support the long-term diversification of production pathways and feedstocks used, Shell said a mandate should include a sub-target for SAF made from advanced feedstocks and synthetic fuels such as electro-fuels.
“The impact of Covid-19 has provided the aviation sector with unprecedented challenges,” said Shell. “Further analysis will be needed on the conditions, level and timing for the introduction of a SAF mandate. EU and national measures to support the recovery of the aviation sector could play an important role in encouraging a sustainable transition, aligned with the EU Green Deal objectives.”
Total said it favoured a SAF blending mandate since voluntary agreements had achieved no significant results above a willingness to use SAF. Mandates for SAF should be separated from those for road transport and multipliers favouring aviation rather than road transport were not needed. They should also be technology neutral, according to Total, and should define sustainability criteria and recognise all sustainable feedstocks, either biogenic or non-biogenic. An effective monitoring system would be required to mitigate the risks of fraud, it added.
A submission by the Norwegian Ministry of Transport details the blending mandate introduced by the country in January, under which 0.5% of the annual sale of aviation fuel must come from advanced jet biofuels produced from waste, residues or used cooking oil. The obligation applies to both domestic and international aviation. Although not yet stipulated in the regulation, the ambition is to increase the quota obligation to 30% by 2030, depending on availability and technical opportunities.
“We agree there is a need for international cooperation in this area and we believe we have interesting experience to share regarding this topic,” said the ministry.
The Swedish Ministry of Infrastructure said it was important to consider work on policy mechanisms for increased use of SAF that had already been done on a national level, for example the Norwegian mandate and the preparatory legislative work for a GHG reduction scheme on jet fuel in Sweden.
A blending mandate should regulate the minimum share of renewable energy to be achieved by the mandate but not harmonise which measure Member States should use to reach the minimum share, it said. The focus should be on regulating fuel suppliers rather than airlines, as it was easier, it recommended.
The ministry was against increasing the RED II multiplier as it would likely lead to a decrease in the total use of renewable energy in the transport sector, “which goes against the purpose of increasing the use of SAF.”
A central auctioning system could be an important instrument at national level but difficult to harmonise on an EU-wide basis, it stated, and a funding mechanism could be considered if proved to be cost-effective and socio-economic efficient within existing budgets. However, it did not support the prioritisation of feedstock for the production of SAF as renewable fuels would play an important role in decarbonising all parts of the transport sector for the foreseeable future, even if the road sector was increasingly electrified.
“As jet fuel is very similar to diesel, it is very easy for production plants to change their production mix over time when the demand increases in aviation and decreases in the road sector, and there is no need to introduce policy mechanisms for prioritisation. On the contrary, it could be counterproductive and distort markets.”
Monitoring the production and use of SAF in the EU would be very useful, said the ministry, provided it did not lead to an increased administrative burden on fuel suppliers and SAF producers, it added.
Although not in the EU, the Swiss Federal Offices of Civil Aviation and Environment (FOCA and FOEN) said they supported the ReFuelEU Aviation initiative. “Such a harmonised policy instrument is in our opinion a crucial step to foster SAF in the EU,” said their response. “In a global aviation [framework], it is essential that production criteria and financial support for SAF are not regulated at the national level but in a broader context. We therefore welcome the Commission’s proposal to strive for uniform regulation in the EU.”
They expressed strong, preferential support for the development of synthetic fuels produced from energy sources such as electric power (Power-to-Liquid, or PtL) and sunlight (Sun-to-Liquid). Synfuels were not rewarded under the current EU ETS, they said, and suggested a reformulation of the directive. Discussions over potentially subsidising the production and use of synfuels are currently being held in Swiss parliamentary commissions in the context of a potential introduction of an aviation ticket tax, they reported.
In its submission, the German Environment Agency (UBA) said a recent study showed the rollout of PtL fuels should start immediately and rise to a significant market share by 2030, in order to replace fossil kerosene completely by 2050. The rollout required supportive policy measures that included UBA proposals for increasing fossil fuel prices through taxation or a more ambitious EU ETS, an Innovation and Demonstration Fund and a PtL blending mandate up to 10% by 2030 in Germany, and preferably in Europe. The German Ministry for the Environment has suggested a quota of 2% by 2030, said UBA.
“We suggest adding taxes to the list of policy options in order to reduce the price gap between fossil and sustainable fuels,” it added. “Furthermore, the EU ETS should credit the use of sustainable PtL fuels.”
Although a multiplier might be a useful option, UBA said any multiplier greater than one encouraged a shift from land transport to aviation but led to a lower overall amount of alternative fuels.
NGOs have their say
The Commission also received submissions from NGOs, including Transport & Environment (T&E) and the International Council for Clean Transportation (ICCT).
T&E said any policy on sustainable alternative fuels must support only those fuels that can deliver the greatest emission reductions and are furthest from market deployment. A mandate should target only sustainable amounts of waste and residue based advanced biofuels and electro-fuels, it recommends, and should be structured as a GHG reduction target to incentivise fuels that deliver the greatest emission reductions. T&E said it did not support the continued use of a multiplier as it was unnecessary if a mandate is introduced and would risk transferring the cost of decarbonising aviation onto other fuel users.
It supports a central auctioning system provided the revenues are derived from the aviation sector, for example through the abolition of free allowances under the EU ETS, and aviation prioritisation for electro-fuels. It also expressed regret that carbon pricing had not been included in the list of measures.
ICCT concurred that future SAF policy must leapfrog the road sector’s reliance on food-based fuels and prioritise those advanced fuels produced from wastes and residues or additional, renewable electricity with over 70% carbon reduction relative to conventional jet fuel on a life-cycle basis. ICCT’s own research suggested the most effective policy support for SAF would be an auctioning mechanism in conjunction with facilitation of purchase agreements between SAF producers and airlines.
It also cautioned against a blending mandate as a high target in excess of advanced fuel feedstock availability may either simply divert waste oils already used in the road sector or incentivise the use of cheaper, food-based fuels to meet the target in the near term. Similarly, it argued, increasing the multiplier would shift more fuel to the aviation sector from the road sector and at a higher policy cost, without a net climate benefit.
Not all respondents to the IIA supported policy measures in favour of SAF. Italian waste-based biodiesel producer Sabio Fuels expressed its “deepest concern” over the Commission’s plans.
“We believe that any measure indiscriminately promoting SAF without a safeguard for waste biodiesel feedstocks (used cooking oil and animal fats) would inexorably thwart the near-term decarbonisation that our industry is bringing to the EU road transport sector, with extremely negative consequences for our companies located in most EU Member States,” said its submission. “Our waste-based biodiesel product displaces a more carbon-intensive product (diesel) than SAF (jet fuel) and has greater GHG savings.
“If the Commission proposes to shift resources from on-road to aviation in a way that shuts down our businesses, hundreds of millions [of euros] invested in waste biodiesel plants that have been consistently celebrated as the most sustainable biofuel options in current use in most EU Member States will be ruined for no actual short or long term climate benefit. Not to mention that this will also send an extremely negative policy uncertainty signal to investors in other novel technologies, effectively hampering further investments in much-needed sectors.”
As part of the next stage of the ReFuelEU Aviation roadmap, a 12-week public consultation will follow and a Commission proposal is expected towards the end of the year.