By Marie Owens Thomsen, IATA Senior Vice President Sustainability & Chief Economist
In theory, the necessary long-term signals to encourage energy producers to accelerate production of sustainable aviation fuels (SAF) for aviation are already in place. In 2021 the aviation sector adopted the goal of achieving net-zero CO2 emissions by 2050, and governments also committed to the same goal last year during the 41st Assembly of the International Civil Aviation Organization (ICAO). Furthermore, public opinion places a particular importance on limiting emissions from civil aviation and expects progress to be made. Unfortunately, however, the demand for such fuel from airlines is far outstripping the mobilization of resources for the production of SAF.
In the immediate term, SAF are the only proven solution to replace traditional aircraft kerosene. As part of its industry sustainability strategy, IATA estimates that SAF will represent around 62% of carbon abatement necessary to reach net zero CO2 emissions by 2050. In 2022, SAF production reached 300 million liters, a 200% year-on-year increase. However, this constituted only 0.1% of aviation’s total kerosene consumption for the same year. The SAF market is in its infancy, and energy producers are slow to seize what should be a golden opportunity, especially considering that the price of SAF is 2 to 4 times higher than that of kerosene. Normally, in more mature markets, a high price stimulates production until demand is satisfied, at which point the price moderates. The fact that the sustainable fuels market is not currently following this pattern is a sign that other constraints are hindering its development.
One of these constraints is that public and private money continues to flow abundantly into the fossil energy sector – over USD 1 trillion in 2023. The International Energy Agency has analyzed that this amount is twice the annual investment needs in this sector in the scenario aimed at achieving global net-zero CO2 emissions by 2050. "World Oil" magazine published a forecast in September 2023 showing that the number of oil wells will increase by 6.6% in 2023, more than twice the rate of global GDP growth.
Oil and gas companies themselves spent less than 5% of their investments on renewable energy development in 2022, a figure unchanged since 2021. Thus, despite profits of nearly USD 200 billion in 2022, the five largest oil companies favored buying back their own shares and distributing dividends, at the expense of sustainable development.
In addition to this lack of investment in renewable energy as a whole, there is the disadvantage of the low share of kerosene in total refinery production. In 2022, refineries allocated 25% of their capacity to gasoline production and only 8% to kerosene production. Air transport therefore plays a very limited role in the profit optimization of an oil company, and the incentive to invest substantial sums in the production of sustainable aviation fuels, despite their high price, is low.
Clearly, investors calculate that the risk-return ratio is still very attractive for fossil energy. To accelerate the reallocation of capital in favor of renewable energy, it is necessary to increase the risks and limit the returns associated with fossil energy. To do this, it is important for governments to eliminate their support for this sector, at least reaching a level playing field that gives equal chances to all forms of energy. Governments could also replicate support measures in favor of sustainable aviation fuels which were used to good effect in the process of developing wind and solar energies. Such was the success in those domains that they are now abundant and cheaper than any other forms of energy the world over. With these forms of policy support, the pathway to increasing SAF becomes a virtuous circle of accelerating production, lower cost and higher use, taking us towards our 2050 net-zero CO2 goal.