The SAF market is driven by producers and end-consumers
In the European Union, the biofuels market took 15 years to structure itself and represents in 2021 a size of 23 million tons and around 9% of fuel consumption in the road sector. On the air side, the market is early-stage and for some time now, there has been euphoria around SAF, but what will the reality be in 10 years? Will it be less than 5% of the total kerosene consumption, or are we going to reach a size aligned with current announcements?
In the air transport segment, airplane technology advancements remain limited to reduce the CO2 footprint massively. An airline buying the new generation planes can hope to reduce by around 30% its CO2 footprint, mainly due to reduced kerosene consumption. To take the leap and expect to reach up to 80% to 100% emission reduction, there are no other alternatives than biofuels, renewable electricity or (green) hydrogen. Renewable electricity and hydrogen techs are far from being ready in the air segment, and no one should expect a middle or long-range and wide-body commercial airplane flying electric or with hydrogen before 2035. Therefore, only biofuels offer the best possible alternative as a transition. However, is it sustainable environmentally and economically, and is it realistic to produce SAF at scale?
Currently, the biggest SAF producers (Neste, Shell, TOTAL) are driving the legislation in countries where they operate and are proposing alternatives to continue flying with a low carbon footprint. There is on the other side a willingness of consumers to reduce environmental footprint in advanced economies. Airlines are therefore squeezed between producers and end-consumers, where pressure subsists on both sides.
SAF legislation
Is also not yet observable at the global scale, but things are changing fast locally as more and more countries (France, Norway, Sweden, Finland) are taking strong measures. In the global scale, the framework CORSIA is implemented and front-runners’ airlines located at the largest hubs (Emirates, Singapore Airlines, Delta Airlines, Etihad), and companies (Salesforce, Amazon, Microsoft, Unilever, American Express, BCG) are also ready to take the leap. The market is therefore still early-stage and only targeting niches through partnerships. Considering its scale and global constraints, business models between SAF producers, airlines, kerosene distributors to trade SAF are also yet to be determined.
What prevents the SAF market from growing?
Carbon credits can help companies offset emissions in three cases:
SAF legislation is mainly local: France is a good case example, where from 2022 every plane taking off from Paris CDG must be loaded with 1% SAF with a framework in tons of the total kerosene consumed, complementary different from Germany willing to start in the second part of this decade with a GHG-based framework. What would happened for a Paris-Berlin flight ?
Counting and reporting SAF carbon emissions is not straightforward. First, numerous frameworks exist all around the world to count emissions from SAF. From Japan to the US, the EU and its respective countries, 20+ (different) frameworks exist. Second, SAFs are not compulsory, it means that SAF buyers are not really “consuming” SAF and SAF sellers are also not “selling” SAF. CO2 or energy certificates are exchanged, which are then counted with different methodologies, allowing buyers to include the former into their ESGs reporting for instance. SAF consumers are therefore never aware of what is really in the plane upon flying.
Capturing value for actors is not straightforward: SAF “consumers” are competing between each other for CO2 capture. As SAF is today not compulsory in most regions, who can claim it has consumed SAF and how should for instance the value be distributed between producers, airlines, airports, brokers, and finally the end-consumer. The same certificate may be sold many times through the value-chain and there is no central entity guaranteeing its authenticity and its value.
Price for the end-consumer is too high: It is obvious that the price will be reported to the end-consumer considering current airlines margins. Assuming one ton of SAF is reducing emissions by 80% and produces around 3.1 ton of CO2 per ton, the potential carbon saved would be priced at around 14.5 times the current price of carbon. This reduces the incentive of actors as other cheap solutions may exist. Simply buying carbon on the market is one.
Educating end-consumers on what are the different types of SAF(s) is hard: Many technologies (HEFA, ATJ, Fischer-Tropsch, Power-to-Liquid, Plastic-to-liquid, co-processing) and feedstocks (vegetable oils, waste and animal fats oils, and advanced feedstocks according to the annex IX-A REDII) with different pros and cons exist at this stage to produce SAF and this complicates tasks to correctly promote SAF for actors close to end-consumers.
Pressure on feedstocks is growing: the key issue between 2025-2030 remains the residual raw material resource. We already know that bio-feedstock is limited and already convoyed all over the world. SAF is therefore betting its future on the death of the road transport biodiesel segment, with the hypothesis that feedstock demand would shift to SAF. But what if this industry does not disappear as quickly as expected (increase of European mandates, B100, HVO100, biofuels for trucks, train, marine and other energy-intensive industries…)
An aviation fuel is a fuel of exemplary quality and purity, which in production will result in significant yield production losses between the incoming raw materials and the final fuel. We could thus open the debate of whether it is necessary to push the market to produce biofuels for aviation or if it is necessary to orient the market better towards the production of lower quality biofuels as for the road, shipping, or heating.
Why will the SAF market grow in the next few years?
Pricewise, carbon prices are increasing (x8 since end-2019) which will make SAF competitive in the long-term. Supply-wise, diesel is banned in the EU from 2035 meaning biodiesel and HVO consumption will drop in the wake of diesel. This means large feedstock capacity will be available, capacity that the air sector may capture. Demand-wise, legislation is slowly getting homogenous for certain areas. The EU for instance with REDII and the ETS framework is willing to include aviation. On top of this the market is slowly being structured with increasing transparency, including for instance public price quotations available and we can already forecast that most plants will be using HEFA technology by the end of this decade.
Discover our models and how we assess future trends. Should you like to know more, feel free to reach us at the below!
- Sustainable Aviation Fuel
- https://www.neste.com/releases-and-news/aviation/neste-and-boston-consulting-group-announce-new-sustainable-aviation-fuel-partnership-reduce-climate
- The law is still in discussion at the French Senate
- Assumptions: SAF diff. with gasoil is 2143 USD per ton, EUR/USD is 1.18, SAF footprint is 71.5 kgCo2 per GJ, SAF energy density is 44 GJ per ton, SAF CO2 savings: 80%, Carbon price is 50 EUR per ton.