SAF Market Sees Increased Dealmaking Amid Net-Zero Goals
The sustainable aviation fuel (SAF) market is experiencing a surge in dealmaking as the aviation industry pushes toward a net-zero emissions target by 2050. However, investors are seeking greater regulatory certainty and assurance that government subsidies will continue to support SAF production in the long term.
Despite its potential, SAF remains more expensive than conventional jet fuel, which could lead to higher ticket prices for passengers. Yet, some industry producers believe costs will decrease significantly as production scales up. The aviation sector considers SAF the most viable option for achieving its decarbonization goals, even as opposition and concerns about rising costs pose challenges to this growing market.
Recent partnerships highlight this trend, with United Airlines teaming up with major SAF supplier Neste to provide sustainable fuel at Chicago O’Hare International Airport. Additionally, South Korea announced a target in August for all departing international flights to incorporate approximately 1% SAF starting in 2027. In the U.K., the new Labour government has mandated that SAF must meet 10% of jet fuel demand by 2030 and pledged support for production through measures such as a revenue certainty mechanism for producers.
SAF encompasses fuels that, instead of being derived from traditional kerosene, are produced from sustainable sources like used cooking oil, biomass, and agricultural waste. Although SAF still generates emissions, its lifecycle carbon footprint can be reduced by up to 94%, depending on the source and production methods used.
Airbus made several SAF commitments at the recent Farnborough Air Show, collaborating with HIF Global on methane-based fuels and investing in alcohol-to-jet fuel producer LanzaJet. There is growing excitement about SAF’s potential to significantly reduce aviation emissions, especially since it can be blended with conventional fuel and utilized in existing aircraft engines, presenting a relatively low barrier to entry.
Despite the enthusiasm, concerns have been raised regarding certain types of SAF that may contribute to deforestation or compete with food production. Critics argue that SAF could serve as an exercise in “greenwashing” rather than a practical solution at scale.
United Airlines views the transition to SAF as a core element of its sustainability agenda. The airline has been using SAF in its fleet since 2016, but its Chief Sustainability Officer, Lauren Riley, pointed out that the current supply of SAF is insufficient to meet demand. IATA projects that SAF production will triple in 2024 to 1.9 billion liters, but this would only cover 0.53% of aviation fuel demand for the year.
Rick Nagel, managing partner at Acorn Capital Management, emphasized the need for solid regulatory frameworks and consistent funding to enable growth in the SAF market. While the size of the market has increased from nearly zero to approximately one billion dollars in recent years, challenges remain in creating the necessary infrastructure and securing biomass supplies.
Clara Bowman, COO of HIF Global, expressed confidence that funding will flow into the SAF sector as long as governments provide the needed regulatory support. She noted that existing initiatives, such as the EU’s Renewable Energy Directive and Japan’s 2030 SAF mandate, are encouraging.
As the SAF industry evolves, it is expected that consumers, particularly in wealthier markets, may initially face higher ticket prices due to the costs associated with SAF. However, as production scales and efficiency improves, prices are anticipated to drop, similar to trends seen in solar and wind energy.
The aviation industry recognizes that while SAF may currently be more expensive, its long-term viability and potential for reducing overall costs, especially when factoring in the cost of carbon emissions, make it a competitive alternative moving forward.
Sources: AirGuide Business airguide.info, bing.com, cnbc.com