Green Jet Fuel Production Faces 2030 Challenges

The aviation industry is on a mission to decarbonize, with sustainable aviation fuel (SAF) playing a pivotal role in achieving net-zero emissions by 2050. However, a recent report by BCG highlights significant challenges that could hinder the production of green jet fuel, potentially leading to a shortfall by 2030. The report underscores the need for increased production capacity, reduced costs, and technological advancements to meet the industry's ambitious decarbonization goals.

Limited Production Capacity

One of the primary factors contributing to the potential shortfall in SAF production is the limited capacity. In 2024, the global production capacity for SAF is expected to reach only 1.5 million metric tons (Mt), which is a mere 0.5 percent of total jet fuel needs. This limited capacity is a significant barrier to meeting the estimated global demand from mandated SAF, which is around 4.5 million Mt in 2030, and the additional demand from voluntary airline commitments, which could accumulate to more than 20 million Mt in 2030. The SAF industry is still in its infancy, and scaling up production will require significant funding and investment.

High Costs

Another major challenge is the high cost of SAF. Currently, SAF costs around three times more than fossil fuel kerosene, making it expensive for airlines to adopt. This cost differential could deter airlines from meeting their voluntary decarbonization targets, especially in an industry known for volatility, intense global competition, and slim margins. The high cost of SAF is a significant barrier to its widespread adoption, and reducing these costs will be crucial for meeting the industry's decarbonization goals.

Technological and Infrastructure Challenges

Expanding SAF production beyond the use of waste oils will require scaling up new and immature technologies, such as synthetic fuels. High interest rates and risk premiums could discourage investment, especially in these immature technologies. The SAF industry is still in its early stages, and developing new technologies and infrastructure will be essential for increasing production and reducing costs.

Regulatory Uncertainty

While mandates are relatively certain because of penalties for noncompliance, some airlines might miss their voluntary decarbonization targets if SAF remains expensive and in short supply. The regulatory landscape for SAF is still evolving, and implementing appropriate regulatory mechanisms and inventive structures will be crucial for supporting the SAF ecosystem.

Addressing the Challenges

To address these challenges and meet the industry's decarbonization goals, several steps could be taken. Increasing production capacity will require significant funding, including venture capital (VC) and infrastructure investment for building SAF facilities. Reducing costs could involve research and innovation grants, support from multilateral development banks, guarantees and insurance, strategic investments from airlines and energy companies, long-term offtake agreements, and green bonds tied to SAF production. Developing new technologies and infrastructure will be essential for increasing production and reducing costs. Implementing appropriate regulatory mechanisms and inventive structures will be crucial for supporting the SAF ecosystem. Collaboration between governments, industry, and regulators on a global scale is essential to address the challenges associated with SAF production and adoption.



The Role of Policy

The current regulatory landscape significantly influences the production and adoption of SAF. Mandates and incentives play a crucial role in driving the demand and supply of SAF. For instance, in Europe, flights departing EU and UK airports must now use 2% SAF in their tanks, which is a clear regulatory mandate that increases the demand for SAF. This mandate is expected to lift SAF demand from these countries to about 14% of their production capacity by 2026. Similarly, in Asia, Singapore and Thailand will enforce a 1% mandate starting in 2026, which will also boost SAF demand. These mandates are relatively certain because of penalties for noncompliance, ensuring that airlines adhere to the SAF usage requirements.

Incentives also play a significant role. For example, the U.S. federal sustainable fuel tax credit, under the 2022 Inflation Reduction Act, helps reduce the cost of SAF by $1.25 to $1.75 per gallon, making it more economically viable. This tax credit is crucial because SAF is typically three times more expensive than traditional jet fuel, and the credit helps keep it in the ballpark of commercial acceptability.

However, the regulatory landscape is not uniform across all regions. In Asia, for example, the lack of government mandates and high prices have deterred demand. This regional disparity highlights the need for more consistent and comprehensive policies to accelerate SAF deployment. Additional policy measures could include increased mandates, financial incentives, research and development funding, book-and-claim mechanisms, long-term offtake agreements, and green bonds.

Conclusion

The aviation industry's decarbonization goals are ambitious, and achieving them will require a coordinated effort from all stakeholders. The challenges highlighted in the BCG report are significant, but they are not insurmountable. By increasing production capacity, reducing costs, developing new technologies, implementing appropriate regulatory mechanisms, and fostering collaboration, the industry can overcome these challenges and meet its decarbonization goals. The future of aviation is green, and with the right policies and investments, the industry can achieve a sustainable future.