An original article by Longrun Capital
<aside> 💡 As the world strives for decarbonization in all sectors, the aviation industry is taking significant steps to reduce its environmental impact. Currently, it is responsible for approximately 2.5% of global CO2 emissions, but the aviation industry aims to become carbon-neutral by 2050. To achieve this goal, alternative and sustainable aviation fuels (SAF) play a crucial role. SAF offers a greener, more environmentally friendly alternative to conventional fossil-derived aviation fuel.
</aside>
Sustainable Aviation Fuel (SAF) refers to non-fossil derived aviation fuel that meets technical and certification requirements for use in commercial aircraft. It is economically, socially, and environmentally sustainable, ensuring the conservation of natural resources. SAF is made from alternative feedstocks such as cooking and plant oils, municipal waste, waste gases, and agricultural residues, instead of traditional fossil-sourced fuels like oil, coal, and natural gas.
SAF can reduce CO2 emissions by up to 80% over the fuel life cycle compared to conventional aircraft fuels. It also helps reduce other non-carbon climate and environmental emissions associated with aviation activities. By focusing on drop-in solutions - ones that use existing tech and infrastructure - SAF can be seamlessly integrated into existing aircraft and fuel distribution systems without the need for extensive modifications.
The global sustainable aviation fuel market is on the rise, with a value of $72.1 million in 2020 and projected to reach $6.2 billion by 2030. The market is expected to grow at a compound annual growth rate (CAGR) of 56.4% from 2021 to 2030. To achieve the industry's goal of carbon neutrality, SAF is projected to account for 65% of aviation mitigation by 2050, requiring an annual production capacity of 450 billion liters.
Despite the growing demand, the current production of SAF still needs to grow. In 2022, production reached 300-450 million liters, representing a significant increase of 200% compared to 2021. However, the demand continues to outpace the supply. To meet the increasing need for SAF, collaboration between government, policy-makers, and industry stakeholders is essential.
Various policies and regulations are driving the adoption and production of SAF. One significant policy is the ReFuel EU, which mandates blending minimum volumes of SAF at EU airports. Starting from 2025, a blending obligation of 2% SAF will gradually increase to 70% by 2050. The policy also includes sub-obligations for synthetic aviation fuels and aims to reduce carbon leakage by requiring aircraft operators to uplift at least 90% of their yearly fuel requirement at EU airports. Additionally, there are proposals for increased kerosene taxes on intra-European flights over a 10-year period to further incentivize emissions reductions.