Global aviation is fighting headwinds as the Middle East conflict disrupts jet fuel supply and causes steep price hikes. These challenges add to issues airlines already face in adopting clean jet fuels and offsetting carbon emissions.
Singapore has just postponed a sustainable aviation fuel (SAF) levy from next week to later this year, and its 1pc SAF usage from later this year to the start of 2027.
Argus spoke with Philip See, chief sustainability officer at Malaysia Aviation Group on the sidelines of the Carbon Forward Asia conference in Singapore this week, on how the group is adapting and reviewing decarbonisation plans for the years ahead. Edited highlights follow:
How might the ongoing US-Iran conflict impact SAF uplift, especially considering soaring jet fuel prices since the war began?
While the situation's unique for everyone, it's generally quite difficult to hedge jet fuel cracks. Jet fuel prices having risen north of $200/bl has forced us to rethink our operations and business model quite a bit, which is why I suspect SAF's slightly on the back burner for the short-term.
We did uplift SAF last year, and it's a constant challenge to find ways to procure it more efficiently through the jet refuellers. We'd allocated some budget to procure SAF this year but are re-evaluating that, considering the Middle East crisis.
Regarding the agreement signed with logistics firm DHL earlier this month, why did Malaysia Aviation Group choose the book-and-claim mechanism as a decarbonisation lever?
The agreement with DHL was from an opportunistic, business-to-business standpoint. Book-and-claim is still at a nascent stage in Asia from the demand and supply-side, and we need to find ways to adopt and accelerate it. Corporates are likely the first partners to move that forward in the short-term. The book-and-claim mechanism does help save on logistics costs involved in procuring physical SAF. There's also still some time before Malaysia's SAF production develops, as we only have one operational plant now.
This year, we've intensified efforts on how we can meaningfully roll out book-and-claim initiatives in Malaysia, and even with our Asia-Pacific partners. Three constituents are important — corporates, [the physical] cargo [being transported] and government-linked companies. We have been engaging players here who seem receptive, and are now thinking of partners and platforms. The International Air Transport Association (IATA) made it clear recently that they support book-and-claim, so we want to move towards that too.
If there are more book-and-claim developments in other markets like the EU, for example, that will also help build the supply-side for us in the Asia-Pacific, which will be beneficial in the mid to long-term.
Might there be any progress towards Malaysia's potential SAF target so far?
To my knowledge, the ministries are actively discussing and trying to land on something, while being anchored by the Malaysia Aviation Decarbonisation Blueprint. There's no timeline I'm aware of yet, and the target's form is still being discussed.
Are there any updates on the memorandums of understanding signed with aircraft manufacturer Airbus, and biofuel feedstock supplier Fathopes Energy regarding studying carbon emissions and SAF feedstocks, respectively?
We'll likely be able to share updates on the study with Airbus by year-end. Regarding the agreement with Fathopes, that's still exploratory. Besides these publicly announced ones, we're in conversations with others too — as we can't be overly reliant on any one partner. The whole point of SAF is diversification and having a holistic view of decarbonisation levers.
On Corsia (Carbon Offsetting and Reduction Scheme for International Aviation) offsetting, how is the progress in meeting obligations for the Phase 1 period (2024-26)?
We have forecasted and budgeted for the carbon credits needed. We have not retired any credits, and our procurement is in small batches through the International Air Transport Association. We have a plan to ramp up [procurement] in phases. We want to diversify our sources as the portfolio of Corsia carbon projects grow. We are also looking at all instruments for procurement options.
Does Malaysia Airlines have additional criteria for the types of Corsia credits it intends to procure?
No, we already [see] challenges in projects meeting the Corsia requirements and obtaining Letters of Authorisation (LOAs) from host governments. So let us get that going first. I don't think we will impose too many additional requirements. In the voluntary carbon space there are more choices. In our previous passenger offsetting programme, we could specify preferences for sourcing from Asia-Pacific carbon projects. With Corsia, it is different.
Have you discussed with the Malaysian government on advancing LOAs and Corresponding Adjustments (to enable domestic Corsia projects and carbon credits)?
The Malaysian government is aware of our requirements. The challenge lies in different ministries handling different priorities. We speak with the transport ministry on Corsia and they are familiar with the programme. But LOAs involve other ministries, such as that for natural resources and environment. They have many competing priorities to reconcile. Everybody is at the table but there are still different positions. I think we need more harmonisation within the government.
It seems that lack of LOAs seems to be a key Corsia bottleneck more broadly, and not just in Malaysia.
Yes. Greater transparency around how authorisations are issued is important. Last year, we were quite keen on engaging with the Koko project, and we were taken aback by its collapse [because of delays in obtaining an LOA]. We had conversations with counterparties suggesting we secure carbon credits from this project. Now we are more hesitant, more cautious [in procuring Corsia credits].
How is Malaysia Airlines positioning itself to be able to secure SAF and Corsia credits in this challenging environment then?
It is about knowing your levers for sustainability and knowing which to pull at the right time. We have been looking closely at the trade-offs between SAF and carbon offsetting, and formulating different scenarios and what to do given each. This has been an 18-month piece of work. I think compared to many of our peers, we have a more structured programme on decarbonisation that takes into account, for instance, our aircraft fleet and investment options in the carbon space for the next 10 years.
In the short-term – meaning two years from now — we're looking at a clear, structured procurement plan for high-quality offsets, while accounting for a changing operational environment as we've more fuel-efficient aircraft, plus knowing our [risk] exposure. In the mid-term (into the 2030s), we'll then consider more physical SAF procurement.
Is there a risk that Corsia's emissions reduction target, set at 85pc of emissions from 2019 levels, could be weakened given current challenges?
That is a worry hanging over the industry — on how robust the Corsia regime is and whether it stands the test of time. I can say Asia-Pacific airlines are quite committed to Corsia. So is the Oneworld Alliance.
