Viewpoint: Sustainable jet fuel supply to grow

Additional US and Canadian clean fuels programs could boost sustainable aviation fuel (SAF) production in the coming years, helping to narrow SAF's premium over conventional jet fuel. But greater support for renewable diesel may temper that growth in the near term.

SAF has carried a strong price premium over conventional jet fuel, as demand for the fuel has outstripped supply. Renewable diesel is often co-produced with SAF in the same refining process, which forces companies to make a decision about which fuel to produce.

To date, the economics in the US have largely favored renewable diesel, prompting a number of west coast refiners to announce plans to expand production.

SAF is jet fuel sourced from non-petroleum feedstocks, such as waste oils, alcohol, wood fiber or algae. Both California and Oregon added the fuel as an eligible credit generator in their respective low-carbon fuel standard (LCFS) programs at the start of 2019.

With California LCFS credit prices hitting a record high this year, market participants see these clean fuel programs as strong incentives for SAF growth. Neste and other biofuel producers have announced a string of new projects, as the state develops into a larger market for SAF.

Other biofuel blending mandates for aviation and clean fuels programs are on the horizon, which will support SAF growth, increase overall supply in the market, and help narrow that price premium.

Canada's proposed clean fuel standard, scheduled to begin at the end of 2022, includes SAF as an eligible credit generator. States across the US, including Washington and New York, are exploring LCFS programs, which could provide additional homes for SAF.

Industry trade group Airlines for America is participating in the development of policy recommendations for New York and has urged that state's Climate Action Council to explore the use of non-road fuels under a potential LCFS.

But hurdles for broader SAF use remain.

The California and Oregon programs stop short of regulating aviation fuel. And unlike a number of European countries, the US does not put a volumetric mandate on SAF.

To get California LCFS credits, SAF producers, at least through 2022, have to meet carbon intensity benchmarks that are lower than those for diesel alternatives, making renewable diesel production for the most part more attractive than SAF for the next two years. Oregon's program follows a similar path out through 2023.

SAF has generated just over 20,200 metric tonnes of California LCFS credits since it was added to the program in 2019, according to state Air Resources Board data. Over that same period, the program has generated nearly 7mn t credits from renewable diesel.

But with Oregon preparing to extend its program out to 2030 with a mandate for a 25pc reduction in the carbon intensity of transportation fuels, and California's target rising to 8.75pc in 2021 from 7.5pc this year, those states could offer some additional support for SAF in the near term.

The limited volumes have put the onus on airlines or intermediaries to pay a premium if they want to secure SAF. Although the premium over conventional jet fuel is likely to narrow over the next decade, the two fuels are unlikely to reach price parity in the near term. And while the outlook for air travel looks brighter next year, the industry has faced an unprecedented level of disruption from the Covid-19 pandemic, which can make premiums harder to swallow.

Action at the US federal level remains a possibility, with Democratic lawmakers recently floating the idea of an aviation sector LCFS and president-elect Joe Biden calling for federal support or incentives for SAF.

And as more carriers take up carbon neutrality goals and mull compliance options for UN aviation agency Icao's planned carbon offsetting scheme for global aviation emissions, attention on aviation decarbonization has never been greater.

By Jessica Dell