This is an exclusive “Sector Guide” from the Sightline Climate platform, where we cover in-depth climate tech sector landscapes and data. Want to go further? Request a demo for Sightline Climate, or reach out directly to [email protected] to learn more.
As we head towards the end of the year, many of us will be boarding a metal tube to hurtle hundreds of miles an hour towards home or wherever the tinsel and mistletoe may hang.
Flying in an airplane is arguably one of the most technologically marvelous engineering feats that we regularly benefit from. COVID’s halt on air travel feels like minor turbulence now. In fact, many of us are flying more – air travel over Thanksgiving week in the US was the busiest ever, and annual demand for flights is growing rapidly in markets like India and China. It’s no surprise that degrowth campaigns to voluntarily reduce air travel seem highly unlikely to make a dent – we may not all like flying, but we all like going places.
But all this travel comes at a steep carbon cost. In 2022, aviation accounted for 2% of global CO2 emissions. In part because air travel is such a technical marvel, engineering our way around direct emissions from burning fossil fuels strapped to those big jet engines on the wings is definitionally “hard to abate.”
That leaves basically three options for decarb: electric planes, hydrogen planes, or cleaning up the fuel powering today’s fleet. Trade groups like the International Air Transport Association (IATA) generally see sustainable aviation fuels (SAFs) as the most viable option for a few reasons:
The energy density of jet fuel is extremely hard to beat, so for most flights longer than an hour, batteries become too heavy and hydrogen takes up too much space.
SAFs leverage existing distribution infrastructure which means very little retrofitting at airports, allowing for a smoother and cheaper transition.
Redesigning planes is expensive and time-consuming for safety and regulatory reasons, so using a drop-in alternative makes the transition easier.
Before taking off for the holidays, come cruise with us at 30,000 feet for a view on SAF chemistries, how they’re made, and whether the market is riding business class or stuck in coach.
Most commercial planes use Jet A, which is a type of fossil-derived kerosene made from refining crude oil. Kerosene is a “long-chain hydrocarbon”, which means it is made up of carbon and hydrogen atoms (specifically C12H26C15H32). In order to create a SAF, therefore, you need a new source of carbon atoms, a new source of hydrogen atoms, and a way of putting them together in the right proportions and molecular structure.
There are two categories of solution: bio-SAFs which are derived from biomass and e-SAFs, also called power-to-liquid (PtL), which are derived from captured CO2, green hydrogen, and renewable energy. Here, we’ll walk you through our Sector Compass on these solutions, how the market works, the key technologies and players, and what to take away.
Many pathways, one output
For SAFs, the input determines the process. Different types of biomass lend themselves to different processes, some of which are also compatible with captured CO2 and clean hydrogen for e-fuels.
Hydroprocessed Esters and Fatty Acids (HEFA): The most common ingredients for producing commercial SAFs are natural oils, typically either used cooking oils or some kind of vegetable oil.
Advantages: HEFA is the most utilized SAF production pathway (up to 85% of planned and existing capacity) because it’s the most similar to traditional ways of refining oil. The process can be implemented within existing oil refineries or as standalone facilities, and is generally lower cost than other, more novel methods.
Disadvantages: Used cooking oils are not a widely available feedstock, particularly in the quantities necessary for commercial-scale production, leading to sharp price rises. Other vegetable oils face land use and carbon footprint concerns. Attempts to commercialize alternatives such as algae-derived oils have struggled to drive costs low enough to be competitive.
Innovation areas: Due to HEFA’s commercial success, some technologies are being developed to make other types of biomass compatible with the process, such as pyrolysis to convert woody or cellulosic biomass into a usable bio-oil.
Fischer Tropsch (FT) for BioSAF: Originally developed to derive liquid fuels from coal, FT converts syngas (a mixture of hydrogen and carbon monoxide) into hydrocarbons including kerosene. Syngas is commonly sourced from municipal waste, industrial processes, or woody/cellulosic biomass.
Advantages: FT is a mature technology, but newly applied to bio-SAF and e-SAF production. It can also take advantage of a range of different low-cost or waste feedstocks ranging from agricultural residues to municipal waste, which provides valuable flexibility.
Disadvantages: FT for bio-SAF requires a very large quantity of waste material, and so generally needs to be located near the source of a secure long-term supply of that waste in order to avoid long-distance shipping of low-value goods. In order for a consistent output, the waste generally needs to be of a consistent type and quality which is one of the reasons wood and agricultural waste are common choices.
Innovation areas: Once again, feedstocks are very important here. The core innovation for bio-based Fischer-Tropsch lies in the primary conversion technologies that allow for different kinds of waste products, such as municipal waste, to be converted into fuel. Improvements to plant design, modularity, and catalyst technologies will also help bring down costs and improve flexibility.
Alcohol to Jet (AtJ) for bioSAF: Heralded by some as the potential “heir to HEFA”, AtJ involves converting some sugar source, usually a crop such as sugar cane or corn into ethanol or iso-butanol, and then converting that alcohol into the final product.
Advantages: Bioethanol production is a fully commercialized technology with robust supply chains, primarily as an additive to gasoline in the US and Brazil, with some use in Europe as well. It opens the door to a wide range of new biomass feedstocks for SAF production.
Disadvantages: The technology is still being commercialized, with first of a kind facilities expected to start coming online in 2024. There are also land use concerns regarding grow-to-fuel, and SAFs will have to compete with other use cases for those crops.
Innovation areas: The core AtJ technology itself is being deployed in commercial facilities starting in 2024. Alternative ways to obtain sugars for ethanol production are also being developed, such as using different crops or even waste products in order to mitigate land use concerns.
Putting into practice: LanzaJet is the VC poster child for alcohol-to-jet, with demonstration projects in development in the US, UK, Japan, and Australia. Their first plant, Freedom Pines, is scheduled to come online in early 2024. There are a number of other companies exploring AtJ technology, including Gevo, Swedish Biofuels, Axens, and Shell.
Methanol-to-jet: One of the newest technologies for consideration, converting biomass and clean hydrogen into methanol, and then processing that methanol into jet fuel, is another pathway that is showing promise. The technology helps broaden the range of acceptable feedstocks and may be more efficient than other conversion methods by requiring fewer steps and producing a higher percentage of SAF as the output. Additionally, the process can be adapted to accept e-Methanol as that becomes more widely available.
Fischer-Tropsch (FT) for eSAF: In addition to producing biofuels, Fischer Tropsch is also a common pathway for electrofuels. CO2 is captured either from the air using direct air capture (DAC) or from flue gas produced by burning fossil fuels. Low carbon hydrogen is created, usually using an onsite electrolyzer. The captured CO2 is then converted into carbon monoxide (CO) and blended with the hydrogen, most commonly using a technology called Reverse Water Gas Shift (RWGS), to produce syngas. The syngas is then put through the Fischer-Tropsch process, which produces a crude oil that can then be refined further into a range of fuels, including SAFs.
Advantages: Fischer-Tropsch is a commercially available technology that is being newly applied to electrofuels, which helps lower the amount of technical development needed relative to other electrofuel solutions. It can also be ramped up or down depending on the availability of renewable energy, which allows it to be paired directly with variable generation like wind and solar without the need for batteries.
Disadvantages: The projects are all bespoke, which increases the CapEx compared to projects that are repeatable and easily bankable. Additionally, it has very large energy requirements, with as little as 20-25% of the energy generated by renewables actually making it into the final fuel. Finally, as with any electrofuel solution, the supply and cost of its core inputs are major limiting factors, with hydrogen electrolysis and carbon capture both early in their development.
Innovation areas: Creating a repeatable structure for these projects is a core area of innovation, as it would allow for more certainty and lower CapEx. Additionally, other ways to generate syngas, such as using electrolysis to turn CO2 into CO, are being explored as possible routes to improve efficiency. As with its bio-SAF equivalent, improvements to plant design, modularity, and catalyst technologies also drive the solution forward.
Alcohol to Jet (AtJ) for eSAF: Ethanol can be produced using captured CO2 and hydrogen, which is then call “e-ethanol”. E-ethanol technology is being developed for use as a core chemical in a range of applications, and with AtJ being developed simultaneously, the possibility of combining the two into a more efficient form of power-to-liquid is being explored.
Advantages: Alcohol-to-jet technology can scale by using bioethanol as a feedstock, and then switch to e-ethanol as that technology scales. The process can also be tailored to produce a high proportion of SAF as its output, whereas FT produces a crude oil, of which only about 30% can be refined into aviation fuel, with the rest becoming e-diesel or e-gasoline.
Disadvantages: E-ethanol production is yet to be commercialized and faces the same feedstock challenges regarding captured CO2 and clean hydrogen as Fischer-Tropsch.
Innovation areas: Both the development of e-ethanol and the conversion of ethanol to jet fuel are key areas for innovation. Both technologies are proven at the lab stage, and demonstration and commercial-scale projects are the next step in showing the potential of this pathway.
Putting into practice: Generally, AtJ is being scaled using bioethanol, and may then be adapted to e-ethanol once that feedstock is available. Air Company, Lanzatech, and Shell are among the companies publicly exploring that pathway.
Direct Conversion: Another potential pathway is direct conversion, in which CO2 and H2 are combined into kerosene without needing an intermediate chemical like syngas or ethanol, which would help lower the energy intensity and greatly simplify plant design, lowering CapEx costs. OXCCU is one of the early-stage companies developing technology along this route.
Getting off the ground: key success factors
Price: As with any commodified good, price is a key factor for measuring success. Fossil-based Jet A costs around $1,000 per ton (~$120 per barrel) in 2022, and the price for SAFs generally varies between 2 and 6 times that. About 20% of the cost of flying can be attributed to the fuel, so there is a significant direct impact of a 2x price increase, not including government subsidies. Without a very significant drop in either biomass price for bio-SAF or electricity costs for e-SAFs, it is unclear if SAFs could ever reach production cost parity with fossil fuels. However, technical progress toward greater technical efficiencies and broader input feedstocks could help bring the price down significantly.
Carbon footprint: Not all SAFs are created equal. Biomass-based fuels have significantly different life cycle emissions depending on their feedstocks and conversion methods. At the extreme end, HEFA using palm oil is up to three times as carbon intensive as burning traditional fossil fuel due to the impact of palm oil markets on global emissions. On the other hand, using certain energy crops might result in net carbon sequestration because some of the carbon captured in the plants is stored as biochar. E-fuels, for example, can save as much as 80-90% of jet fuel emissions. On the other hand, the per-ton cost of abating this CO2 can be very high, even far exceeding the cost of direct air capture.
A 2019 study from International Council on Clean Transportation (ICCT) found that the most cost-effective SAFs from a carbon abatement perspectives were HEFA (~€217/tonne CO2e) and bio-FT (€400-€500/tonne).
Feedstock agreements: SAF technologies are approaching commercialization, but they all struggle with sourcing reliable feedstocks at scale. Waste oils and fats for HEFA, for example, face such a mismatch of supply and demand that there have been reports of waste cooking oil costing more than fossil-based kerosene. Long-term and large-scale feedstock agreements for biomass are vital for most processes, with the possible exception of AtJ since the American ethanol market is a mature commodity market. E-fuels face the challenge of obtaining reliable hydrogen and carbon dioxide, usually by purchasing a hydrogen electrolyzer themselves and working with a large industrial emitter to capture their CO2 emissions.
Certification: The Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) is the primary source of certification for any new fuel to be considered a SAF. There are a number of pre-approved pathways that take into account both primary feedstock and conversion methods - FT, HEFA, and AtJ are all approved, both for biofuels and what they call “Recycled Carbon Fuels” (e-Fuels).
Blending %: For safety reasons, all SAFs must be blended with traditional Jet A in order to be used in aircraft. The actual amount of blending permitted varies depending on the production method, but the upper end is 50% with HEFA and FT. AtJ is currently capped at 30%, and coprocessing of fats and greases in traditional oil refineries at 5%.
Subsidies: There are a range of subsidies available for SAF production, depending on the geography and pathway. In the United States, there is a $1.25/gallon tax credit, plus one cent for each % emissions reduction above 50%, for a maximum credit of $1.75/gallon. The EU, by contrast, takes more of a ‘stick’ approach, with a SAF mandate known as RefuelEU that kicks in in 2025 requiring 2% of all jet fuel to be sustainable and increasing from there. Notably, the EU excludes crop-based biofuels from sources like palm oils due to their negative climate impacts, and advanced biofuels and e-fuels.
Stacking subsidies can also be valuable. For qualifying eSAF projects in the United States, for example, it is possible to take advantage of 45Q credits for CO2 capture and utilization, 45V for hydrogen production, and 45Z for low-carbon fuels production.
Byproducts: Most SAF production processes also create other chemicals as byproducts, many of which are valuable. Most commonly, renewable or e-diesel are also created, which helps provide another revenue stream for the plants in a market that is more mature. On the other hand, many SAFs projects that advertise their capacity as 100,000 tons might only achieve 30% SAFs, with the rest as other biofuels.
Process Flexibility: Related to byproducts, SAF production processes can be flexible enough to change the proportion of outputs that are kerosene vs other biofuels, which can allow for more delicate scaling of SAF production based on demand for different types of offtake.
Offtake Agreements: As with any capital-intensive first of a kind project, offtake agreements are vital to secure financing. Airlines, airports, and oil companies are all potential offtakers, particularly those airlines that will be affected by the EU ETS and RefuelEU program. However, the high premiums associated with SAFs is creating some hesitancy, particularly among smaller operators. Book and Claim contracts allow larger airlines to ‘book’ the production of sustainable fuel and then ‘claim’ the environmental benefits of buying SAFs without needing to work out the logistics of physically possessing and using the fuel themselves.
When exploring this sector, you should remember…
Sustainable Aviation Fuels are just one pathway to decarbonizing aviation.
Electrification of aviation may prove more cost-effective for short-haul flights. It is also significantly better for the environment in terms of non-CO2 emissions which SAFs are unable to address and also make up almost half of the warming effect of aviation. However, less than 4% of emissions come from flights under 90 minutes, which is the maximum expected range for electric planes.
Hydrogen powered aircraft are still nascent but have the same non-CO2 emissions benefits as electric planes. Airbus and climate tech cos like ZeroAvia and Universal Hydrogen are pushing for a hydrogen aviation future, but it will require an aircraft redesign compared to traditional jets.
Direct Air Capture to offset emissions from fossil jet fuels may be a more efficient way to abate carbon emissions, particularly since SAFs rarely abate 100% of emissions. The ICAO estimates that bio-SAFs will cost $100-$400/ton of CO2 abated, while e-SAFs might be as high as $1400-$1800/ton, far above the $200/ton target for carbon removal.
Securing the runway to bankability. In an industry with constraints on both supply and demand, early projects are heavily reliant on securing both feedstock and offtake agreements in order to achieve bankability. Both bio-SAFs and e-SAFs have faced challenges when it comes to securing reliable long-term supply agreements at scale, although some biological feedstocks are easier than others.
Picking a seat in the value chain. Most of these conversion technologies are two-step processes - an intermediary is created (‘primary conversion’), and then that intermediary is processed further into jet fuel. SAF producers have to figure out where to play in the production value chain, whether to do primary conversion on site or bypass it and source the intermediary directly. Life cycle emissions of the intermediate are taken into account in SAF subsidies.
Passing the sniff test. Current jet engines are not able to utilize 100% kerosene SAFs, as traditional Jet A contains chemicals known as ‘aromatics’ that are created as part of the oil refining process. Several innovators are working on creating those aromatics from biological feedstocks, and the first transatlantic SAF flight, run by Virgin Atlantic in November 2023, used a blend of 88% bio-kerosene and 12% bio-aromatics.
When picking a SAF pathway, you should consider…
(Feedstock) location, location, location. Each of these SAF pathways are highly dependent on their feedstocks, which in turn are highly dependent on location. AtJ solutions, for example, have an advantage when bio-ethanol or sugar crops are widely available. Electrofuels such as e-SAF are gaining popularity where clean electricity can be produced relatively cheaply but large-scale biomass is often difficult to source, for example in parts of Europe.
The flight path less traveled. While HEFA currently has a scale and cost advantage, most of its costs come from expensive waste oil feedstocks. Waste oil has high demand and limited supply, so its price may not come down. AtJ or e-SAF production pathways are currently less commercial, but may be able to benefit from technological advances or more favorable input market conditions over time.
Policy turbulence. Existing regulations and incentives around SAFs, biofuels, and electrofuels range widely depending on jurisdiction, feedstocks, process, and life cycle emissions of the end product. The process of stacking these subsidies and fulfilling regulatory requirements is complicated, but critical as SAFs are much more expensive than traditional jet fuel and likely to remain so for the foreseeable future.
Co-piloting for success. Due to the limited nature of both supply and demand in this industry, partnerships are vital for project success. Commercial projects are currently dominated by large industry players (e.g. bp, Neste, Eni) who have strong footholds in the market. Smaller players, new entrants, and startups will need to secure partnerships with airlines for offtake and ally themselves with feedstock providers for long-term supply agreements.