SAF are considered key to decarbonizing aviation, but current commercial limitations mean that SAF only provides around 40% emissions reduction.

Absolute emissions in gigatonnes of CO2 are impacted by fuel burn, load factors, aircraft type and route operated, among other factors. The most significant emissions reduction, around 65%, is expected between 2030-2040 as SAF becomes more widespread. Further efficiency measures have the potential to enhance fuel efficiency by 30-40% by 2050.¹³

Emissions intensity, measured as CO2 emitted per passenger kilometre, is influenced by aircraft type and routes. In 2022, emissions intensity per passenger kilometre was higher than pre-pandemic levels due to demand being around 80% of 2019 levels.¹⁴ Emissions intensity is now decreasing in line with growing demand. However, aviation needs to reduce its emissions intensity to net zero by 2050, with over 70%15 of the reduction expected between 2030 to 2050 as SAF adoption increases alongside increased efficiency measures and offsetting. Emissions intensity is now decreasing in line with growing demand. However, aviation needs to reduce its emissions intensity to net zero by 2050, with over 70%¹⁵ of the reduction expected between 2030 to 2050 as SAF adoption increases alongside increased efficiency measures and offsetting.

The key decarbonization strategy involves substituting traditional fuels with SAF to reduce in-flight emissions by 75-95%, coupled with efficiency measures.¹⁷ Achieving 85% SAF adoption by 2050 necessitates coordinated efforts from stakeholders, governments and advisory bodies.¹⁸ Priorities include promoting low-emission fuels, stimulating SAF demand and advancing sustainable feedstock R&D. Despite the current dominance of fossil fuels, projections indicate a 65% emissions reduction by 2030-2040 as SAF scales up to 50% of the fuel mix alongside increased efficiency measures, ultimately reaching an 85% reduction by 2050.¹⁹ Further reductions by 2050 stem from novel propulsion technology, albeit in smaller proportions.

Two leading decarbonization pathways have emerged: SAF and novel propulsion technologies.

SAF includes biofuels made through the HEFA, FT and AtJ pathways, as well as synthetic aviation fuels made from captured carbon and green hydrogen electrolysis, called power-to-liquids (PtL). HEFA is the most advanced and is currently available in small quantities, though increased commercial availability is expected before 2025.20 Novel propulsion technologies, such as battery-electric and hydrogen, are less mature and anticipated to be commercially ready by 2040.²¹ Currently, the total cost of ownership (TCO) for HEFA is 2-5 times higher than traditional jet fuel, and less than 1% of the global fleet uses low-emission technologies.²²

Fuel switching to 100% renewable drop-in fuels has the potential to cut in-flight emissions by 75-95% while matching jet fuel’s range (up to 15,000km).²³ However, with SAF currently limited to a 50% blend rate, emissions reduction potential stands at a maximum of around 40%.²⁴

HEFA is the most mature, poised for commercial availability by 2025, while other FT and AtJ projects are mostly in large prototype-demonstration stage, also targeting commercial readiness by 2025.²⁵ However, commercial scalability is limited by the finite nature of bio-based feedstocks, insufficient refining capacity and increased production costs (up to 5 times jet fuel²⁶).

Synthetic fuels, though less mature, are advancing, with commercial availability expected around 2025.²⁷ Despite higher production costs (up to 9 times jet fuel) and lagging clean hydrogen and direct air capture (DAC) infrastructure development, their synthetic nature addresses feedstock availability challenges. Accelerated R&D and adoption of PtL have the potential to alleviate supply chain challenges in SAF production.

Battery-electric aircraft and hydrogen aircraft offer the lowest emission alternatives to jet fuel up to 100% emissions reduction. However, their limited range, prolonged safety approvals, high R&D costs and insufficient availability of clean hydrogen and clean power infrastructure delay widespread adoption until the 2040s.

In September 2022, Eviation²⁸ conducted the first test flight of “The Alice”, the world’s first commercially scalable fully electric aircraft. Commercial operations are set to begin in 2027, with over 50 orders by June 2023 valued at $4 billion, indicating strong market demand and confidence in electric aviation.

With on-board battery-electric and hydrogen fuel cell technology limited at prototype stage, technology provisions for fast charging and refuelling technologies are nascent, in line with their required availability. As novel propulsion technologies develop, additional R&D to improve the technical capabilities to match current aviation business models will be needed.

The current infrastructure is inadequate to support the development and scaling of decarbonization pathways, especially regarding SAF production capacity and feedstock availability for SAF. Less than 1% of the required SAF infrastructure currently exists. It’s estimated that $2.4 trillion²⁹ in infrastructure investments will be necessary to meet SAF demand by 2050, with $0.9-1.5 trillion within the aviation industry’s immediate scope.³⁰

The majority of these investments should focus on developing upstream SAF production infrastructure:³¹ About 18% of total investments should go towards biofuels refining capacity, resulting in establishing approximately 7,000 biorefineries, equivalent to 12 exajoules (EJ) of HEFA and other biofuels by 2050.³² The remaining 73% should be directed towards creating clean hydrogen infrastructure and implementing DAC, equivalent to 95 million tonnes per annum (MTPA) of clean hydrogen and 490 MTPA of captured carbon as feedstock for PtL production.³³

As clean hydrogen and clean power technologies advance, downstream infrastructure requirements are expected to emerge, including clean hydrogen storage, charging stations, electrified ground power and grid connection infrastructure or on-site power generation capacity. Industry players are already taking steps in this direction. For instance, in November 2022, Airbus joined HyPort,³⁴ a venture by ENGIE Solutions and AREC, to develop a pioneering clean hydrogen production and distribution station. The facility is set to commence hydrogen production in 2023, capable of powering up to 50 ground vehicles and scalable for future hydrogen aircraft use.

SAF, which represents less than 1% of the current aviation fuel mix, remains untested in terms of its ability to absorb the green premium due to 2022’s market demand being less than 1%.^35,36 However, there is a growing shift towards sustainable business models and SAF offtake agreements.

By 2030, SAF production is expected to reach approximately 17.3 billion litres, driven mainly by North America, Europe and Asia. To meet the 2050 target of around 475 billion litres annually, production capacity needs to increase by 27 times from 2030 to 2050.³⁷

Comparing the TCO to jet fuel use, the adoption of HEFA carries a 300% fuel cost increase, resulting in a business to business (B2B) green premium of more than 45-60%.³⁸ HEFA carries an average B2C green premium of 3-12% per plane ticket.³⁹ Although passengers and airlines currently cover these higher costs, this market scenario is not sustainable and poses risks for early investors, hindering commercial scalability and adoption. Cost reduction is essential to ensure both supply and demand of low-emission technologies.

The adoption of SAF technologies will require business model diversification in the upstream aviation fuel value chain. There are eight American Society for Testing and Materials (ASTM) certified production pathways,⁴⁰ however, the diversity of biomass options and blend rates presents challenges in standardization and supply chain stability. Existing business models are relatively simple. However, sourcing a stable feedstock supply for bio-based SAF and access to gas markets to source captured CO2 and clean hydrogen for PtL will require the creation of new markets, contracts, ecosystems and supply chains. These activities add complexity to the market environment. Still, they are necessary to ensure the stability of SAF supply and provide opportunities for smaller industry players to drive innovation in SAF development.

There are early signs of growing market demand with industry players adopting measures to boost demand. Airlines like Lufthansa offer optional fare increases to offset carbon, while Air-France KLM imposes mandatory green surcharges. In December 2022, Air France-KLM and Total Energies⁴¹ signed a memorandum of understanding (MoU) for Total Energies to supply 800,000 tonnes of SAF to Air France-KLM over 10 years. Moreover, approximately 42 offtake agreements were announced in 2022, totalling around 22 million litres of SAF. However, regulatory incentives and an increase in public-private contracts are required to ensure demand growth, alongside these industry efforts.

Aviation’s decarbonization will require a mix of policy tools. Current policies have mainly focused on developed countries, but further policy advancements are needed, such as tax subsidies, direct funding and additional fuel standards, to incentivize biofuels infrastructure.

While aviation operates globally, individual countries handle airline registration, and fuel production extends beyond carrier regions. To effectively drive aviation sector decarbonization, international regulations must be complemented by regional policies.

Developed economies, notably the US, have taken the lead in implementing policies that address various readiness enablers.⁴² However, similar policies are scarce in developing economies, and policy coverage needs to expand throughout the 2020s to achieve the projected 2 billion litres of SAF production in Asia by 2030.⁴³

Lower carbon aviation fuel (LCAF) is fossil-based jet fuel that is produced with at least 10% fewer emissions compared to the baseline of 89 MJ/kg as defined by CORSIA. While certain SAF alternatives can reach up to 95%, with a minimum threshold of 65% required to qualify for sustainable certification.⁴⁴

Although CORSIA has certified eight SAF production methods, the availability of diverse biomass options, feedstocks and blend rates presents challenges in establishing consistent standards and regulations. As such, the emissions reduction potential of CORSIA-approved fuels can range from 10% with LCAF to SAF, which has the potential to reduce 95% of emissions. The diversity in SAF production also hampers standardization, regulation and traceability of use across the value chain.

To meet ICAO targets, policies should encourage low-emission fuel use and operational efficiency. Key actions include enforcing fuel standards, streamlining approvals, enhancing R&D policies and considering SAF mandates, Carbon Contracts for Differences (CCfDs), book-and-claim systems like Avelia⁴⁵ and fiscal incentives.

The aviation industry faces a $5 trillion⁶³ CapEx requirement for its 2050 net-zero transformation, necessitating an annual investment of approximately $185 billion, 2.4 times the current passenger airline investments.⁶⁴

The argument in favour of investing in aviation assets with low emissions continues to lack strength. Given the aviation industry’s tight profit margins and a weighted average cost of capital (WACC) at 7%,⁶⁵ the sector isn’t ready to assimilate these extra expenses and generate satisfactory returns exclusively from internal funds or to allure private investments.

According to IATA, actors involved in investing in aviation’s net-zero transition will require access to different funding and financing mechanisms depending on the maturity of the investment opportunity. This is because the risk is the highest at the R&D stage and decreases as the commercial viability of the solution grows.⁶⁶ In order to channel funds into revolutionizing the industry, policy measures such as carbon pricing, incentives for technology development and the promotion of SAF adoption become essential to ensure profitable returns. The pivotal role played by banks and other financial institutions is to grant access to affordable capital aligned with sustainability objectives.

Approximately 74% of large publicly traded aviation companies consider climate change as a key consideration for their strategic assessment and integrate it into their operational decision making.⁶⁷ Meanwhile, 9% of companies are building basic emissions management systems and process capabilities. Finally, 12% of companies acknowledge climate change as a business issue.