Carrot Or Stick: Boosting SAF Market Success?

Sustainability

Regulators in the US and EU have different ways to tackle decarbonization in airline industry. One side is offering rewards while the other is pushing with force.

Sustainability - Figure 1
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Some believe the divergence is an experiment to see if incentivizing the use of sustainable aviation fuel (SAF) is better than making it mandatory.

Diana Birkett Rakow from Alaska Airlines spoke at a forum about sustainable aerospace. The discussion included testing policies. Global cooperation is necessary to make progress. Boeing and FT Live hosted the event.

The Inflation Reduction Act was just signed into law by President Joe Biden. It has a tax credit for using SAF. SAF needs to reduce greenhouse gas emissions by 50% compared to fossil fuel to qualify.

Starting January 1, 2023, the tax credit will give $1.25 to $1.75 per gallon of SAF. The amount depends on the fuel's carbon intensity. Producers and blenders will get this benefit for two years.

The ReFuelEU Aviation legislation is going to require a certain amount of SAF uplift at EU airports. By 2025, it will be 2%, by 2030, 6%, and by 2035, 20%. By 2050, it will be 70%. Some of this will be power-to-liquid e-fuels. By 2030, it must be 1.2%, rising to 5% in 2035 and 35% by 2050.

Sustainability - Figure 2
Photo runwaygirlnetwork.com

Flor Diaz Pulido, from the European Commission, talked about the EU's approach at a forum. She said they have a "stick" but also many "carrots".

We are supporting airlines and SAF producers in the EU just like in the States via blender's tax credit. We offer something extra, which is legal certainty. Benefits in law are sure to stay while tax credits can go away after the budget period.

Pulido thinks that the EU has a way to fix a problem that's been happening for 15 years. The problem is that the fuels are expensive, so not many people use them. Because not many people use them, the people who make them don't get enough money to make more. The EU has a way to help them make more.

Pulido said everyone wants a minimum mandate. Investors and the market like certainty.

Jonathon Counsell, head of sustainability at IAG, thinks we need more than just rules to get enough investments for SAF. To reach our goals by 2030, we need $30 billion. To get that, we need a way to keep prices stable.

Counsell says UK and Europe focus on mandate for demand signal. But this won't bring finance. Price stability mechanism is missing. This brings finance for building plants.

The US approach short timeline causes concerns for some. But Kevin Welsh from FAA thinks being too strict could hinder industry progress for the long term.

It's not clear if using carrots, sticks, or both will improve SAF production more. However, the people in charge believe things are moving forward.

Welsh says we know how much ambition we need worldwide. It's a unique position. But we need to figure out what we need to do right now and in the future. This is a challenge for governments and businesses.

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