Aviation is one of the hardest to abate industries on the planet. No one has yet figured out an alternative to the jet engine as a means of meeting demand for air travel. Despite this, the sector has committed to achieving a net zero impact by 2050. That will be achieved through a combination of measures including more fuel efficient aircraft, new types of aviation fuel, novel propulsion technologies and carbon offsetting schemes.
That may appear pretty straightforward, but it is far from it and the cost is staggering. Estimates vary but the cost of decarbonising the aviation industry has been put at between $4.7 trillion and $5 trillion over the next 20 years.
The aviation leasing sector is playing its part in the decarbonisation effort. “Aircraft lessors support the transitioning of the world’s fleet to the newest technology and most fuel-efficient fleet through their financing activities,” says Elizabeth Bowen, director of Aircraft Leasing Ireland (ALI), the Ibec group representing the industry.
“This is the most impactful near-term action that can be taken by the industry to reduce aviation’s carbon impact. They are also supporting research that could lead to more radical decarbonisation of aviation through hydrogen and electric-powered flight. These actions reflect how the Irish leasing sector is engaging close to home and internationally, and is working with aviation stakeholders across the world on this important issue.”
In 2022 ALI launched its Sustainability Charter which sets out comprehensive environmental, social and governance principles for aircraft lessors, Bowen adds.
“In November 2023, ALI launched Inniu, a sustainability e-learning platform for the leasing community and beyond with modules covering each of the principles in the charter. To date, almost 5,000 registrants have signed up and completed this training which demonstrates the dedication of leasing companies to sustainability education, aligning with efforts to build a more sustainable future.”
The measure which has been receiving most media attention is sustainable aviation fuel (SAF) – a carbon neutral alternative to traditional jet fuel that’s made from renewable sources such as waste oil from the catering industry and oils from crops grown specifically for the purpose. The aviation industry’s optimistic forecast is for it to account for up to 60 per cent of the industry’s fuel requirements by 2050.
KPMG is more pessimistic, however, and its projections developed with clients in the fuel sector put an upper limit on SAF supply at under 30 per cent of total commercial jet fuel consumption globally by 2050.
“Whether around 20-30 per cent of total jet fuel being SAF would be seen as a material difference remains to be seen,” says Christopher Brown, partner and head of strategy with KPMG in Ireland. “For example, if the end goal was purely to reduce climate forcing as cost effectively as possible, aviation, as one of the hardest-to-abate sectors, should collect an environmental levy on their ticket prices, and hand this over to carbon capture and storage projects, in addition to operational efficiencies and contrail avoidance and so on, but without the need for SAF.
“Some airlines agree with this approach,” he continues. “The International Air Transport Association (IATA) argument, however, is that even if scaling SAF is more complex and costly, it is required optically for the sector to be seen to be solving the problem within its own supply chain, rather than offloading the problem elsewhere. Scaling SAF from biofuels is unrealistic in the long-term – there’s not enough feedstock and it comes with other drawbacks like diminishing biodiversity.”
Brown believes e-fuel – synthetic fuel manufactured from captured carbon and green hydrogen – is the more realistic option. “But that needs more than just wind power or solar, but a mix of nuclear, hydroelectricity and so on, to produce the amounts required.”
Thomas Conlon, professor of finance at UCD School of Business, is also quite downbeat in relation to SAF.
“It’s in very limited supply right now and accounts for less than 1 per cent of total fuel supply. Various fuels are at different stages of technology readiness. They can all be done, but financing is the issue, and no one knows which will be the winner. That deters investors,” he says.
The size of the market and the uncertainty associated with the industry are other deterrents. “Jet fuel is not a particularly large market,” Conlon notes. “It’s worth between $200 billion and $250 billion a year. Apple on its own has revenues of more than $300 billion.
“Airlines tend not to have very high credit ratings. There are less than 20 investment-grade airlines in the world. If you sign a long-term contract with an airline, you can’t be sure it will still be around when it falls due. It can take seven or eight years to develop a SAF facility and it is not bankable a lot of the time.”
He believes the industry needs to be supported if the fuel is to be produced in any meaningful quantities.
“Someone has to step in to be the guarantor. Governments were willing to provide guarantees to get renewables up and running. What’s required is something similar now to provide the seed capital to help the industry to scale.”
Brown believes other means deserve attention. “There are innovative aviation technologies that can have fairly immediate impact on an airline’s fuel burn through tweaks in pilot behaviour or that can avoid contrail formation,” he says. “These technologies are scalable and do not have anywhere near the capex requirements or timelines for SAF production ramp up, or for new aircraft and propulsion designs to reach market.
“Another area deserving of more attention is air traffic control and the underlying airspace design. Aircraft today fly often fuel-inefficient routes purely down to human factors such as how way points were designed decades ago, the shape of national borders, and differences in overflight charges by country. While it’s unrealistic to expect airspace redesign in much of the world today, western Europe would be an obvious place to start – but here national interests and the jobs of heavily unionised air traffic controllers have acted to slow progress on the promise of a ‘single sky’ approach.”
