Aviation Decarbonization and the Gap to Price Parity

In a comment to The Financial Times, Boeing CEO David Calhoun recently advised that sustainable aviation fuels (SAF), “will never reach the price of jet fuel.” SAF collectively describes jet fuel made from any number of sustainable feedstocks, including those used in cooking oil, municipal waste, and biomass. Policymakers and industry leaders agree that SAF will be key to reducing greenhouse gas emissions from the aviation industry, which was responsible for around 2.5% of global CO2 emissions in 2019. The International Civil Aviation Organization (ICAO) warns that emissions could triple by 2050 if action isn’t taken.

Aviation is a challenging sector to decarbonize since it relies on highly energy-dense liquid fuel which cannot be replaced by current battery technology. SAF is an attractive solution for the industry because it is a “drop in fuel” which can be used with existing aircraft designs. Other solutions like electrification and hydrogen will require significant modifications that could limit aircraft design, size, and range.

The administration hopes that U.S. SAF production, which currently accounts for less than 0.1 percent of jet fuel consumed by major U.S. airlines, can scale to 3 billion gallons by 2030, and 35 billion gallons or 100% of commercial jet fuel consumption by 2050. But, similar goals have been set in the past with little to show for it. The Federal Aviation Administration (FAA) established a goal for airlines in the United States to use 1 billion gallons of SAF by 2018 but SAF production only reached 15.8 million gallons in 2022, well below the goal and four years after the target.

Federal agencies have taken major action to support the scale-up of SAF by funding early-stage research and development (R&D) projects and providing direct support to production facilities. The Department of Energy’s (DOE) Bioenergy Technology Office (BETO) has issued nearly $250 million in funding to projects that support the SAF Grand Challenge. The FAA Environment and Energy and NextGen—Environmental Research—Aircraft Technologies and Fuels programs received a combined $89 million in the FY23 appropriations cycle to enable the certification and testing of new fuels. The United States Department of Agriculture (USDA) has also supported the development of regional biomass industries to increase the availability of feedstock for fuel production.

Despite significant federal support, progress has been limited by the high cost of SAF and a lack of feedstock availability. The most widely available type of SAF, made from waste oils, faces competition with other sectors like renewable diesel. In Europe, where a blending mandate is being instituted, there is already concern that the mandate could encourage the use of biofuels with an even worse emissions profile.

SAF that is available to airlines comes at a huge premium, an average of 3 to 5 times the cost of conventional fuel depending on the pathway used. In an optimistic scenario, where the cost of SAF falls to 2 times that of Jet A, it would still cost the world $180.5 billion a year to subsidize replacing the 95 billion gallons Jet A consumes in a year with SAF (based on 2019 levels).

Even with the tax credits in the Inflation Reduction Act (IRA), U.S.-produced SAF will not be competitive with conventional jet fuel until 2027, one year before the credit expires. Airlines will be reluctant to purchase SAF in significant quantities if it increases fuel costs. While many U.S. airlines have already made commitments to purchase SAF, historically these commitments have not resulted in SAF delivery and have instead been replaced by new agreements. And airlines in lower-income nations are even less likely to adopt more expensive fuels.

Moving the aviation industry away from polluting jet fuels towards clean alternatives will be a challenge. The SAF Grand Challenge and supporting tax credits attempt to address this by promoting the scale-up of SAF production. But scale alone will not guarantee SAF will reach price parity with conventional jet fuel, especially since a significant portion of costs are tied to the cost of the feedstock. Additionally, this approach runs the risk of diverting biofuels to the aviation sector with little net impact, as well as encouraging a lock-in of technologies that will never reach price parity, or face other constraints like feedstock availability.

A recent report by the Government Accountability Office found that the SAF Grand Challenge roadmap lacks specific performance measures to monitor the success of the challenge. Establishing these performance measures is an important first step to ensure that the challenge does not face the same fate as previous targets. However, to really address emissions from the sector, we will need to look beyond biofuels. DOE, the Department of Transportation (DOT), and the National Aeronautics and Space Administration (NASA) should coordinate to increase R&D funding to support low-carbon solutions beyond biofuels that have a chance of reaching price parity in the coming decade. This means investing in R&D to develop solutions with cost curves that start at a lower price point or where costs fall much quicker than SAF or other current options.

Finally, to meet the monumental challenge of decarbonizing global flight, the United States needs a coordinated policy approach, rather than the reactive approach taken thus far. This is a prime opportunity for international collaboration. DOE, DOT, and NASA should initiate international collaborations to leverage the innovation R&D programs. Until cost-competitive solutions can be developed, a fee structure to offset the price premium of low-carbon solutions may be needed to cover approaches such as a SAF blending program, or a low-carbon fuel standard. DOE and partners should also pursue a program to quantify the impact that such policy measures will have on the SAF market and GHG emissions, though that solution is not global, as most airlines around the world are unlikely to adopt higher-cost fuels. One solution that needs to be on the table, therefore is carbon capture.

There is still time to take the proper steps to ensure the aviation industry does its part to reduce global emissions—and that will only happen once SAF reaches price parity.