Policy Support Needed to Boost Sustainable Aviation Fuels in China

by Niu Yuhan (China Dialogue) China's aviation sector needs sustainable fuels to lower its carbon footprint, but support is needed to reduce costs and increase production -- ... China’s production of SAFs is just getting started. In late 2022, the Institute of Energy at Peking University published a report finding huge potential for sustainable fuel production in China, with significant feedstocks available, such as used cooking oil, forestry waste and food waste from cities. But there is no top-level policy to develop the sector nor functioning market to promote SAF production. Meanwhile, there are significant obstacles to investment and expansion of capacity, commercialisation of SAF production technologies, and reduction of costs.

The report from Peking University’s Institute of Energy estimates that China can currently produce 150,000 tonnes of SAF via the HEFA route every year. But the country consumed 26.47 million tonnes of aviation fuel in 2021. The supply of SAFs is nowhere near adequate if airlines are to cut their emissions as planned.

However, it is not easy to produce SAF. Sinopec Zhenhai Refining & Chemical Company (Zhenhai Refining) was the first in China to look seriously at developing and producing SAFs. It first produced one in June 2022 and its equipment can process 100,000 tonnes of used cooking oil every year. Huang Aibin, Zhenhai Refining’s technical chief, said that production costs remain high, feedstock supplies are unstable, and demand is variable.

The best feedstock for the HEFA process, in terms of sustainability, is used cooking oil. The fuel produced is lower cost and meets sustainability requirements. There are no issues with competition for food supplies or water, and there are no deforestation or biodiversity issues.

China’s larger and more advanced factories generally pre-process used cooking oil and then export it to the EU. A previous China Dialogue article explained that the high costs of transportation and processing mean that biodiesel made from used cooking oil costs more than standard diesel. If the government does not subsidise it, there is no incentive for fuel makers to buy it. That’s why apart from some limited applications as a fuel or feedstock in industry, most of China’s biodiesel is exported to the EU.

Chinese companies that produce biodiesel (especially HVO, hydrotreated vegetable oil, also known as second-generation biodiesel) can also transition to SAF production. The report estimated that the country’s total production capacity will reach 2.05 million tons by 2025 if China’s existing and planned production capacity for HVO is retrofitted to produce SAF, combined with the existing SAF capacity. By then, total SAF supply will account for 4.5% of China’s total aviation fuel consumption.

However, China exempts biodiesel that conforms to national standards from consumption taxes and grants a refund of 70% of value-added tax to encourage biodiesel producers. By contrast, no targeted support measures have been instituted in the SAF industry. Companies lack incentives to transition to SAF production.

According to Huang Aibin, used cooking oil is expensive to transport, which makes local utilisation more attractive. Sinopec is planning to set up regional plants, but further investment will depend on market demand: “The equipment only becomes profitable when we are getting regular ongoing orders from the airlines.”

And while the Civil Aviation Administration of China (CAAC) has set a target for cumulative consumption of SAFs of 50,000 tonnes by 2025, there is no sign yet of how the airlines plan to achieve this. As the report says: “China’s airlines are mostly state-owned and will only act on SAFs in response to central government policies and plans.”

To date, Air China, China Eastern and Hainan Airlines have carried out test flights using a blend of conventional fuel and SAFs. But these have not led to their use on commercial flights. Hong Kong’s Cathay Pacific has been more proactive, saying 10% of its aviation fuel will be sustainable by 2030.

Nikola Xing, head of climate action for the airline, said at the launch of the Peking University report that the premium which airlines pay for SAFs could be partially passed on to customers – in particular, big corporate customers signed up to the Science Based Targets initiative. The SBTi helps companies set carbon targets and then monitors performance. As its aviation guidance shows, commercial travel is the biggest source of emissions for financial and professional services firms. The guide suggests cutting down on travel, using alternative modes of transportation, such as high-speed rail, and taking flights using sustainable fuel. Companies may be willing to pay extra for greener flights.

In China, there are no comprehensive top-level policies to support SAFs. Dr Yang Fuqiang, a research fellow at Peking University’s Institute of Energy, told China Dialogue that the Civil Aviation Administration of China (CAAC) should set a requirement – even if it is just that 1% of aviation fuel be sustainable – to get the industry moving. That could be gradually increased to further cut emissions. He suggests the extra costs could be accounted for by increasing the price of tickets on popular routes or for business-class travel.

Considering the limited supply of feedstocks, the overall production capacity of the HEFA route cannot meet the demand. In contrast, The G+FT process uses agricultural and forestry waste, municipal solid waste, and industrial waste as raw materials, while the PtL process hardly needs to worry about raw material issues. They are expected to grow in the long term, due to their cheap and diverse raw materials.

Yang added that in the long-term the PtL route has huge potential and is free of feedstock concerns, and China has plenty of natural resources to develop renewable energy. With policy support, economies of scale and technological advances, PtL costs could be reduced significantly, making this pathway the best solution for cutting aviation emissions.

He also expects the aviation industry to be included in China’s national emissions trading system (ETS), incentivising airlines to reduce emissions by switching to low-carbon sustainable fuels. READ MORE