The U.S. and Europe Can’t Agree on What Counts as Sustainable Aviation Fuel. That’s Leaving Investors in a Bind.

June 24, 2024

Print This Article Share it With Friends

by H. Claire Brown and Yusuf Khan (Wall Street Journal) ... But as the industry matures, fuel producers and airlines are scratching their heads over how best to invest their cash because of one major problem: No one agrees on what counts as “sustainable.”

At issue is a debate about what goes into the fuel that powers planes, with confusion swirling against a backdrop of failed investment in the alternative fuel industry.

Right now, for example, almost everyone agrees that used cooking oil can be used to make SAF. But a glut of overseas imports recently raised suspicions the U.K. market was flooded with fake oil (that is, virgin oil that was never actually used for cooking). The British government has imposed a cap on the amount of SAF that can be made using this method.

...

An even bigger issue is emerging between the EU and the U.S. In Europe, regulators are effectively excluding “crop-based” feedstocks such as corn, soy and sugar cane—basically anything that could be used for human food or animal feed—from a new mandate, meaning they can’t be counted toward a SAF quota rolling out next year. Meanwhile, the U.S. says that fuels made with these inputs can be eligible for tax credits as long as they meet certain requirements.

Types of Sustainable Aviation Fuels

Hydroprocessed Esters and Fatty Acids (HEFA)

Usually made from used cooking oils, fats and vegetable oils, the initial feedstock is turned into fuel by removing oxygen by combining it with hydrogen. Then the remaining hydrocarbon chain is transformed into jet fuel through a process known as cracking.

Alcohols to Jet (AtJ)

Here oxygen is removed from alcohols like ethanol or iso-butanol and then linking the remaining molecules together into a chain long enough to create the same hydrocarbons used to make jet fuel. The process starts with ethanol, which can be made from corn, sugarcane, or other feedstocks.

Biomass Gasification + Fischer-Tropsch (Gas+FT)

In a multi-step process biomass and other waste products are digested to eventually produce carbon monoxide and hydrogen, at which point the molecules can be combined to create jet fuel.

Power to Liquids

The newest of the processes, here green hydrogen is produced from electrolysis of water. That hydrogen is then combined with carbon dioxide to synthesize liquid hydrocarbons which are then refined into jet fuels.

Airlines, investors and SAF producers are caught in the middle.

“For airlines and for businesses that travel internationally, it does create a lot of confusion and uncertainty, and sometimes a reticence to enter the market,” said John Dees, senior decarbonization scientist for carbon management firm Carbon Direct.

“They don’t know how their purchase of SAF is going to be treated, whether it will qualify under a regulation or whether it’ll be admissible under a voluntary standard.”

The carrot, the stick, and the cornstalk

Starting next year, flights taking off from EU airports will need to be filled with at least 2% sustainable aviation fuel in addition to conventional jet fuel. The proportion ramps up to 20% by 2035.

The mandate, called ReFuelEU, applies to all airlines that operate in the region—not just European operators—and will eventually require that fuel blends contain a minimum level of synthetic fuels manufactured with captured carbon.

The U.S. by contrast adopted an incentives-driven policy, offering a sliding-scale tax credit of $1.25 to $1.75 a gallon for fuels that achieve life-cycle emissions savings of 50% or more compared with jet fuel.

...

Critics of the European policy argue that by excluding crop-based fuels and mandating synthetics, ReFuelEU just makes a key product for decarbonization pricier. Prices for SAF delivered in California sat at roughly $5.34 a gallon in June, compared with just above $3 a gallon for ordinary jet fuel, according to data from pricing agency Argus Media.

...

Crop-based biofuel isn’t entirely banned in the EU. While it won’t count against the mandate, airlines who want to meet additional SAF goals can still use it as a supplement. By 2030, for example, when EU says all flights should run on 6% synthetic SAF, Irish budget airline Ryanair has a 12.5% renewable-fuel goal. In theory it could use a fuel blend of 6% synthetic and 6.5% crop-based SAF to power its planes.

...

LanzaJet, the Renewable Fuels Association (where Gevo is a member), and other U.S. ethanol groups have filed to join a lawsuit brought by EU ethanol producers challenging ReFuelEU.

“We’re trying to change things and make things real and abate carbon,” said Gevo CEO Patrick Gruber. “I believe in it deeply. And policy where it’s so restrictive that nothing will ever get done is crazy. It’s ridiculous.”

...

For private investors, the cost of investing in new technologies is also a problem. Jason Cheng, CEO of climate-focused private-equity company Kerogen Capital said that he has primarily focused on investing in the fats and oil route known as hydroprocessed esters and fatty acids, or HEFA, because that pathway has been proven at scale and isn’t too costly to set up.

“We are going to need other pathways [to produce SAF]. The problem is investors do not think like that. We just invest in proven technology,” said Cheng.

Corporate customers looking to reduce the impact of employee air travel are also facing uncertainty about which SAF products will qualify for the nascent voluntary carbon market. A recent EU greenwashing investigation into 20 airlines over SAF claims raised the specter of reputational risk. Last year, less than half as many SAF-purchasing commitments were announced as in 2022.

...

Still, for some producers, like Italian energy producer Eni, it’s just a matter of working the regulations in your favor.

“It’s just a different diet in terms of feedstocks,” said Stefano Ballista, chief executive of Enilive, the company’s decarbonization arm.

Eni is targeting production of 5 million tons of biofuels a year split between two plants in Italy largely made with municipal waste, to fit with the requirements from the EU and a plant in Louisiana that will use crops like soy and corn on top of other fats and waste residues.

“It’s going to be volatile in the development stage,” Ballista said, “As a strategy, biofuels are key to the energy transition and accelerating the transition in the transport sector. It’s a core part of our business plan.” READ MORE

Related articles

LanzaJet Announces Strategic Investment from MUFG, Japan’s Leading Financial Group (LanzaJet)
Global charity calls for end to EU incentives for crop-based biofuels (Euro News)

Excerpt from LanzaJet: LanzaJet, a leading sustainable fuels technology company and sustainable fuels producer, today announced an investment from MUFG, one of the world’s leading financial groups with total assets of approximately $2.9 trillion. The investment enables LanzaJet to continue building its capability and capacity to deploy its proprietary ethanol to sustainable aviation fuel (SAF) process technology.

“We continue to build a leading team of investors along the SAF value chain who believe in LanzaJet’s ability to decarbonize aviation, which will both address climate change and enable the global economy,” said Jimmy Samartzis, Chief Executive Officer of LanzaJet. “The investment from MUFG further enables LanzaJet’s efforts to scale SAF production, with one of the world’s leading financial groups enabling the development of infrastructure globally.”

MUFG’s investment is part of LanzaJet’s current $100 million growth equity funding round, with support from leading companies across industries and around the world. In the last few months, LanzaJet has announced investments from Southwest Airlines, Microsoft, Groupe ADP, and now MUFG. While SAF production continues to scale, LanzaJet maintains its role in developing the industry by continuing its work building the ecosystem required to decarbonize aviation through SAF. LanzaJet continues to be at the forefront by commercializing its next generation ethanol-to-SAF technology and opening its fully-funded LanzaJet Freedom Pines Fuels biorefinery – the world’s first commercial-scale ethanol-to-SAF plant. Located in the United States, the historic plant will produce SAF and renewable diesel from low-carbon and sustainable ethanol and achieve International Sustainability and Carbon Certification (ISCC).

“MUFG is deeply committed to redefining the future of finance by prioritizing innovative and sustainable industry solutions. Our strategic support for LanzaJet is a prime example of this commitment, signifying our belief in the critical role of sustainable fuels for the economic and environmental well-being of the businesses we serve,” said Koichiro Oshima, Managing Executive Officer, Head of Financial Solutions Group, MUFG Bank, Ltd. “This partnership not only aligns with our mission to drive progress but also showcases our dedication to catalyzing positive change. By investing in sustainable pathways, we aim to ensure the resilience and success ofour stakeholders, paving the way for a more sustainable and prosperous future for all.”

In addition to MUFG, LanzaJet’s portfolio of investors and funders includes All Nippon Airways (ANA), Breakthrough Energy, British Airways, Groupe ADP, LanzaTech, Microsoft’s Climate Innovation Fund, Mitsui & Co., Shell, Southwest Airlines, and Suncor Energy.

ABOUT LANZAJET
LanzaJet is a leading sustainable fuels technology company dedicated to accelerating the clean energy transition. As a Sustainable Aviation Fuel (SAF) technology provider and producer with patented ethanol-based alcohol-to-jet (ATJ) technology, LanzaJet is creating an opportunity for future generations by catalyzing the deployment of SAF and other clean energy critical to addressing the climate crisis and transforming the global economy. Further information is available at https://www.lanzajet.com/

ABOUT MUFG

Mitsubishi UFJ Financial Group, Inc. (MUFG) is one of the world’s leading financial groups. Headquartered in Tokyo and with over 360 years of history, MUFG has a global network with approximately 2,100 locations in more than 40 countries. MUFG has nearly 120,000 employees and offers services including commercial banking, trust banking, securities, credit cards, consumer finance, asset management, and leasing. The Group aims to be “the world’s most trusted financial group” through close collaboration among our operating companies and flexibly respond to all the financial needs of our customers, serving society, and fostering shared and sustainable growth for a better world. MUFG’s shares trade on the Tokyo, Nagoya, and New York stock exchanges. READ MORE

Excerpt from Euro News: Oxfam argues that despite caps introduced in recent years the EU continues to drive demand for food crops and land to be diverted into fuel production, but the biofuel industry continues to insist it is part of the solution to climate change.

Governments’ continued reliance on crop-based biofuels to meet European targets for greenhouse gas reduction is exacerbating global food insecurity and price volatility, Oxfam argues as it calls for an end to political incentives by the end of the decade.

...

Xavier Noyon, secretary general of the European Biodiesel Board, said the biodiesel was an “affordable and effective transition solution towards carbon neutral transport” that makes up 90% of the renewable energy used in the EU transport sector today.

He noted that overall renewable energy use in transport stood at 9.6% today, far short of the 29% that must be reached by the end of the decade.

“How to do that without biofuels, including sustainable RED-compliant crop-based biofuels?” Noyon asked. “Biofuels should be encouraged, if we are serious about our climate commitments.”

Likewise, David Carpintero, director general of ePURE, the European renewable ethanol association, said banning crop-based biofuels would be “a disaster” for EU efforts to eliminate greenhouse gas emissions from transport.

In a 2020 renewable energy progress report, the European Commission noted that 7.4 million hectares of land was required for the production of crops for EU biofuel consumption in 2018, an area larger than Ireland, just over half of which was outside the bloc. READ MORE