Which entities are funding the development of environmentally friendly jet fuels?
The world of aviation is taking a significant step towards sustainability, as the production and use of Sustainable Aviation Fuels (SAF) are gaining momentum.
Since 2011, approximately 350,000 flights have been powered by blends of SAF, ranging from 10% to 50%. This trend is set to continue, with an expansion of SAF production scale expected to lower prices over time, and regulatory incentives also expected to expedite the process.
Recently, LanzaJet, an American SAF producer, received investment from a diverse portfolio of strategic partners. These include Airbus, a French airport operator (Groupe ADP), a Japanese bank (MUFG), an American airline (Southwest), and Microsoft's Climate Innovation Fund. This investment is a clear indication of the growing interest in SAF technology.
The excitement reached new heights on November 28, 2023, when Flight100, a Boeing 787 powered by Rolls Royce Trent 1000 engines, landed in New York, marking the world's first 100% sustainable aviation fueled flight. This landmark event further boosted investor optimism.
SAF technology is compatible with existing aviation infrastructure, requiring no aircraft changes or infrastructure modifications. This compatibility, coupled with the potential for emissions reduction, makes SAF an exciting prospect for the future of aviation.
By 2050, 65% of the air transport industry's emissions reduction is expected to come from SAFs. However, currently, SAFs are estimated to be three to four times as expensive as jet fuel, which is a significant barrier in the price-sensitive aviation industry. As the SAF industry matures, its appetite for institutional capital is expected to rise, with the investment case for SAFs dependent on economies of scale and regulatory incentives.
Regulatory support is crucial in this regard. The UK government is expected to announce regulatory support for the SAF industry soon, including a revenue support mechanism for SAF production. Similarly, recent European Union climate policy initiatives, such as the EU Emissions Trading System and the ReFuel EU Aviation Regulation, aim to increase SAF quotas and support decarbonization efforts in aviation.
Investors are not just limited to the private sector. Institutions like IFM Investors have shown interest, welcoming Australia's federal budget due to its support for the SAF industry, which could help direct superannuation fund investment into the Australian SAF industry.
As the SAF industry continues to grow, it is clear that it will play a significant role in the decarbonization of the aviation sector. With major investments, landmark flights, and regulatory support, the future of sustainable aviation is looking brighter than ever.
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