30 August 2018

Renewable Jet Fuel, why does it cost more?

Renewable Jet Fuel, why does it cost more?

What lies behind the higher price of renewable jet fuel? Renewable Jet Fuel (RJF), more commonly known as Sustainable Aviation Fuel (SAF), is currently priced higher than conventional fossil jet fuel for many reasons.

To begin with, the fossil fuel industry has already enjoyed almost a century’s head start over RJF, which is still in its early stages of commercialisation. Next, fossil jet fuel can be produced cost efficiently having achieved massive economies of scale. Global fossil jet fuel production in 2017 was 96 billion gallons alone and continues to grow. In comparison, a mere 6.6 million gallons of RJF was produced on a commercial scale in 2017.

Since the first test flight of RJF – produced from a mix of coconut and babassu nut oils – undertaken by Richard Branson’s Virgin Atlantic in 2008, the technological breakthroughs have been remarkable. Currently, ASTM, a global certification body for jet fuel, has certified five technological pathways to produce RJF from fossil-free sources – with many more pathways in the pipeline.

Despite the technological breakthroughs, RJF volumes have not grown. This can be attributed to a lack of government support for RJF. Renewable fuels should obtain similar subsidies to those received by other renewable industries, such as electric cars and solar energy. However, this is not the case.

The oil industry has also benefited from years of government subsidies. Additionally, limited demand impacting investments to drive the creation of economies of scale to reduce per unit cost of production of RJF has not yet happened.

Another key factor contributing to RJF’s higher price is the price and availability of feedstock. Even with economies of scale achieved, raw material will always remain one of the main cost drivers for RJF producers. This is particularly true for those employing technologies dependent on renewable waste and residues such as animal fat, used cooking oil, crop or plant based oils, and other lipids based renewable materials.

Feedstock diversification becomes key to keep pricing under control and maintain sustainability. This is why Neste invests heavily in searching for new renewable feedstocks.

Incentives are needed to foster the use of sustainable aviation fuel

There has been a steady advancement at the government level for incentives to foster this nascent industry. For example in the US, the Renewable Fuel Standard (RFS) incentivizes producers to produce alternative fuels primarily for the road transportation sector at the federal level.

The California Low Carbon Fuel Standard (LCFS) provides additional incentive on top of the RFS at the state level but it currently does not include aviation. This incentivizes producers of renewable fuels to produce more diesel rather than RJF. In 2019, the California LCFS rules are expected to change to finally include RJF on an opt-in basis to generate credits. In Europe, the EU recently approved REDII legislation that includes a credit 1.2 multiplier for RJF.

There are also several country-level incentives in Europe such as the UK’s Renewable Transport Fuel Obligation (RTFO). However, further global government support is still needed. Aviation is a unique industry with international travel as its key feature. Governments need to ensure that they take into account this important aspect when coming up with local policies to promote RJF development.

Global policy developments are making RJF an increasingly strategic consideration for airlines. With the ICAO’s Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), an agreement coming into effect starting 2020, the use of RJF by airlines will count towards their CO2 emission reduction efforts. As more airlines commit to purchasing RJF, demand should increase and building more capacity will become attractive, resulting in larger supply.

Stakeholder collaborative approach is needed

However, in the short term, a multiple stakeholder collaborative approach will be needed to decarbonize aviation. These stakeholders can include, but need not be limited to governments, airports, airlines, passengers, and RJF producers who acknowledge the value of reducing GHG emissions in aviation.

Climate change is here and we need to act now. Yes, the solution of using RJF comes with a higher price tag at the moment, but it provides long-term benefits and value to the environment. Can the price ever be too high when it comes to combating climate change?


Pratik Chandhoke, Technical Services Manager at Neste
Pratik Chandhoke
Pratik Chandhoke, Technical Services Manager
Email: pratik.chandhoke@neste.com
On Twitter: @317Pratik