WORKING PAPER 2019-05 The cost of supporting alternative jet fuels in the European Union Author: Nikita Pavlenko, Stephanie Searle, and Adam Christensen Date: March 2019 Keywords: Aviation, Biofuels, Low-Carbon Fuels, GHG Emissions Summary oil–derived HEFA at approximately sector can thus dilute the effective- €200 per tonne of CO2 equivalents ness of fuels policies while increasing Alternative jet fuels (AJFs) are (CO e) reduced; however, waste fats their costs. among the few available in-sector 2 and oils are already widely used by approaches to reduce aviation sector Supplementary policies are necessary the road sector and therefore their emissions. Although the aviation to mitigate the risk and uncertainty supply may be limited. The next most sector has not played a prominent associated with AJFs produced effective options are the gasification role in fuels policy to date, policy- using advanced, capital-intensive of municipal solid waste and lignocel- makers are increasingly incorporat- conversion technologies. Although lulosic feedstocks, which have a cost ing aviation fuels into long-term the lowest-carbon fuels generally of approximately €400 to €500 per strategies as the road sector is have low feedstock costs, this benefit tonne of CO e reduced. We find that it electrified. This report reviews the 2 is offset by high upfront capital is important for policies to incentivize existing literature on the economics expenses that pose a much larger AJFs on the basis of GHG reduction of AJF production and assesses the risk to potential investors than tech- performance rather than volumes of costs of production for a selection of nologies with relatively low capital fuel supplied. AJF conversion technologies, incor- costs, such as HEFA fuels. Even porating life-cycle greenhouse gas Prioritizing aviation fuels within with valuable production incentives, (GHG) emissions accounting into the fuels policies can create perverse first-of-a-kind projects based on either gasification or alcohol-to-jet economic analysis of AJF production incentives. For example, the recast and identifying the AJF production processes may require direct financial European Union Renewable Energy pathways that offer the most cost- support, such as grants or contracts- Directive (RED II) applies a multiplier effective carbon reductions. for-difference to mitigate investors’ level of 1.2 for AJFs counting toward perception of risk and bring those the target for renewable energy We find that different AJF tech- projects to the market. nologies have widely varying in transport. Because most AJF levlized production costs and carbon pathways involve producing a mixed abatement potential. AJF production slate of road and aviation fuels, Introduction costs can vary substantially, ranging policies such as multipliers that credit Aviation is one of the fastest-growing from around €0.88 per liter for hydro- one sector at a higher rate than sources of greenhouse gas (GHG) processed fuels made from waste fats others can prove to be ineffective or emissions globally, averaging more and oils [i.e., hydroprocessed esters even counterproductive. We find that than 4% annual growth in emissions as and fatty acids (HEFA)] to €3.44 per a policy multiplier of around 1.3 would people worldwide travel more often. liter for the direct conversion of sugar most likely induce existing producers Electrification is commonly seen as to jet fuel; these prices are two to to operate less efficiently in order a promising strategy for decarbon- eight times the price of petroleum jet to produce additional AJF, while izing the road sector. There are more fuel. We estimate that the most cost- this level would not be sufficient to limited opportunities to electrify effective fuel for carbon abatement drive investment in new facilities. aircraft, however, so the aviation in the near term is used cooking Multipliers that prioritize the aviation sector will likely remain reliant on Acknowledgments: This work was generously supported by the European Climate Foundation. Thanks to Mark Staples of MIT’s Lab for Aviation and the Environment and Andrew Murphy and Jori Silvonen, both of Transport & Environment, for reviews and helpful input. © INTERNATIONAL COUNCIL ON CLEAN TRANSPORTATION, 2019 WWW.THEICCT.ORG THE COST OF SUPPORTING ALTERNATIVE JET FUELS IN THE EUROPEAN UNION liquid fuels largely through 2050, not supported AJFs, excluding the We use capital expenditure (CAPEX) particularly for long-haul flights (Hall aviation sector from the 2020 targets estimates from the literature, in con- et al., 2018). Steeper GHG reductions for the Renewable Energy Directive junction with data on the operating would thus require carbon intensity (RED). However, the EU has recently costs and input and output prices reductions in the liquid fuel used in moved to include AJFs in its recast from specific production processes, aviation through switching to alterna- Renewable Energy Directive for the to better understand how different tive fuels. 2021–2030 period (RED II), including factors influence the final costs of a 1.2 multiplier for AJFs and marine production for a selection of AJF Total worldwide offtake agreements fuels relative to fuels used in the pathways. We then discuss how for alternative jet fuels (AJFs) have road and rail sectors. This directive, policy can be designed to address been slow, falling far short of 1% of including the support for AJFs, must the cost challenges specific to global aviation fuel consumption be implemented by member states AJF pathways with greater climate (U.S. Department of Agriculture, 2018; with national legislation. mitigation potential. We also U.S. Department of Energy, 2017). estimate the cost-effectiveness of The slow commercialization of AJF It is unlikely that technology improve- climate mitigation for various AJF production is primarily attributable to ments alone can result in cost parity pathways and assess the quantity two connected factors: high costs and for AJFs; however, policy support can of financial support necessary to lack of policy support. AJFs require help to bridge the gap between them overcome the economic barriers for separate, more complex processing and conventional fuels. The imple- the best-performing AJF pathways. relative to conventional, first-gener- mentation of RED II for 2030, along ation biofuels in order to be used as with the introduction of CORSIA, “drop-in” fuels that meet the same may together create a framework Literature Review operational specifications as conven- where individual member states can As a first step, we review applicable tional jet fuels. The additional cost develop their own tailored aviation literature on the primary alternative and complexity of these advanced fuels policies. As countries begin to fuel types and the analytical tools conversion processes can bring the update their own, national-level fuels that have been used to assess their overall price of production for AJFs policies, it is critical that they learn costs and cost-effectiveness. This to several times that of conventional from the mistakes made in the road study assesses five pathways for jet fuel, making it impossible for AJFs biofuels sector, where more than a AJF production already certified as to compete in the market without decade of policy support has greatly drop-in fuels by ASTM International, expanded the use of food-based strong policy support. meaning that they can be used for feedstocks yet fostered minimal commercial aviation if they meet A number of policies are beginning growth in very-low-carbon advanced the criteria specified in the ASTM to incentivize lower-carbon fuels biofuels. If the international aviation standard. ASTM D7566 specifies the in aviation. The International Civil sector intends to achieve its decar- necessary characteristics for each Aviation Organization (ICAO) bonization goals by 2050, policies of the five fuels and their maximum recently unveiled the Carbon should instead focus on supporting allowable blending rates with con- Offsetting and Reduction Scheme fuels with deep carbon savings. for International Aviation (CORSIA), ventional jet fuel; if they meet those which targets carbon-neutral growth Although our understanding of specifications, the final blended in the aviation sector beyond 2020 the costs of production of AJFs fuels can be used interchangeably through a variety of market-based has grown substantially in recent with conventional jet fuel (ASTM 1 measures for airlines, including years, the relationship between International, n.d.). We evaluate the carbon offsets (such as Clean the levelized production costs of following fuel conversion pathways: Development Mechanism credits), emerging AJF conversion pathways • Hydroprocessed esters and improved airplane efficiency, and and the environmental performance fatty acids (HEFA or HEFA-SPK): switching to lower-carbon fuels. AJFs of those pathways has thus far The HEFA pathway uses fatty are eligible within the United States’ played a minor role in informing feedstocks such a vegetable Renewable Fuel Standard (RFS), and policy design for aviation fuels. Here, oils or waste fats, which first California and the United Kingdom we explore the cost-effectiveness have recently moved to allow of fuel switching for a variety of 1 The specifications laid out in D7566 limit crediting of low-carbon jet fuel in the AJF conversion pathways from a drop-in fuels to certain blend rates, from Low Carbon Fuel Standard (LCFS) climate perspective and highlight