Key Takeaways
Air New Zealand has jettisoned its 2030 goal to cut carbon dioxide emissions, which it had proposed to do by buying renewable energy jet fuel that costs as much as 5 times traditional jet fuel and buying new more efficient airplanes.
The pledge was made under New Zealand’s left-wing government, which voters rejected last fall.
New Zealand’s new Prime Minister is the former president of Air New Zealand and has set out to stabilize the nation’s economy.
Airlines are beginning to add ticket surcharges for compliance with climate pledges, with Lufthansa’s fees kicking in January 1, 2025.
The airline industry wants government support and the UK and Singapore have committed to a price guarantee and a levy on SAF.
Biofuel refineries are postponing plans to develop SAF due to a lack of demand at the cost needed to produce it.
Air New Zealand abandoned a 2030 goal to cut its carbon emissions, blaming difficulties securing sustainable jet fuel and more efficient airplanes. The aviation industry produces around 2 percent of global carbon dioxide emissions, which airlines have been trying to reduce by replacing older aircraft and using fuel from renewable sources. Sustainable aviation fuel (SAF) accounts for only 0.2 percent of the jet-fuel market. The fuel is a key part of the sector’s strategy to cut emissions but airlines have struggled to purchase enough of it as its price is more expensive than traditional fuels and there is not enough capacity to produce it at scale. According to the aviation industry, its share will need to increase to 65 percent by 2050 if the industry is to reach “net zero” carbon emissions by then. SAF currently costs up to five times more than traditional jet fuel.
In 2022, Air New Zealand adopted a 2030 target to cut its emissions by almost 29 percent, which was much more ambitious than the 5 percent reduction goal set by the global aviation industry. Air New Zealand’s target was set under a very progressive-leaning government that was rejected by voters in November 2023 and replaced with the most conservative government in decades. The new Prime Minister, Christopher Luxon, is the former president of Air New Zealand. The airline is the first major carrier to back away from its climate target and it is working on a new short-term target. It says it remains committed to an industry-wide goal of achieving net zero emissions by 2050.
According to International airlines body IATA, the industry’s emissions reduction target was “net zero 2050 and airlines are not cutting back on the pledge.” IATA also said that while this target was achievable, “we are also reliant on the right supportive measures from governments.” “We need scale up of all solutions including SAF production as well as emerging technological solutions including the use of hydrogen and carbon removals.” Nonetheless, some have warned that airlines could miss targets to use 10 percent of SAF to power their planes by 2030. Airline executives point to their thin profit margins, allowing little room for investment in “sustainability” or buying fuel at 5 times the going rate.
Lufthansa, Europe’s biggest airline group, is adding an Environmental Cost Surcharge to ticket prices for flights taken beginning next year to cover part of the additional costs from regulatory environmental requirements that could be as high as 72 euros per flight (about $75). These costs include the statutory blending quota of initially two percent for Sustainable Aviation Fuel for departures from European Union (EU) countries starting January 1, 2025, adjustments to the EU Emissions Trading System and other regulatory environmental costs such as the Carbon Offsetting and Reduction Scheme for International Aviation. The airline group expects to spend billions of euros in the future for these additional environmental costs and determined that it could not bear the additional costs on its own.
Government Action
Recently, Britain’s new left-leaning Labor government announced plans to introduce a price guarantee for SAF to incentivize producers to open more plants and build infrastructure to ramp up the fuel’s production. Singapore plans to introduce a levy on air travel to promote the use of SAF. Starting in 2026, the levy will target 1 percent of aviation fuel to be SAF, with a goal to raise the SAF target to 3 to 5 percent by 2030. Julie Kitcher, chief sustainability officer at Airbus, said more solid investment plans and bolder financing from across the sector would help bring the industry to scale and boost supply. But, even with revenue security, much more investment would be needed for the aviation sector to reach its goals. Even with stronger government support, new plants would still take years to build, let alone start producing ample supplies of SAF, and cost remains an issue.
Refiners Pause Construction on SAF Facilities
Recently, Shell announced it was pausing construction of a SAF facility in Rotterdam. The company approved the development of the 820,000-ton-a-year plant in the Netherlands in September 2021 with plans to bring it online in 2025. The project is now expected to start production towards the end of the decade. Shell has also scrapped and sold renewable and hydrogen projects, retreated from European and Chinese power markets and sold refineries in order to focus on its most profitable operations, primarily in oil and gas.
While it is rare for companies to suspend development of projects underway, BP also said it was pausing two biofuel projects at its Lingen refinery in Germany and its Cherry Point refinery in the U.S. state of Washington. BP made a deal to buy Bunge Bioenergia, one of the largest sugar and ethanol operations in Brazil, and may be looking long term, possibly seeking to guarantee supplies of low-carbon biofuels to produce SAF in the future.
New Aircraft Delivery Delays
Airlines are also being affected by delays to new aircraft deliveries with both Boeing and Airbus under-delivering new jets over the last few years, largely due to snags in the wider supply chains of the manufacturers. According to environmentalists, growth of the aviation industry is in conflict with their concept of sustainability. Airbus, the world’s largest plane manufacturer, expects the global aircraft fleet will more than double over the next two decades to 48,230 planes.
Conclusion
Airlines and SAF producers have been in conflict for years. Airlines say they want more “green fuel”, while SAF producers say they cannot make more until airlines agree to pay the market price. The airline industry recognizes that decarbonization is going to be very expensive, costing trillions, but their profit margins do not allow them to pay the market price for SAF. The airline industry’s advocate is now saying that the industry needs government support. The UK and Singapore have committed to a price guarantee and a levy on SAF. But, nonetheless, biofuel makers are postponing plans to develop SAF refineries. Airlines concerned about losing passengers because of higher fees are reexamining the real costs of the economic transition embodied within the Paris Accord.
