SAF: Microsoft already buys more than airlines – 10/28/2023 – Market

Some of the world’s biggest consumers of corporate air travel are investing in cleaner aviation fuel, using a new credit system that allows companies to claim environmental benefits.

Microsoft made one of the biggest commitments. The tech giant has long committed to becoming carbon negative by the end of this decade, meaning it plans to remove more pollution from the atmosphere than it emits.

To combat greenhouse gas emissions from its travel, Microsoft has struck two recent deals: in August, it agreed to work with British Airways’ IAG SA and Phillips 66 to co-finance the purchase of nearly 19 million liters of sustainable aviation fuel (SAF), made from sources such as used cooking oil and food waste.

Big Tech struck a subsequent deal with clean fuels producer World Energy to buy credits for nearly 166 million liters of SAF over the next decade.

Globally, SAF today represents about 0.1% of all aviation fuel. The expected 16.6 million liters per year from the World Energy deal could put Microsoft ahead of most major U.S. airlines.

This is equivalent to the combined use of SAF last year by American Airlines, Delta Air Lines and Alaska Air Group. US leader United Airlines consumed 11 million liters of SAF in 2022 and is targeting 37.8 million liters this year.

“We hope that our early adoption will create a more robust market in which we will see greater adoption overall [do SAF]” said Katie Ross, director of carbon reduction strategy at Microsoft.

Google also joined a program led by American Express Global Business Travel and Shell’s aviation unit. This month, European delivery giant DHL Group agreed to buy credits for around 681 million liters of SAF over seven years.

Now, more than 20 companies, including Morgan Stanley and McKinsey, are close to finalizing transactions totaling 378 million liters of cleaner jet fuel over five years, through a group called the Sustainable Aviation Buyers Alliance (Saba).

In these cases, companies are not purchasing the liquid jet fuel itself. Instead, they are purchasing certificates that allow them to receive credit for burning lower carbon emissions elsewhere.

These certificates, or credits, also aim to encourage SAF production, providing an additional source of revenue for producers and expanding the number of buyers.

“These companies are helping to drive this market forward and move it forward by showing that there is end-consumer demand,” said Andrew Chen, a senior fellow at the Rocky Mountain Institute, an environmental nonprofit that helps manage Saba.

The efforts aim to solve a problem that has long worried environmentalists. Aviation contributes around 2.5% of human-caused CO2 emissions and has caused 4% of warming, including the impact of factors such as so-called contrails.

The sector’s share of carbon dioxide pollution could rise to more than 20% by 2050 with expected growth in air travel and the decarbonization of other parts of the economy through electric cars and renewable energy.

Sustainable jet fuel costs more than twice as much to produce compared to conventional jet fuel. It is only produced in a few facilities around the world.

Most commercial airlines have committed to dramatically increasing SAF usage to 10% by 2030, but progress has been slow.

The new certificates are designed to boost the market by covering the additional cost of cleaner fuel while offering buyers a way to potentially reduce their own greenhouse gas emissions.

They divide cleaner jet fuel into two products: the liquid itself, which can be sold in traditional ways, and the SAF certificate, which represents the environmental benefits associated with the cleaner fuel.

Other financial instruments targeting climate change have faced credibility problems. The billion-dollar market for carbon offsets has produced low-quality products that have reduced demand.

The second-largest project on the market now faces a growing danger of collapse. Meanwhile, renewable energy credits, structured similarly to SAF certificates, have sometimes led to false carbon accounting.

It is still too early to say whether the new SAF credit programs will avoid these pitfalls, but there are initial reasons to be optimistic. For starters, the price of SAF certificates is high — $250 to $800 for every metric ton of carbon dioxide avoided. That’s a huge price compared to carbon offsets and renewable energy credits — whose cost, at less than $10 per ton, has helped enable abuse.

SAF supporters also claim that this market is fundamentally different because there is a shortage, unlike what happened with renewable electricity credits.

“There’s a lot more value in this type of investment,” said Chen of the Rocky Mountain Institute. Still, it’s unclear whether enough companies will enter the market to have an impact on production. Building a clean aviation fuel plant could cost around $500 million.

“We’re watching the market shape up,” said Bruce Fleming, CEO of Montana Renewables, one of two commercial SAF producers in the US. “This is going to take a while.”

A booming market for SAF certificates could help drive a stronger recovery in corporate travel, which has yet to fully recover since the Covid-19 pandemic. Some companies have drastically reduced business flights due to climate concerns.

However, environmental groups point out that any increase in corporate travel would be tragic for the climate. European non-profit organization Transport & Environment has called on companies to halve their air travel emissions by 2025. “SAF should not be an excuse to fly more,” said T&E policy officer Camille Mutrelle. “We have to be very clear about this.”

While rules for the market are still being formulated, the certificates should only apply to SAF that is not already being used to meet legal mandates, such as European Union rules requiring airlines to use 2% sustainable fuels by 2025. .

Once issued, certificates can be tracked by one of six nascent registries tasked with ensuring that the same SAF is not used by multiple buyers.

Selling the certificates separately opens up the SAF market to new buyers beyond typical airlines. It also allows companies to participate if there are no tanker trucks full of SAF nearby.

“Moving low-carbon molecules all over the place for the sake of decarbonization just doesn’t make sense,” said Gene Gebolys, chief executive of World Energy, which is also producing the SAF that will be claimed by DHL.

Still, it is unclear how companies will be able to receive credit for their purchase of SAF certificates.

The GHG Protocol, the world’s most widely used carbon accounting standard, does not currently allow companies to report lower travel emissions when using them. And it is evaluating evidence to decide whether a change is warranted.

Allowing companies to use SAF certificates to reduce their emissions will be key to the growth of this market, according to Brian Ripsin, sustainability manager at Shell Aviation. “That’s the next big hurdle we need to overcome to get large-scale adoption.”