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1、|Fuelling the Future of Aviation1Produced by L.E.K.Consulting LLPCommissioned and funded by Shell PLCThis report has been produced for information purposes only and may not be relied upon by any recipient.Your attention is drawn to the full disclaimer contained in this documentFuelling the Future of

2、 AviationMaking Sustainable Aviation Fuel a RealityAugust 2023|Fuelling the Future of Aviation2DisclaimerThe companies in which Shell plc directly and indirectly owns investments are separate legal entities.In this report,“Shell”is used for convenience where references are made to Shell plc and its

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13、hell or L.E.K.with regard to the report or any of theinformation contained in it or any use or reliance they place on it.This report is based on information available at the time this report was prepared and on certain assumptions,including,but not limited to,assumptions regarding future events,deve

14、lopments and uncertainties,andcontains“forward-looking statements”(statements that may include,without limitation,statements about projected market opportunities,strategies,competition,expected activities and expenditures,and at times may beidentified by the use of words such as“may”,“could”,“should

15、”,“would”,“project”,“believe”,“anticipate”,“expect”,“plan”,“estimate”,“forecast”,“potential”,“intend”,“continue”and variations of these words or comparablewords).Neither Shell nor L.E.K.is able to predict future events,developments and uncertainties.Consequently,any of the forward-looking statements

16、 contained in this report may prove to be incorrect or incomplete,and actualresults could differ materially from those projected or estimated in this report.L.E.K.undertakes no obligation to update any forward-looking statements for revisions or changes after the date of this report,and L.E.K.makes

17、no representation or warranty that any of the projections or estimates in this report will materialise.Nothing contained herein is,or should be relied upon as,a promise or representation as to the future.This disclaimer is governed by English law.|Fuelling the Future of Aviation3ForewordAviation pla

18、ys a critical role in our global economy,and isa key facilitator and enabler of business,trade,travel,and tourism.The Air Transport Action Group(ATAG)hasestimated that the sector supports 87.7 million jobsglobally and contributes$3.5 trillion to global GDP.However,the sector has a significant impact

19、 on theenvironment.It accounts for c.2-3%of global CO2emissions a figure that likely understates its overallshare of environmental impact,once the effect of othernon-CO2emissions are taken into account,as well as thegreater radiative forcing associated with higher-altitudeemissions.To meet the CO2ch

20、allenge,in October 2022,theInternationalCivilAviationOrganisation(ICAO)committed to the long-term goal of achieving Net Zeroemissions for international aviation by 2050.Achievingthis goal will require the aviation sector to undergo asignificant,sustainable transformation.Whilst there is no one singl

21、e answer to decarbonising theaviation sector,the successful acceleration and scaledeployment of Sustainable Aviation Fuel(SAF)is anecessary,critical but alone,insufficient element ofthe solution.SAF is the largest single contributor to delivering ICAOs2050 decarbonisation goal.Ongoing incremental ef

22、ficiency improvements throughoutthe aviation sector must continue to be pursued:aircraftaerodynamics should be optimised;novel engine designsshouldbeexploredanddeployed;andoperationalefficiencies for example in air traffic management andcontrol should be delivered.But these changes alonewillnotbesuf

23、ficienttoprovidethestepchangenecessary to decarbonise the sector.Hydrogen,electric,and hybrid propulsion technologiesshow significant promise,and may represent a paradigmshift in the sector,but they are unlikely to be materiallyavailable in time frames consistent with ICAO meeting its2050 objective,

24、and there remain challenges related tothe applicability of these future propulsion technologies tomedium-and long-haul travel,given the specific energyand energy density of the relevant fuels.SAF,in contrast,is a drop-in fuel-consistent with usageonexistingairframesandengines-thatcanbeaccelerated to

25、day to deliver material impact on sectoralcarbon levels.However,SAF is not without its own challenges.SAFproduction is significantly subscale relative to sectoraltargets,and it is expensive to produce.Lower-costproduction pathways exhibit significant constraints relatedto global feedstocks,and more-

26、scalable pathways are ata lower Technology Readiness Level(TRL)and highercost.This report serves as a means of stimulating discussionon five key questions related to the delivery of SAF:What is the role of SAF in decarbonising air travel?What is SAFs premium relative to kerosene,and what is the magn

27、itude of the spending gap to deliver the required capacity?What are the options to fund this spending gap?What are the instruments to deliver this SAF funding?What are the action plans for stakeholders?Whilst this work has been undertaken at a global level,itmay serve as insight into the regional-an

28、d national-levelactions that value chain participants will need to considerto develop their near-term plans to deliver SAF.|Fuelling the Future of Aviation4About the authorsPhilip MeierPartnerL.E.K.CJohn GoddardSenior Partner&Vice Chair,SustainabilityL.E.K.CJack DuckworthPartnerL.E.K.CJohn Goddard i

29、s a Senior Partner in L.E.K.s Global Industrials Practice,where he advises a broad range of industrial and transportation clients globally.John advises across the aviation value chain with a focus on advising clients on the energy transition,drawing from his experience as Vice Chair and Co-Founder o

30、f L.E.K.s Global Sustainability Centre of Excellence.Philip Meier is a Partner in L.E.K.s Global Industrials Practice,with a particular focus on the aerospace and transport sectors and expertise in advanced analytics and technology.Philip has particular expertise in advising on the commercialisation

31、 of novel technologies and solutions in the context of the energy transition.Jack Duckworth is a Partner in L.E.K.s Global Industrials Practice in London,with particular expertise in the aerospace and chemicals sectors.Jack advises clients on a broad range of commercial issues including growth strat

32、egy,performance,technology commercialisation,and transaction support.-Connect with us-Connect with us-Connect with us-|Fuelling the Future of Aviation5Fuelling the Future of Aviation:Executive SummaryMaking Sustainable Aviation Fuel a Reality|Fuelling the Future of Aviation6SAF is critical to decarb

33、onising the aviation sector in line with international targets for 2050;all value chain participants have choices to make to enable the funding to be unlocked,and for SAF to be deliveredWhat are the action plansfor stakeholders?What are the instruments to deliver this SAF funding?What is the role of

34、 SAF in decarbonising air travel?CO2What is the SAF premium relative to kerosene(the spend shortfall)?What are the options to fund?SAF is the only scalable option pre 2050 to decarbonise the aviation industry.However,each SAF production pathway faces distinct challenges related to technological read

35、iness,cost,and the availability of feedstock.Efficiency improvement in aircraft,engines,and operations will continue to reduce fuel consumption,but cannot solve the challenge alone.Hydrogen and electric propulsion technology may represent a paradigm shift,but Technology Readiness Level(TRL)is low,an

36、d there remain significant challenges related to their applicability for longer-haul travel.Industry is targeting 65%SAF penetration by 2050.This will require 400MT p.a.of SAF capacity.Whilst each pathway for SAF will become cheaper,a progressive shift towards more scalable but more expensive pathwa

37、ys means that the price of SAF will remain stubbornly high,at 2 times the long-run historical kerosene price.In aggregate-to 2050-SAF will cost an incremental cumulative$3.5-5.5trn more than a No SAF Reference Case,which is about 2-4%of the cumulative estimated required Net Zero investment of$130-14

38、0trn over the period 2022 to 2050,and is broadly comparable to aviation share of CO2 emissionsWere costs passed through to customers,prices would need to be c.18%higher in 2050 relative to a No SAF Reference Case.If willingness to pay can be accessed,and if competitors can operate on a level playing

39、 field,this price increase would cause volumes to be only c.7%lower by 2050 than the No SAF Reference Case,equating to a decline in volume growth of c.(0.3%)p.a.to 2050.Industry could continue to grow at c.3-4%p.a.,with renewed social licence.This decline in volume does nonetheless represent a profi

40、t challenge of c.$1tn for the sector over 2022 to 2050;improving fuel consumption and efficiency will minimise reductions in returns to investors,and any requirement for government funding.Whilst stakeholders have a range of ways to pay for SAF,it will not occur without action from government and in

41、dustry,which must cultivate the necessary conditions:confidence must be built in investment economics level playing fields must be created for competitors common standards must be agreed and deliveredThere are choices for all value chain participants in how these outcomes will be delivered,but succe

42、ss will require the use of mandates,incentives,and enablers,which together must create the right stimulus at the right point in time.Over the next decade,there are six crucial actions to deliver SAF at scale:1.Create consistent standards for SAF(regional and global)2.Scale SAF supply,maximising exis

43、ting feedstock usage,and scaling next gen.3.Grow SAF acceptance for industry and end customers4.Reduce fuel consumption to limit cost increases5.Build the infrastructure required to deliver SAF6.Identify and support SAF pathfindersCooperation and collaboration will be critical to building the right

44、ecosystem.|Fuelling the Future of Aviation7The global aviation industry faces a significant challenge to decarbonise to meet the objectives of the 2016 Paris Agreement,and for it to maintain its consequent social licence to operate and growSource:ICAOs 2050 Net Zero CO2Goal for International Aviatio

45、n;IPCC Sixth Assessment Report;AR6 Scenario Explorer and Scenarios DatabaseForecast annual global aviation CO2emissions by climate mitigation scenario(2020-50)Billions of tonnes20152025303540455001234No actionLimit to 1.5CLimit to 2C2.3 GtThe Paris Agreement-a legally binding international treaty on

46、 climate change-was adopted by 196 Parties at the UN Climate Change Conference(COP21)in Paris,France,on 12 December 2015.The goal of the agreement is to limit global warming to below 2oC above pre-industrial levels,with an incremental further aspiration to limit the increase to a maximum of 1.5oCThi

47、s aspiration has profound implications for aviation,which is acknowledged as a particularly challenging part of the global economy to decarbonise.Aviation as an industry creates c.2-3%of global CO2emissionsEmissions from domestic aviation are included in the Nationally Determined Contributions forma

48、l documents that represent efforts of each country to combat emissions in line with the Paris Agreement on climate change.Emissions from international flights-that can be missed in national emissions reduction strategies under the Paris Agreement-are within the scope of the International Civil Aviat

49、ion Organisation(ICAO),the body overseeing international aviation under the United NationsWere the aviation industry to take no action to abate carbon emissions,and continue to grow without constraint,it would create a 2.3 Gt carbon emissions excess relative to levels required to deliver the 1.5oC t

50、argetAll participants in the aviation value chain have a role to play and choices to make to ensure that the sector meets its climate change objectives and obligations,maintaining a social licence to fly.ForecastThe role of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to d

51、eliver funding|Fuelling the Future of Aviation8SAF is the only scalable,pre 2050 option to materially decarbonise the aviation industryThe role of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliver fundingSAF is the critical and only scalable near term solution to del

52、iver rapid emissions cuts in aviation and maintain the industrys social licence to growImprovements in aircraft and engine design on new aircraft are expected to continue to deliver incremental gains in fuel efficiency;these gains have historically delivered c.1%p.a.improvements;continuing to target

53、 efficiency improvements is a necessary-but alone,insufficient component of the overall aviation decarbonisation solutionOperational improvements for instance in air traffic management are also expected to contribute positively to aviation sector decarbonisation,but are limited scopeHydrogen and ele

54、ctric propulsion technology may represent a paradigm shift,but the Technology Readiness Level(TRL)is low,and there remain fundamental concerns about applicability to long-haul routes;in addition,these technologies may require changes to the form factor of aircraftSAF in contrast-provides a technolog

55、ically proven drop-in fuel that can immediately start to reduce emissionsHowever,SAF still faces significant challenges.In particular,there remains limited scale availability of lower-cost pathways(e.g.,HEFA),particularly in the context of constraints on feedstock availability and the high cost of m

56、ore-scalable pathways(e.g.,ATJ,PtL)Whilst hydrogen and electric technologies are expected to enter the aviation market before 2050,their route-level limitations will mean that SAF will continue to have a significant role to play well beyond 2050Engine andAirframeDesignSAFNext-GenerationTechnologiesa

57、nd FuelsOperationalEfficiencyMarginal gains:necessary but not sufficient Geared turbo fans,greater electrification,and open rotor all offer incremental engine efficiency Continued lightweighting and improved aerodynamics will deliver incremental efficiency;more significant shifts(e.g.,blended wing)f

58、ace challengesMarginal gains:necessary but not sufficient Advancements in air traffic management,flight path optimisation,and taxi-ing procedures all offer potential for incremental improvement in fuel burnMore-limited application,and not yet matureHydrogen combustion and fuel cell technology offer

59、promise for regional and short haul,but face challenges in long haul;technology readiness is low,and airframe form factors may need material revisionElectric and Hybrid face energy density challenges,and will require post-lithium-ion technologyAvailable and Scalable NowSAF is available today,and can

60、 be delivered immediately as a drop-in fuel to existing aircraftCapacity can be increased to materially impact emissions,though there are challenges that differ by technology pathway|Fuelling the Future of Aviation9Meeting industry objectives will require SAF production in excess of 400 MT p.a.,whic

61、h will need to be met by the rapid scaling of SAF capacity across existing and future technology pathways0200400600800202223242526272829303132333435363738394041424344454647484950Power-to-liquidGasification/FTAlcohol-to-jetHEFAMatureScalingDevelopmentSAF production by technology pathway(2022-50)Milli

62、ons of tonnesGrows rapidly but remains small in overall quantum.HEFA is crucial to delivering the majority of near term growth,though FT and ATJ play an increasing roleThe role of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliver fundingSource:Bergero et al.(2023);IA

63、TA;ATAG(2020);WEF(2021)Begins to scale materially to meet fast-rising industry demand.HEFA capacity growth is capped by feedstock availability and FT/ATJ deliver the capacity of upliftReaches scale and continues to develop rapidly.As accessible FT/ATJ feedstocks are maximised,and green hydrogen/carb

64、on costs decline,PtL becomes the critical engine of growth|Fuelling the Future of Aviation10The cost of each individual pathway is expected to decline materially in the future;however,we expect the average cost across all pathways to remain stubbornly high,only declining c.4%from 2022 to 205005001,0

65、001,5002,0002,5002238364034423244304628482650242020Average levelised SAF production cost by technologyPathway across the installed plant base(2020-50)USD per tonneNote:*Average weighted on expected production by pathwaySource:Bergero et al.(2023);IATA;ATAG(2020);ICAO;ICCT;IEA;Hydrogen Council;Pearls

66、on(2011);Geleynse et al.(2018);Maniatis et al.(2017)via ICCT;Tao et al.(2017);Yao et al.(2017);de Jong,et al.(2017);Sorensen(2005);Kreutz et al.(2022);Andersson(2013);Bohm et al.(2019);WEF(2021);WEF(2020);Institute for Applied Technology(Berlin);Bain&Company(2022)Levelised production costs for facil

67、ities are expected to decline materially across production pathways,by c.15-35%over the next 30 years.These reductions reflect that capex and opex will benefit from economies of scale and learning as production commercialises,and the size of new facilities increases Our assumptions on the capital an

68、d operating expenditure for facilities,are derived from a broad consensus of academic estimates,and result in figures broadly comparable to other such estimates in the public domainHowever,whilst individual technology pathways are expected to experience material declines in the levelised cost of pro

69、duction for new facilities,the average cost of production of SAF is only expected to decline by c.4%from 2020 to 2050:Costs of production reflect weighted average costs across the installed base,rather than the economics of the marginal facility;managing the economics of the less-efficient,more-cost

70、ly,early facilities(e.g.,through policy,rather than market approaches)will be critical to providing sufficient confidence to enable early investmentAs demand increases,and capacity scales to meet that demand,the mix of technology pathways deployed will necessarily gradually shift to higher-cost tech

71、nologies such as Gasification-FT and ultimately PtLConsequently,whilst each individual technology pathway demonstrates significant cost reductions,the weighted average cost of production remains stubbornly high over the forecast period,with only a c.4%reduction in the cost of production expected fro

72、m market values today through to the values expected in 2050,in real termsThe role of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliver fundingPower-to-liquidGasification/FTAlcohol-to-jetHEFAWeighted average*Percentage decline(new facility)33%18%18%24%Percentage decl

73、ine(installed base)n.a.28%17%17%21%4%|Fuelling the Future of Aviation11DevelopmentScalingMatureTotalspend shortfall:c.$100BTotalspend shortfall:c.$1,000BTotalspend shortfall:$3,400BTotalspend shortfall:c.$4.5trn($3.5-5.5trn)Relative to kerosene,the total cumulative incremental spend required to deli

74、ver SAF is estimated to be c.$3.5-5.5 trn to 2050,with an incremental capital requirement of c.$1.5-2.5 trnNote:*SAF premium in each year multiplied by the total production this covers annual opex shortfalls and part of the capital shortfallSource:ATAG(2020);MPP(2022);Bain&Company(2022)The role of S

75、AFSAF premium and spend shortfallOptions to fundAction planInstruments to deliver funding24262820203436384244464830405001002003004005006002232Total spend shortfall*(2020-50)Billions of 2022 USDIn aggregate,funding SAF growth in line with industry targets creates a cumulative spend shortfall to a no

76、SAF world of$3.5-5.5trn to 2050.This is in the context of total cumulative spend on kerosene in a No SAF Reference Case of c.$8-9trn over the same periodWhile this investment is large,it is only a small fraction(c.2-4%)of the c.$130-140trn for Net Zero investment between now and 2050,estimated by IR

77、ENA in their Global Renewables Outlook 2020.|Fuelling the Future of Aviation12The cumulative incremental cost of SAF is broadly comparable in aggregate to the expected operating profits of the entire aviation sector over the same timeframeSource:IATA;Airports Council International;Forbes;Statista;An

78、nual reports;Eikon 0123456Estimated impact of SAF on aviation industry with no action(2023-50)Trillions of 2022 USDCumulative SAF spend gap(2023-50)0.20.40.31.72.8Cumulative aviation sector operating profits(2023-50)No SAF ScenarioOEMsLessorsFuel producersAirportsAirlinesc.$3.5-5.5trnc.$5-6trnThe ro

79、le of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliver fundingOver the next 30 years,the aviation industry is expected to generate c.$5-6trn in cumulative operating profitsAviation sector profits in a No SAF Reference Case have been estimated based on recent histori

80、cal trend(last 10 years,excluding Covid-19),consistent with assumptions on kerosene pricing in the reference caseThis level of cost increase cannot trivially be absorbed within the margins of the aviation sector as a whole.Were it to be,this incremental c.$3.5-5.5trn of cost would reduce by c.80%the

81、 operating profit pool,with the likely consequence that returns to the sector would not exceed cost of capitalAs a result,in order for the aviation sector to remain sufficiently profitable,it is crucial that at least part of the cost increases imposed by SAF should be borne by customers|Fuelling the

82、 Future of Aviation13If airlines were to pass the full increase in blended fuel cost on to customers in 2050,this would result in a c.18%price increase on average charged to end customers,versus No SAFNote:*Reference kerosene price set at c.$653 per tonne,the average of the last 10 years excluding C

83、ovid-19Source:IATA;U.S.Energy Information Administration Currently,fuel costs typically comprise c.20%of airline revenues(i.e.,prior to any material penetration of SAF)Meeting industry targets for 65%SAF blend in 2050 would increase the blended fuel cost*to$1,381 an increase of 111%-compared to a re

84、ference kerosene price of$650*Were this cost to be directly passed through to end customers-both passengers and cargo-this would require an increase in overall airline pricing of c.18%The role of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliver fundingMarket airline

85、 economics(2030-50)Billions of 2022 USD8748741,3271,3272,0082,00823025130850541387201,0002,0003,0004,000No SAF Reference Case75With SAF and operating profit maintained111No SAF Reference Case111With SAF and operating profit maintained165No SAF Reference Case165With SAF and operating profit maintaine

86、dFuelNon-fuelOperating profit1,1801,2001,7461,9432,5853,04575+2%+11%+18%Percent SAF penetration-5.2%-39.0%-65.0%Blended fuel cost per tonne$653$711$653$1,070$653$1,381203020402050|Fuelling the Future of Aviation14The ability to pass on cost increases differs by end customer segment:cargo and busines

87、s customers are more likely than leisure customers to be willing to pay for SAF-related price increases BusinessGiven increasing business focus on Net Zero commitments,traditional travel elasticities may likely be overstating how price elastic business passengers are for airline travel Driven by Net

88、 Zero commitments,some businesses will be more willing to accept higher airline travel fares in order to make their business travel Net ZeroCargoCargo customers are already quite willing and likely to become more willing to accept pass through of fuel costs because transport is not discretionaryKey

89、drivers are operators and customers:Net Zero commitments scope 1/2/3 emissionsperception in the customers end marketLikely to be most achievable for the transport of low-density,high-value goods,where the relative increase in transport cost per item is a fraction of the items valueLeisureWhilst more

90、 price elastic than business and cargo,leisure has historically absorbed ticket price increases/fuel surchargeResearch shows that with education on the need for climate action,a significant subset(c.25%)of passengers are likely to pay for SAFThe incremental costs of SAF are comparable in magnitude t

91、o ancillary spend,highlighting the potential to absorb SAF-related price increasesIn a subset of journeys,air is much cheaper than other transport modesThe role of SAFSAF premium and spend shortfallOptions to fundAction planLong-haulShort-haul$124bnLong-haulShort-haul$401bn$201bnInstruments to deliv

92、er fundingABCBusiness Airline Revenues(2022)Leisure Airline Revenues(2022)Cargo Airline Revenues(2022)Source:IATA:Industry Statistics 2022;Boeing:Commercial Market Outlook 2022-41;The Death of First Class(Michigan Journal of Economics)|Fuelling the Future of Aviation15Passing through the full cost o

93、f SAF on to end customers could still allow stable growth for the industry,albeit whilst causing a decline in expected demand growth from 4.2%to 3.9%p.a.The role of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliver funding0.00.51.01.52.02.53.0201516 17 18 19 20 21 22

94、 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44Aviation Industry end customer demand volumes with and without uptake of SAF based on Bergero et al(2023)(1990-50)Trillions of tonne kilometres46 47 48 49 5045Business long-haulBusiness short-haulLeisure long-haulLeisure short-haulSAF

95、 ScenarioCargoCAGR%(2023-50)4.2%3.9%Total(No SAF)|Fuelling the Future of Aviation16This decline in growth expectations does,however,have a material impact on profit expectations for the industry relative to the No SAF Reference Case;we estimate this to be c.$1 trillion over 2023-50Source:IATA;Airpor

96、ts Council International;Forbes;Statista;Annual reports;EikonThe role of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliver funding0123456Estimated impact of SAF on aviation industry(2023-50)Trillions of 2022 USDCumulative SAF spend gap(2023-50)Impact of SAF on aviati

97、on industry profits(2023-50)$0.2trn$0.4trn$0.3trn$1.7trn$2.8trnCumulative aviation industry operating profits(2023-50)No SAF ScenarioOEMsLessorsFuel producersAirportsAirlinesc.$3.5-5.5trn$0.8trnc.$5-6trnWhilst the industry would still be expected to grow its volumes with the introduction of SAF,the

98、slower expected growth rate would reduce overall profit expectations from the aviation industryThe impact of SAF on aviation industry profit is estimated cumulatively at c.$1trn for 2023 to 2050(rounded from$0.8trn in exhibit)|Fuelling the Future of Aviation17There are four options to close this rem

99、aining$1 trillion profit gap,with further fuel efficiency playing a key roleStrategic support from governmentsReduced investor returns43Additional funding from within the industryAdditional funding from external stakeholdersReduced fuel consumptionAdditional fare increases for end users12Acceleratin

100、g rate of improvements in fuel burn efficiency to industry targets could materially reduce the residual funding gap,though these could be challenging to deliverAdding an incremental 4ppt to the initial 18%fare increase could fully offset the residual funding gapGovernments could provide support to t

101、he aviation industry in order to avoid air travel becoming less affordable during the energy transition and in line with actions to support other transport sectors(e.g.,rail,bus)As a last resort,the aviation industry and its investors could absorb the outstanding c.$1trn from its operating profit po

102、ol over the period The role of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliver fundingOptions to close the profit gap|Fuelling the Future of Aviation18Whilst the aviation sector may be able to bear the cost of delivering SAF,there remains a significant role for gov

103、ernment and industry to create fertile ground to scale capacity and deliver SAFEnablers onlyFeedstockproducersAirlines&airportsEnd customerAt a minimum,government and industry need to implement systems,standards and regulation to enable the SAF marketEnabled by systems,standards and regulationEnable

104、rs&MandatesGovernment can encourage SAF uptake and production by setting mandates to apply to fuel producers and/or airlines and airportsEnabled by systems,standards and regulationMandatesInsufficient investment in R&D1Uncertainty in SAF demand2Uncertainty in SAF production economics3Lack of clear s

105、ystems and standards5Price competition in airline industry4Insufficient investment in R&D1Uncertainty in SAF demand2Uncertainty in SAF production economics3Lack of clear systems and standards5Price competition in airline industry4Enablers,Mandates&IncentivesGovernment and industry can accelerate SAF

106、 uptake and production by applying incentives;this can pull cash backward in the value chain and help to fund productionEnabled by systems,standards and regulationIncentivesPossible cash movementInsufficient investment in R&D1Uncertainty in SAF demand2Uncertainty in SAF production economics3Lack of

107、clear systems and standards5Price competition in airline industry4FuelproducersFeedstockproducersAirlines&airportsEnd customerFuelproducersFeedstockproducersAirlines&airportsEnd customerFuelproducersMandatesChallenges addressedThe role of SAFSAF premium and spend shortfallOptions to fundAction planI

108、nstruments to deliver funding|Fuelling the Future of Aviation19In order for actions to have the maximum impact,they must be part of a coherent,holistic solution that manages the development and rollout of SAF to 2050:the right stimulus will be needed at the right time02004006008002022232425262728293

109、03132333435363738394041424344454647484950Power-to-liquidGasification/FTAlcohol-to-jetHEFAMatureScalingDevelopmentSAF production by technology pathway(2022-50)Millions of tonnesBuild confidence for producers and investors through interventions targeted at incentivising R&D,investment and productionSt

110、imulate capacity growth through interventions targeted at increasing certainty of production economics(e.g.,through incentives)and certainty of demand(e.g.,through mandates)Once production has scaled,production incentives can be focused on maximising the potential of newer technologies(e.g.,PtL).Man

111、dates and enablers are still required to provide market certainty and directionFuel subsidies and tax credits for all pathwaysPathway-specific CFDs to increase certainty of production economicsCarbon/kerosene tax and green flight taxes to encourage uptake of SAFSystems,regulations and standards to e

112、nable SAF marketMandates to provide certainty of demandPtL RTCs to develop technologyPtL ITCs and PTCs to scale productionGreen flight taxes to enable price increases in lockstepDecreasing scope of interventionSource:Bergero et al.(2023);IATA;ATAG(2020);WEF(2021)The role of SAFSAF premium and spend

113、shortfallOptions to fundAction planInstruments to deliver funding|Fuelling the Future of Aviation20Six key actions are required to scale SAF in the near termCreate consistent standards and a policy environment focused on the SAF economyEnable the development of the SAF economy by establishing consis

114、tent international standards and supportive policy environment for SAF,to unlock early enablers such as Book and ClaimScale SAF supply and stimulate capacity growthBuild out SAF capacity for existing feedstocks and pathways,and encourage investment in the development of novel feedstocks and technolo

115、gies to enable further scalingGrow SAF acceptance and increase demandStimulate growth in SAF demand through a combination of international targets,mandates and initiatives focused on fostering acceptance of SAF and its costs for end customersReduce fuel consumption of the aviation industryCreate the

116、 incentives to accelerate the next generation of technologies that will deliver further reduction in fuel consumption,through airframe,engine,and operational efficicencyBuild the infrastructure and migrate to fleet powered by 100%SAFIntegrate SAF into existing infrastructure and build out additional

117、 delivery infrastructure where required,including the capability to migrate to a 100%SAF compatible ecosystemIdentify and support the pathfindersIdentify the SAF pathfinders across the value chain and provide those first movers with the support to successfully adopt SAF and encourage othersThe role

118、of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliver funding|Fuelling the Future of Aviation21Stakeholders across both industry and government must work together and make the required choices to deliver an acceleration of SAF togetherAirframe&Engine OEMsAirportsAirli

119、nesProvide certainty of demand for SAF as the purchaser and build acceptance and demand with end customersDeliver 100%SAF compatible engines and contribute to lowering the cost of SAF by reducing fuel demand through fuel efficiencyEnd customersDrive increased demand for SAF and pay for the increased

120、 fuel cost through voluntary and mandated payment schemesFeedstock producersFuel producersBuild out capacity of SAF production,develop new technology pathways for scaling beyond the action planBuild out capacity of feedstock production,develop next generation of feedstock for scaling beyond the acti

121、on planAviation industry stakeholdersInternational agenciesEnable the SAF market by setting clear and consistent standardsGovernmentEnable and encourage development of the SAF market through regulation and policyEnsure the necessary infrastructure to deliver SAF is in place and contribute to operati

122、onal improvement to reduce fuel demandThe role of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliver funding|Fuelling the Future of Aviation22Concluding remarks from the authorsPhilip MeierPartnerL.E.K.CJohn GoddardSenior Partner&Vice Chair,SustainabilityL.E.K.CJack D

123、uckworthPartnerL.E.K.C“Sustainable Aviation Fuels role in decarbonising aviation is unequivocal.For the sector to meet its environmental goals,it is critical that stakeholders across both industry and government collaborate to accelerate the acceptance and adoption of SAF.Time is of the essence:with

124、out action now,decarbonisation will not be achieved.”“Technology commercialisation is at the heart of the solution for SAF.Mechanisms must be found that will provide the investment community with sufficient confidence to back novel production pathways,and to finance the scale and capacity that is ne

125、eded to materially decarbonise the sector.”“All value chain participants have a role to play and choices to make in the journey to decarbonise aviation.A holistic solution is needed:one that creates a level playing field,encourages collaboration,and instils the right incentives and appropriate stimu

126、lus at each stage from feedstock producers to end customers.”-Connect with us-Connect with us-Connect with us-|Fuelling the Future of Aviation23Fuelling the Future of AviationMaking Sustainable Aviation Fuel a Reality|Fuelling the Future of Aviation24SAF is critical to decarbonising the aviation sec

127、tor in line with international targets for 2050;all value chain participants have choices to make to enable the funding to be unlocked,and for SAF to be deliveredWhat are the action plansfor stakeholders?What are the instruments to deliver this SAF funding?What is the role of SAF in decarbonising ai

128、r travel?CO2What is the SAF premium relative to kerosene(the spend shortfall)?What are the options to fund?SAF is the only scalable option pre 2050 to decarbonise the aviation industry.However,each SAF production pathway faces distinct challenges related to technological readiness,cost,and the avail

129、ability of feedstock.Efficiency improvement in aircraft,engines,and operations will continue to reduce fuel consumption,but cannot solve the challenge alone.Hydrogen and electric propulsion technology may represent a paradigm shift,but Technology Readiness Level(TRL)is low,and there remain significa

130、nt challenges related to their applicability for longer-haul travel.Industry is targeting 65%SAF penetration by 2050.This will require 400MT p.a.of SAF capacity.Whilst each pathway for SAF will become cheaper,a progressive shift towards more scalable but more expensive pathways means that the price

131、of SAF will remain stubbornly high,at 2 times the long-run historical kerosene price.In aggregate-to 2050-SAF will cost an incremental cumulative$3.5-5.5trn more than a No SAF Reference Case,which is about 2-4%of the cumulative estimated required Net Zero investment of$130-140trn over the period 202

132、2 to 2050,and is broadly comparable to aviation share of CO2 emissionsWere costs passed through to customers,prices would need to be c.18%higher in 2050 relative to a No SAF Reference Case.If willingness to pay can be accessed,and if competitors can operate on a level playing field,this price increa

133、se would cause volumes to be only c.7%lower by 2050 than the No SAF Reference Case,equating to a decline in volume growth of c.(0.3%)p.a.to 2050.Industry could continue to grow at c.3-4%p.a.,with renewed social licence.This decline in volume does nonetheless represent a profit challenge of c.$1tn fo

134、r the sector over 2022 to 2050;improving fuel consumption and efficiency will minimise reductions in returns to investors,and any requirement for government funding.Whilst stakeholders have a range of ways to pay for SAF,it will not occur without action from government and industry,which must cultiv

135、ate the necessary conditions:confidence must be built in investment economics level playing fields must be created for competitors common standards must be agreed and deliveredThere are choices for all value chain participants in how these outcomes will be delivered,but success will require the use

136、of mandates,incentives,and enablers,which together must create the right stimulus at the right point in time.Over the next decade,there are six crucial actions to deliver SAF at scale:1.Create consistent standards for SAF(regional and global)2.Scale SAF supply,maximising existing feedstock usage,and

137、 scaling next gen.3.Grow SAF acceptance for industry and end customers4.Reduce fuel consumption to limit cost increases5.Build the infrastructure required to deliver SAF6.Identify and support SAF pathfindersCooperation and collaboration will be critical to building the right ecosystem.|Fuelling the

138、Future of Aviation25What are the action plansfor stakeholders?What are the instruments to deliver this SAF funding?What is the role of SAF in decarbonising air travel?CO2What is the SAF premium relative to kerosene(the spend shortfall)?What are the options to fund?SAF is the only scalable,short term

139、 option to decarbonise the aviation industrySAF is the critical and only scalable pre 2050 solution to deliver rapid emissions cuts in aviation and maintain the industrys social licence to operate and growImprovement in aircraft and engine design on new aircraft,along with operational changes,will c

140、ontinue to reduce fuel consumption,but will not solve the challenge aloneHydrogen and electric propulsion technology may represent a paradigm shift,but TRL is low with commercialisation unlikely pre 2035,and there remain fundamental concerns about applicability to long-haul routesIn contrast,SAF pro

141、vides a technologically proven drop-in fuel that can immediately start to reduce emissionsSAFs core challenge remains limited scale availability of lower-cost pathways(e.g.,HEFA),particularly in the context of constrained feedstock availability and the high cost of more-scalable pathways(e.g.,ATJ,Pt

142、L)|Fuelling the Future of Aviation26The global aviation industry faces a significant challenge to decarbonise to meet the objectives of the 2016 Paris Agreement,and for it to maintain its consequent social licence to operate and growSource:ICAOs 2050 Net Zero CO2Goal for International Aviation;IPCC

143、Sixth Assessment Report;AR6 Scenario Explorer and Scenarios DatabaseThe role of SAFSAF premium and spend shortfallOptions to fundInstruments to deliver fundingAction planForecast annual global aviation CO2emissions by climate mitigation scenario(2020-50)Billions of tonnes20152025303540455001234No ac

144、tionLimit to 1.5CLimit to 2C2.3 GtThe Paris Agreement-a legally binding international treaty on climate change-was adopted by 196 Parties at the UN Climate Change Conference(COP21)in Paris,France,on 12 December 2015.It entered into force on 4 November 2016The goal of the agreement is to limit global

145、 warming to below 2 degrees Celsius above pre-industrial levels,with an incremental aspiration to further limit the increase to a maximum of 1.5 degrees CelsiusThis aspiration has profound implications for the aviation industry,which is acknowledged as a particularly challenging part of the global e

146、conomy to decarbonise.Aviation as an industry represents c.3%of global CO2emissionsEmissions from domestic aviation are included in the Nationally Determined Contributions formal documents that represent efforts of each country to combat emissions in line with the Paris Agreement on climate change.E

147、missions from international flights that can be missed in national emissions reduction strategies under the Paris Agreement are in scope of the International Civil Aviation Organisation(ICAO)ICAO is the key international body overseeing international aviation under the United NationsWere the aviatio

148、n industry to take no action,and continue to grow without constraint-and without action to abate its carbon emissions-it would create a 2.3 Gt carbon emissions excess relative to the levels required to achieve the 1.5 degrees targetAction is required for the industry to maintain its social licence t

149、o fly,and organisation like ICAO have been mapping out a path forwards to deliver these target,including setting goals for SAF uptakeForecast|Fuelling the Future of Aviation27SAF is a drop-in alternative to kerosene that is produced from renewable feedstocks rather than fossil fuelsSource:IATA;Koron

150、eos(2004)SAF Life CycleRenewable feedstockRenewable feedstocks are collected from alternative sources of carbon to fossil fuels including crops,agricultural residues,waste,hydrogenSAF productionSAF is produced along different pathways;powering the production process by renewable energy can further r

151、educe the carbon footprintFuel burnFuel burn currently accounts for 99.5%of carbon emissions in aviationSAF blendingSAF is a drop-in fuel so can be deployed in existing aircraft and jet enginesCO2emissionsCarbon emissions released during fuel burn are offset by carbon capture during the growth of fe

152、edstocks or the SAF production process12345H2H2H2The role of SAFSAF premium and spend shortfallOptions to fundInstruments to deliver fundingAction plan|Fuelling the Future of Aviation28SAF is the only scalable,pre-2050 option to materially decarbonise the aviation industryThe role of SAFSAF premium

153、and spend shortfallOptions to fundAction planInstruments to deliver fundingSAF is the critical and only scalable near term solution to deliver rapid emissions cuts in aviation and maintain the industrys social licence to growImprovements in aircraft and engine design on new aircraft are expected to

154、continue to deliver incremental gains in fuel efficiency;these gains have historically delivered c.1%p.a.improvements;continuing to target efficiency improvements is a necessary-but alone,insufficient component of the overall aviation decarbonisation solutionOperational improvements for instance in

155、air traffic management are also expected to contribute positively to aviation sector decarbonisation,but are limited scopeHydrogen and electric propulsion technology may represent a paradigm shift,but the Technology Readiness Level(TRL)is low,and there remain fundamental concerns about applicability

156、 to long-haul routes;in addition,these technologies may require changes to the form factor of aircraftSAF in contrast-provides a technologically proven drop-in fuel that can immediately start to reduce emissionsHowever,SAF still faces significant challenges.In particular,there remains limited scale

157、availability of lower-cost pathways(e.g.,HEFA),particularly in the context of constraints on feedstock availability and the high cost of more-scalable pathways(e.g.,ATJ,PtL)Whilst hydrogen and electric technologies are expected to enter the aviation market before 2050,their route-level limitations w

158、ill mean that SAF will continue to have a significant role to play well beyond 2050Engine andAirframeDesignSAFNext-GenerationTechnologiesand FuelsOperationalEfficiencyMarginal gains:necessary but not sufficient Geared turbo fans,greater electrification,and open rotor all offer incremental engine eff

159、iciency Continued lightweighting and improved aerodynamics will deliver incremental efficiency;more significant shifts(e.g.,blended wing)face challengesMarginal gains:necessary but not sufficient Advancements in air traffic management,flight path optimisation,and taxi-ing procedures all offer potent

160、ial for incremental improvement in fuel burnMore-limited application,and not yet matureHydrogen combustion and fuel cell technology offer promise for regional and short haul,but face challenges in long haul;technology readiness is low,and airframe form factors may need material revisionElectric and

161、Hybrid face energy density challenges,and will require post-lithium-ion technologyAvailable and Scalable NowSAF is available today,and can be delivered immediately as a drop-in fuel to existing aircraftCapacity can be increased to materially impact emissions,though there are challenges that differ b

162、y technology pathway|Fuelling the Future of Aviation29There are four predominant production pathways for Sustainable Aviation Fuel,each characterised by different constraints on either technological readiness,or feedstock supply limitationsNote:*Technology Readiness Levels(from 0-Basic principles ob

163、served to 9 proven commercialised)are a recognised method for estimating the maturity of technologies during their development which enables consistent,uniform discussions of technical maturity across different types of technology;*Work is underway to demonstrate engines can safely run on 100%SAF bu

164、t this has not yet been certifiedSource:NLR,SEO Amsterdam Economics(2021);ATAG(2020);WEF(2021);ICAOMax.production in 2050(millions of tonnes p.a.)LimitationsHydroprocessed Esters and Fatty Acids(HEFA)Alcohol-to-jet(ATJ)GasificationFischer-Tropsch(G-FT)Power-to-liquid(PtL)c.27(feedstock constrained)c

165、.93(feedstock constrained)c.62(feedstock constrained)Theoretically unlimited8-97-86-76Technology maturity(TRL)*Current supply of oil and UCOinsufficient to meet future demandIssues with sustainability and food production likely to constrain future oil crop productionNeed for sustainable hydrogen pro

166、ductionTechnological development needed to scale production and reduce costsDifficulty competing for feedstocks with bioethanol which is more efficient and currently commercialisedNeed for sustainable hydrogen productionNeed for development of advanced carbon capture to enable sufficient scaleCurren

167、t maximum blend*50%50%50%Pending approval1stgen.Palm,rapeseed,soy oil2ndgen.Used Cooking Oil(UCO)3rdgen.Algae1stgen.Corn,Sugarcane2ndgen.Agricultural residuesAgricultural/forestry residuesMunicipal solid wasteHydrogen(via electrolysis)combined with Carbon dioxide(via carbon capture)FeedstockThe role

168、 of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliver funding|Fuelling the Future of Aviation3002468Price multiple of kerosene at$650 per tonnec.2.8xHydroprocessed Esters&Fatty Acids(HEFA)c.3.8xGasification Fischer-Tropsch(G-FT)c.2.6xAlcohol-to-Jet(AtJ)c.6.7xPower to

169、 Liquid(PtL)Parity with keroseneSAF is currently 2-7 times more expensive than kerosene;making SAF more affordable is therefore a key priority for the Net Zero agendaNote:*Average levelised cost of production on pathway begun in 2020 with 15%operating profit margin,comparable to kerosene price,range

170、d on applying+/-50%confidence to capex estimates as per academic literatureSource:ICAO;ICCT;IEA;Hydrogen Council;Pearlson(2011);Geleynse et al.(2018);Maniatis et al.(2017)via ICCT;Tao et al.(2017);Yao et al.(2017);de Jong,et al.(2017)Current estimated price of SAF*vs kerosene,by technology pathway(2

171、020)The role of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliver fundingDependent on the technology pathway,currently SAF can only be produced at c.2-7x a reference price of kerosene of c.$650 per tonne,reflecting the current costs of inputs,energy,and facility cons

172、tructionAs delivering SAF at scale is the crucial enabler to decarbonise the aviation industry in the short to medium term,and ensuring that the industry retains its social licence to grow,this cost gap poses a significant challenge to the aviation industry|Fuelling the Future of Aviation31What are

173、the action plansfor stakeholders?What are the instruments to deliver this SAF funding?What is the role of SAF in decarbonising air travel?CO2What is the SAF premium relative to kerosene(the spend shortfall)?What are the options to fund?In aggregate,we expect the cumulative incremental cost of SAF to

174、 total c.$3.5-5.5 trillion to 2050,which represents c.2-4%of the estimated$130-140 trillion total investment required to deliver Net ZeroSAF will need to scale dramatically to deliver industry blend targets of 65%in 2050,reaching 400Mt p.a.in 2050(compared to 2x premium over a reference kerosene pri

175、ce(c.$650 per tonne)in 2050In aggregate,funding SAF growth in line with industry targets creates a cumulative spend shortfall to a No SAF world of$3.5-5.5trn to 2050.This is in the context of total cumulative spend on kerosene in a No SAF Reference Case of c.$8-9trn over the same periodWhile this in

176、vestment is large,it is only a small fraction(2-4%)of the estimated$130-140trn for Net Zero investment and is comparable to aviations CO2emissions share(c.2-3%)This will enable SAF to deliver on its key objective:delivering material decarbonisation.Total carbon intensity per unit of energy used in a

177、ir travel would be reduced by 50%by 2050,driven by both transition to lower carbon intensity SAF production pathways and increased adoption of SAF|Fuelling the Future of Aviation32The reference case is built starting with aviation volume demand which is assumed to continue to recover from Covid-19 b

178、y 2024 and then grow in line with historical GDP multipliers0.00.51.01.52.02.53.03.5Reference Case aviation volume demand(1990-2050)Trillions of tonne-km*199020001020304050The Reference Case for aviation volume demand in this report is derived from Bergero et al.(2023)Nature Paper on SAF,it assumes

179、that passenger and cargo aviation volume demand recovers to 2019 volumes by 2024 and subsequently grows in line with historical drivers to 2050:Underlying GDP growth Increasing global wealth and consequent increases in mobility,particularly in the developing worldThis reference case scenario assumes

180、 that there are no significant changes to:Input costsSupply-side regulation TaxationWhile this reference case is not necessarily likely to occur,it represents a stable baseline for understanding the relative impacts of introducing SAF to maintain licence to grow,relative to alternative strategies to

181、 manage aviation emissionsCAGR%(1990-10)(10-19)(19-22)(22-50)5.15.3(7.2)4.74.76.4(13.9)5.04.76.4(10.1)5.06.12.23.94.0Business passengersLeisure passengersCargoTotalForecast-Note:*1 passenger-km=0.09 tonne-km(i.e.,average passenger weight of 90kg)Source:Bergero et al.(2023);IATA;Airbus;BoeingBoeingAi

182、rbus-3.9-4.3-The role of SAFSAF premium and spend shortfallOptions to fundInstruments to deliver fundingAction plan|Fuelling the Future of Aviation33To determine fuel demand to 2050,our reference case assumes no significant transition to next-generation technology,and a continued deceleration in fue

183、l consumption in line with historical trajectories010203040501990001020*304050Aviation industry energy intensity*(1990-50)MJ per Ton-KmHistoricalL.E.K.base case:1%reduction p.a.ICAO target:2%reduction p.a.*IEA Net Zero Case:4%reduction p.a.*0200400600800Aviation Fuel Demand under Reference Case volu

184、me demand(1990-2050F)Millions of tonnes199020001020304050BusinessLeisureCargoCAGR%(1990-10)(10-19)(19-22)(22-50)1.73.5(8.1)3.31.34.6(14.0)3.31.34.6(10.2)3.52.60.5(0.2)3.0TotalNote:*Energy intensity defined as MJ per passenger-km of aviation demand(passenger and freight);*Aspirational goal between me

185、mber states;*Combination of electrification,a push to pursue all energy and materials efficiency opportunities,behavioural changes that reduce demand for energy services,and a major shift away from traditional use of bioenergySource:Bergero et al.;IEA;ICAO;Bergero et al.(2023)CAGR%(1990-10)(10-19)(1

186、9-22)(22-50)-(4.0)-(2.0)-(1.0)-(3.2)(1.7)(3.9)ICAO target unlikely to be achieved without next gen.technologiesIEA Net Zero case assumes introduction of next gen.technologiesThe role of SAFSAF premium and spend shortfallOptions to fundInstruments to deliver fundingAction plan|Fuelling the Future of

187、Aviation34If airlines continue to grow in line with these historical trends and if the aviation industry delivers its SAF penetration targets 410mt p.a.of SAF will be required by 205046544944538033002505007501,000Triangulation with alternative forecasts(2050F)Millions of tonnesBergero et al,BAU*IATA

188、:Fly Net ZeroICF*,amb-itiousICF*,moder-ateICF*,conser-vative02505007501,000Aviation fuel demand(Reference Case)by fuel type(2020-2050F)Millions of tonnes2020253035404550SAF demandKerosene demandNote:*Assuming Net Zero(100%SAF and 50%short-haul EV);*ICF scenarios reach Net Zero via different predomin

189、ant routes:ambitious predominantly via SAF deployment,moderate via SAF development and electrification/high-range and airline load factor improvements,and conservative primarily via electrificationSource:Bergero et al.(2023);IATA;ICF400Mt SAF in 205065%54%39%17%5%2%IATAs targetSAF blend(%)The role o

190、f SAFSAF premium and spend shortfallOptions to fundInstruments to deliver fundingThe Reference Case for aviation demand in this report is derived from Bergero et al.(2023)Nature Paper on SAF,it assumes that passenger and cargo aviation volume demand recovers and grows in line with historical drivers

191、 to 2050While this reference case is not necessarily likely to occur,it represents a stable baseline for understanding the impacts of introducing SAFIn the Reference Case:the industry(IATAs)SAF blend targets for each five year period out to 2050 are delivered on time and in full.Albeit actual SAF bl

192、end achieved may vary by regionneither hydrogen nor electric flight is introduced before 2050This results in a demand of c.18 mt p.a.in 2030,rising to c.410 mt p.a.in 2050This is broadly in line with other sustainable transition or Net Zero target scenarios(e.g.,IATA)Action plan|Fuelling the Future

193、of Aviation35Meeting industry objectives will require SAF production in excess of 400 MT p.a.,which will need to be met by the rapid scaling of SAF capacity across existing and future technology pathways0200400600800202223242526272829303132333435363738394041424344454647484950Power-to-liquidGasificat

194、ion/FTAlcohol-to-jetHEFAMatureScalingDevelopmentSAF production by technology pathway(2022-50)Millions of tonnesGrows rapidly but remains small in overall quantum.HEFA is crucial to delivering the majority of near term growth,though FT and ATJ play an increasing roleThe role of SAFSAF premium and spe

195、nd shortfallOptions to fundAction planInstruments to deliver fundingSource:Bergero et al.(2023);IATA;ATAG(2020);WEF(2021)Begins to scale materially to meet fast-rising industry demand.HEFA capacity growth is capped by feedstock availability and FT/ATJ deliver the capacity of upliftReaches scale and

196、continues to develop rapidly.As accessible FT/ATJ feedstocks are maximised,and green hydrogen/carbon costs decline,PtL becomes the critical engine of growth|Fuelling the Future of Aviation36As demand scales and feedstock costs-in some areas-improve,the cost of production at new facilities will reduc

197、e across technology pathways05001,0001,5002,0002,5002020253035404550Levelised SAF production cost by technology pathway for a new facility(2020-50)USD per tonneGasification/FTPower-to-liquidAlcohol-to-jetHEFA05001,0001,5002,0002,5001,000-1,750Institute for Applied Tech.Clean SkiesSource:ICAO;ICCT;IE

198、A;Hydrogen Council;Pearlson(2011);Geleynse et al.(2018);Maniatis et al.(2017)via ICCT;Tao et al.(2017);Yao et al.(2017);de Jong,et al.(2017);Sorensen(2005);Kreutz et al.(2022);Andersson(2013);Bohm et al.(2019);WEF(2020);Institute for Applied Technology(Berlin);Bain&Company(2022)The role of SAFSAF pr

199、emium and spend shortfallOptions to fundAction planComparison to other forecasts(2050)USD per tonnePercentage decline18%33%18%24%Instruments to deliver fundingLevelised production costs for new facilities are expected to decline materially across production pathways,by c.15-35%over the next 30 years

200、These reductions and improvements reflect that-as production commercialises and the size of new facilities increases-capex(and to a lesser extent opex)benefit from economies of scale and learningThe extent to which individual pathways will benefit from a positive trajectory in input and feedstock co

201、sts varies significantly:Decreases in the cost of hydrogen impact PtL and to a lesser extent HEFADecreases in the cost of carbon impact PtLOther feedstocks costs are not expected to materially change in aggregate(whilst individual feedstock costs may vary)The capital and operating expenditure for fa

202、cilities,which together inform the levelisedcosts,are derived from a broad consensus of academic estimates,and result in figures broadly comparable to other such estimates in the public domainForecasts are directionally comparable but are not like-for-like comparisons due to differences in methodolo

203、gy|Fuelling the Future of Aviation37 however,weighted average costs across the installed base will decline more slowly,reflecting a mix shift to more expensive production pathways and the continued operation of older facilities05001,0001,5002,0002,5002238364034423244304628482650242020Average levelis

204、ed SAF production cost by technologypathway across the installed plant base(2020-50)USD per tonneNote:*Average weighted on expected production by pathwaySource:Bergero et al.(2023);IATA;ATAG(2020);ICAO;ICCT;IEA;Hydrogen Council;Pearlson(2011);Geleynse et al.(2018);Maniatis et al.(2017)via ICCT;Tao e

205、t al.(2017);Yao et al.(2017);de Jong,et al.(2017);Sorensen(2005);Kreutz et al.(2022);Andersson(2013);Bohm et al.(2019);WEF(2021);WEF(2020);Institute for Applied Technology(Berlin);Bain&Company(2022)Whilst individual technology pathways are expected to experience material declines in the levelised co

206、st of production for new facilities,the average cost of production of SAF is only expected to decline by c.4%from 2020 to 2050:As demand increases,and capacity scales to meet that demand,the mix of technology pathways deployed will necessarily gradually shift to higher-cost technologies such as Gasi

207、fication-FT and ultimately PtLCosts of production reflect weighted average costs across the installed base,rather than the economics of the marginal facility;managing the economics of the less-efficient,more-costly,early facilities(e.g.,through policy,rather than market approaches)will be critical t

208、o providing sufficient confidence to enable early investmentConsequently,whilst each individual technology pathway demonstrates significant cost reductions,the weighted average cost of production remains stubbornly high over the forecast period,with only a c.4%reduction in the cost of production exp

209、ected from market values today through to the values expected in 2050,in real termsThe role of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliver fundingPower-to-liquidGasification/FTAlcohol-to-jetHEFAWeighted average*Percentage decline(new facility)33%18%18%24%Percen

210、tage decline(installed base)n.a.28%17%17%21%4%|Fuelling the Future of Aviation38897366291486493329243321884931257020406080100KeroseneRapeseedSoybeanCamelinaUsed cooking oilCorn grainSwitchgrassSugarcaneAgricultural residuesForestry residuesMunicipal solid wasteShort-rotation woody cropsForestry resi

211、duesAgricultural residuesWaste CO2,Green H2,SolarWaste CO2,Green H2,Wind DAC CO2,Green H2,SolarDAC CO2,Green H2,Wind18266883456367736376919145657292Carbon intensity reductions relative to kerosene due to SAF are dependent on its production pathway and the feedstock used;with more advanced pathways a

212、chieving greater reductionsFull Life Cycle emissionsManufacturing pathway%Reduction(vs kerosene)G-FTHEFAATJFeedstockFull Life Cycle Emissions Values on a carbon intensity basis for CORSIAs currently eligible fuels(2022)KeroseneLife-cycle emissions value of a SAF comprises:Core Life Cycle Assessment(

213、LCA)emissions:Feedstock cultivation,harvesting,collection and recoveryFeedstock processing and extractionFeedstock transportation to processing and fuel production facilitiesFeedstock to fuel conversion processesFuel transportation and distributionFuel combustion in an aircraft engineInduced land-us

214、e change(ILUC)emissions:Additional land use(if required)generating land use change GHG emissionsSource:ICAO CORSIA Default Life Cycle Emissions Values For CORSIA Eligible Fuels(June 2022)Grams of CO2per MJPtLThe role of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliv

215、er funding|Fuelling the Future of Aviation39Whilst all SAF pathways will represent an improvement in carbon intensity over kerosene,there are significant ranges in the environmental impact both between and within each pathwayThe role of SAFSAF premium and spend shortfallOptions to fundAction planIns

216、truments to deliver funding13020406080100120Carbon intensity on a full lifecycle basis by technology pathway(2022)gCO2e/MJ13-65HEFA25-40Alcohol-to-jet8-33Gasification-FT7-49Power-to-liquidSoybean oilCorn ethanolMunicipal solid wasteWaste CO2;Solar electricityMaximumUsed cooking oilAgricultural resid

217、ues ethanolAgricultural residueDAC CO2;Wind electricityMinimumCORSIA kerosene baseline:89 gCO2e/MJCorn-based ATJ(via ethanol or isobutanol)Source:ICAO;CORSIA;ATAG(2020)The different SAF technology pathways have materially different overall carbon intensities and consequent impact on the environmentG

218、iven that the overarching goal of SAF is to decarbonise the aviation industry,the differing carbon intensity of the pathways and associated feedstock options is critical to considerThe variation at the feedstock level has already caused different global jurisdictions to adopt different stances in th

219、e acceptability of SAF produced through different routesNotwithstanding the variation between pathways and feedstock,the overall trajectory in carbon intensity reflects the potential for significant reductions in carbon intensity as the industry progresses through from HEFA to G-FT and ultimately to

220、 PtLIn the end state,with PtL sourced from the most efficient renewable energy sources and with high availability of Direct Air Capture as the source of CO2,the overall carbon intensity of SAF could be c.7-8%of kerosene on a full lifecycle basisRange reflects feedstock choices|Fuelling the Future of

221、 Aviation40The delivery of SAF will result in material reductions in carbon intensity for aviation to 2050,driven by both the improvement in carbon intensity at the production pathway level,and the increase in SAFThe role of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to

222、deliver funding0204060801001202020253035404550Estimated trajectory of carbon intensity of life cycle emissions for SAF(2020-50)gCO2e/MJKeroseneAssuming emissions in middle of potential rangeAssuming emissions in middle of potential range(excl.corn)DAC CO2;wind and solar electricity(in 50:50 ratio)HE

223、FAAlcohol-to-jetGasification/FTPower-to-liquidAverage emissions weighted on feedstock availabilityPtLHEFAG-FTATJG-FT and ATJ begin pioneer stage of productionPower-to-liquid begin pioneer stage of productionPower-to-liquid scales up to meet demand for SAFSAF average*Blended fuel averageNote:*Average

224、 weighted on expected production by pathwaySource:ICAO;CORSIA;ATAG(2020)Over the period 2020 to 2050,the transition to SAF will result in a significant(50%)reduction in the carbon intensity of the aviation industry,driven by:Increased blending targets for SAF,increasing to 65%by 2050Progressive mix

225、shift within SAF towards technology pathways with lower carbon intensity;in particular,the transition to PtLThe average carbon intensity of SAF is expected to be c.21g CO2/MJ,which is approximately 20-25%of the equivalent carbon intensity of keroseneNet of SAFs blending percentage,this reflects an a

226、pproximately 50%reduction in the carbon intensity of global jet fuel by 205050%reduction|Fuelling the Future of Aviation41DevelopmentScalingMatureTotalspend shortfall:c.$100BTotalspend shortfall:c.$1,000BTotalspend shortfall:$3,400BTotalspend shortfall:c.$4.5trn($3.5-5.5trn)Relative to kerosene,the

227、total cumulative incremental spend shortfall required to deliver SAF is estimated to be c.$3.5-5.5 trn to 2050,with an incremental capital requirement of c.$1.5-2.5 trnNote:*SAF premium in each year multiplied by the total production this covers annual opex shortfalls and part of the capital shortfa

228、ll;*ATAG(2020)-$1-1.5 trillion;MPP(2022)-$1.4-2.5 trillion;Bain&Company(2022)-$1.3-$10.6 trillionThe role of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliver funding20202224264038423644344632483050280100200300400500600Total spend shortfall*(2020-50)Billions of 2022

229、USDIn aggregate,we estimate the total cost of delivering SAF to be c.$3.5 to 5.5 trillion to 2050,reflecting the incremental levelized costs of SAF over that time period,relative to a kerosene reference price of$650The capital requirements for delivering SAF capacity will be front-loaded relative to

230、 the levelized cost,and reflect an incremental c.$2 trillion of funding that will need to be mobilised over this periodWhilst methodologies between reports will necessarily differ,this estimate is in broad agreement with other efforts to estimate the incremental cost of delivering SAF*|Fuelling the

231、Future of Aviation42Whilst large,this SAF expenditure is only 2-4%of total estimated Net Zero expenditure of c.$130-140trn to 2050050100150200Total estimated SAF capital vs total IRENA estimated required investment for 1.5C pathway and Net Zero(2023-50)Trillions of 2022 USDL.E.K.total estimated SAF

232、capital(2023-50)IRENA 1.5C and Net Zero by 2050 investment(2022-2050)c.$6-8trnc.$130-140trn25-45xThe role of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliver fundingSource:IRENAIRENAs Global Renewables Outlook 2020 has estimated that the overall required expenditure

233、 to deliver Net Zero is of the order of c.$130-140trn between now and 2050The required expenditure of c.$6-8trn to deliver SAF between 2023 and 2050 can broadly be seen in this context,given that aviation represents c.2-3%of overall global carbon dioxide emissionsHowever,it should be noted that SAF

234、itself is an incomplete solution to the problem:The quantified target estimates only the required expenditure to achieve 65%SAF penetrationSAF itself is not a zero carbon fuel|Fuelling the Future of Aviation43What are the action plansfor stakeholders?What are the instruments to deliver this SAF fund

235、ing?What is the role of SAF in decarbonising air travel?CO2What is the SAF premium relative to kerosene(the spend shortfall)?What are the options to fund?The spend shortfall can be closed by passing on price increases to end customers,whilst maintaining a growing airline sector;however,further quest

236、ions arise about the impact on aviation industry economicsThe aviation industry cannot trivially absorb this c.$3.5-5.5trn spend shortfall within existing operating profits;the spending gap is comparable in overall magnitude to the industrys entire expected profits over the period 2023 to 2050 under

237、 the No SAF Reference CasePassing through the impact of SAF on fuel costs would require 2050 revenues to be 18%higher than in a No SAF Reference CaseHowever,this price increase can occur slowly over the forecast period,with increases averaging only c.0.6%p.a.more than in a No SAF Reference CaseAcces

238、sing latent willingness to pay will be critical to manage demand response,which could be c.7%by 2050 relative to a No SAF Reference Case,providing:Price increase is imposed in lockstep across the industry,enabled by action from government and industry to level the playing fieldSignificant minorities

239、 of business,cargo and leisure users voluntary willingness to pay for SAF is realisedThis reduction would equate to a relative decline in volume growth of c.(0.3%)p.a.to 2050,but nonetheless would still imply an aviation industry that is able to grow at c.3-4%p.a.with renewed social licenceThis decl

240、ine in volume does nonetheless represent a profit challenge of c.$1trn for the sector over 2022 to 2050This challenge to industry profits significantly raises the importance of reducing the industrys fuel consumption,as the remaining options may further impact customer pricing,investor returns,or po

241、tentially create a requirement for government funding|Fuelling the Future of Aviation44In 2019,the aviation industry including airlines,airframers,engine OEMs,airports,and fuel producers-generated an aggregate EBIT of c.$100bn on end customer revenues of c.$840bn7368473154Total840Global aviation ind

242、ustry generates c.$840bn in revenue and c.$100bn in EBIT p.a.In 2019,global airline profitability was close to an all time high and airlines generated almost half of the total operating profit in the aviation industryWhile the industry is substantial,the cumulative SAF spending gap is significant gr

243、eater at c.3x annual revenue generated by the industryNote:*2018 revenue for airportsSource:IATA;Airports Council International;Forbes;Statista;Annual reports;Eikon54Airlines31Airports*7Aircraft lessors4Aircraft&engine OEMs8Fuel producers84018030160190Aviation industry Revenue and EBIT by Value Chai

244、n participant(2019)Billions of nominal USDThe role of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliver funding|Fuelling the Future of Aviation45The cumulative incremental cost of SAF is broadly comparable in aggregate to the expected operating profits of the entire

245、aviation sector over the same timeframeSource:IATA;Airports Council International;Forbes;Statista;Annual reports;Eikon 0123456Estimated impact of SAF on aviation industry with no action(2023-50)Trillions of 2022 USDCumulative SAF spend gap(2023-50)0.20.40.31.72.8Cumulative aviation sector operating

246、profits(2023-50)No SAF ScenarioOEMsLessorsFuel producersAirportsAirlinesc.$3.5-5.5trnc.$5-6trnThe role of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliver fundingOver the next 30 years,the aviation industry is expected to generate c.$5-6trn in cumulative operating p

247、rofitsAviation sector profits in a No SAF Reference Case have been estimated based on recent historical trend(last 10 years,excluding Covid-19),consistent with assumptions on kerosene pricing in the reference caseThis level of cost increase cannot trivially be absorbed within the margins of the avia

248、tion sector as a whole.Were it to be,this incremental c.$3.5-5.5trn of cost would reduce by c.80%the operating profit pool,with the likely consequence that returns to the sector would not exceed cost of capitalAs a result,in order for the aviation sector to remain sufficiently profitable,it is cruci

249、al that at least part of the cost increases imposed by SAF should be borne by customers|Fuelling the Future of Aviation46Market airline economics(2030-50)Billions of 2022 USDIf airlines were to pass the full increase in blended fuel cost on to customers in 2050,this would result in a c.18%price incr

250、ease on average charged to end customers(versus a No SAF world)8748741,3271,3272,0082,00823025130850541387201,0002,0003,0004,000No SAF Reference Case75With SAF and operating profit maintained111No SAF Reference Case111With SAF and operating profit maintained165No SAF Reference Case165With SAF and op

251、erating profit maintainedFuelNon-fuelOperating profit1,1801,2001,7461,9432,5853,04575+2%+11%+18%Note:*Reference kerosene price set at c.$653 per tonne,the average of the last 10 years excluding Covid-19Source:IATA;U.S.Energy Information AdministrationFuel costs typically make up c.20%of airline reve

252、nues(before considering incremental cost of SAF)Meeting industry targets for 65%SAF blend in 2050 would increase the blended fuel cost*by c.111%compared to the reference kerosene price*This would require an overall increase in airline revenue of c.18%by 2050 in order to cover the increase in the cos

253、t baseAs the industry targets are staggered,the revenue uplift required to meet the cost increases of increasing SAF blend trends from c.2%in 2030 to c.18%in 2050Percent SAF penetration-5.2%-39.0%-65.0%Blended fuel cost per tonne$653$711$653$1,070$653$1,381203020402050The role of SAFSAF premium and

254、spend shortfallOptions to fundAction planInstruments to deliver funding|Fuelling the Future of Aviation47The ability to pass on cost increases differs by end customer segment:cargo and business customers are more likely than leisure customers to be willing to pay for SAF-related price increases Busi

255、nessGiven increasing business focus on Net Zero commitments,traditional travel elasticities may likely be overstating how price elastic business passengers are for airline travel Driven by Net Zero commitments,some businesses will be more willing to accept higher airline travel fares in order to mak

256、e their business travel Net ZeroCargoCargo customers are already quite willing and likely to become more willing to accept pass through of fuel costs because transport is not discretionaryKey drivers are operators and customers:Net Zero commitments scope 1/2/3 emissionsperception in the customers en

257、d marketLikely to be most achievable for the transport of low-density,high-value goods,where the relative increase in transport cost per item represents are a small fraction of the items valueLeisureWhilst more price elastic than business and cargo,leisure customers have historically been able to ab

258、sorb ticket price increases/fuel surchargeResearch demonstrates that through proper education of the need for climate action a significant subset(c.25%)of passengers are likely willing to pay for SAFThe incremental costs of SAF are comparable in magnitude to ancillary spend on customer journeys,high

259、lighting the potential ability of customers to absorb SAF-related price increasesIn a subset of journeys,air is much cheaper than other transport modesThe role of SAFSAF premium and spend shortfallOptions to fundAction planLong-haulShort-haul$124bnLong-haulShort-haul$401bn$201bnInstruments to delive

260、r fundingABCBusiness Airline Revenues(2022)Leisure Airline Revenues(2022)Cargo Airline Revenues(2022)Source:IATA:Industry Statistics 2022;Boeing:Commercial Market Outlook 2022-41;The Death of First Class(Michigan Journal of Economics)|Fuelling the Future of Aviation48Currently,c.30%of large business

261、es have made commitments to reach Net Zero targets,and are therefore unlikely to be deterred by higher costs of air travel in service of that aimNote:*Includes all statuses of Net Zero targets(incl.ones under discussion or declared,with no legal obligation in place);*In PPP terms;*Share measured by

262、percentage of sales accounted for with a Net Zero targetSource:Net Zero Tracker;WEF(2021)020406080100Forbes 2000 list share of companies with Net Zero targets(2020)Share measured by%of sales coveredWithoutNet Zero targets67%With Net-Zero target33%of sales with Net-Zero targetAfter 20508%By 205062%By

263、 203030%Net-Zero target year distributionUnknown10%Scopes 1+28%Some Scope355%All Scope 327%Scope emissionscoveredNot specified50%Offsetting40%No offsetting10%Use of offsetsThe role of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliver fundingABusiness travel counts to

264、wards Scope 3 emissions for most businesses(other than airlines)Scope 3 emissions are defined as emissions stemming from assets not owned by reporting organisation(i.e.,if the business does not own the aircraft then the emissions are counted as Scope 3)As businesses increasingly focus on reducing th

265、eir environmental emissions and meeting Net Zero targets,they may be more willing than leisure customers to accept the cost increase of SAFSBTi companies represent c.18%of business travel and have a$2.5bn willingness to pay for SAF premiumsFlight emissions,which count as Scope 3 emissions,are within

266、 the Net Zero mandate of c.80%of companies with Net Zero targetsLarge businesses have led the way with commitments to Net Zero but smaller businesses are likely to followBusiness travellers have a lower price elasticity than leisure customers due to a greater necessity to travel|Fuelling the Future

267、of Aviation49In recent research,c.25%of leisure travelers appear to show a willingness to pay for SAF,provided implications are adequately explainedSummary of range of flight-associated spend beyond ticket price(2022)Survey data from Xu et al(2022)indicates that 26%of customers are currently willing

268、 to pay a higher ticket price for a flight using SAF,even if a cheaper ticket with regular jet fuel is availableThe study also finds that respondents who are aware of the perceived benefits of SAF*show a stronger willingness to pay for SAFOther studies have proven lack of awareness as a key barrier

269、to willingness to pay,that can result in the market failure(Wegener and Kelly,2008)Current public awareness of perceived benefits is low,with over 50%of customers unable to form an opinion on the benefits of SAF relative to other carbon compensation measuresThe study highlights the potential to driv

270、e willingness to pay for SAF by promoting its benefits in order to close the awareness gapNotes:*Estimated SAF increment calculated as 18%on flight price of$100 for leisure short-haul and$560 for leisure long-haul;*Travel+in-flight food;*All add-ons,travel+airport food;travel,food(airport+in-flight)

271、;priority boarding,baggage,travel,airport food+non-food spendSource:Xu et al.(2022);Wegener and Kelly(2008);Airline websites;CAA Aviation Consumer Survey;Airline financials;STR Traveller Panelc.26%of customers show willingness to pay for SAF once benefits are explainedAdditionally,customers habitual

272、ly spend significant increments above their ticket price during their journeyThe role of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliver fundingB0Elements of traveller spendIllustrative bundles300600900In-flight food$10-50$5-100Other in-flight spend$10-300Seat book

273、ingLow spender*$30-380$10-100Family*$15-320BaggageFood-only$10-30Priority boardingBig spenderSH$5-200Travel to airport$40-630$5-100Airport food$10-200Other airport spend$5-20LH Est.incremental SAF cost(short-haul&long-haul)*|Fuelling the Future of Aviation50Aviation Cargo disproportionately comprise

274、s high-priced and time-sensitive goods(c.40%),the customers for which are likely to show lower price sensitivity than in other categories of cargo%Tonnes%RTK*Value densityCost of air transportEnd customer price sensitivityTime sensitivityImplied price sensitivityMachinery&Electrical Equipment23%24%L

275、owPerishables23%26%HighComputers&Office Equipment14%16%MediumDocuments&Small Packages13%10%HighChemicals&Related Products9%9%MediumTextiles,Leather&Apparel6%7%HighMetals&Metal Products3%2%LowTransportation Equipment&Parts1%1%LowNote:*Highly time-sensitive but are very price sensitive as a significan

276、t increase would challenge industry economics;this is reflected in the lower industry fuel surcharge for perishables vs other goods;*Estimated;Mainly goldSource:Boeing World Air Cargo Forecast;ACIIndicative assessment of the likely price sensitivity of the top 8 global categories of goods transporte

277、d by airImplied price sensitivity:HighLowLow$per kgHigh$per kgHigh air to total cost Low air to total cost High elapsed timeLow elapsed timeHigh elasticityLow elasticityThe role of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliver fundingC|Fuelling the Future of Avia

278、tion51In aggregate,passing the full cost of SAF through to end customers would close the spend gap,but reduce demand volumes by c.7%relative to No SAF02464.30.24.5Increasing SAF use is likely to increase blended airline fuel prices by c.111%by 2050.To cover this cost increase,prices would need to in

279、crease by c.18%by 2050(though this could vary by customer segment or passengers vs cargo)Large parts of the customer base show evidence of voluntary willingness to pay:c.30%of large businesses are committed to Net Zero targets with most also committed to Scope 3c.20-25%of leisure travellers state a

280、willingness to pay for SAFc.40%of cargo is sufficiently high value or time sensitive that demand response will likely be limitedTotal cost of delivering SAF,over and above the cost of kerosene is estimated to be between c.$3.5-5.5trn cumulatively between 2023 to 2050Notwithstanding voluntary willing

281、ness to pay,imposing a 18%price increase across the customer base will prompt a negative demand responseElasticity data provides strong evidence that this demand response will be significantly muted(up to 50%)if airlines are able to act as one(i.e.,increase prices in broadly in line),creating a leve

282、l playing fieldAggregate impact in 2050 is likely to be c.7%reduction in demand(relative to a no SAF world)The role of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliver fundingTrillions of 2022 USD(real)Potential approach to closing spend shortfall(2023-50)Fare Pass

283、ThroughSpend ShortfallDemand ReductionSource:Bergero et al.(2023);IATA;ATAG(2020);ICAO;ICCT;IEA;Hydrogen Council;Pearlson(2011);Geleynse et al.(2018);Maniatis et al.(2017)via ICCT;Tao et al.(2017);Yao et al.(2017);de Jong,et al.(2017);Sorensen(2005);Kreutz et al.(2022);Andersson(2013);Bohm et al.(20

284、19);WEF(2021);WEF(2020);Institute for Applied Technology(Berlin);Bain&Company(2022)(3.5-5.5)|Fuelling the Future of Aviation52Passing through the full cost of SAF on to end customers could still allow stable growth for the industry,albeit whilst causing a decline in expected demand growth from 4.2%t

285、o 3.9%p.a.The role of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliver fundingSource:Bergero et al.(2023);IATA0.00.51.01.52.02.53.0201516 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44Aviation Industry end customer demand volumes

286、 with and without uptake of SAF based on Bergero et al(2023)(1990-50)Trillions of tonne kilometres46 47 48 49 5045Business long-haulBusiness short-haulLeisure long-haulLeisure short-haulSAF ScenarioCargoCAGR%(2023-50)4.2%3.9%Total(No SAF)|Fuelling the Future of Aviation53This decline in growth expec

287、tations does,however,have a material impact on profit expectations for the industry relative to the No SAF Reference Case;we estimate this to be c.$1 trillion over 2023-50Source:IATA;Airports Council International;Forbes;Statista;Annual reports;EikonThe role of SAFSAF premium and spend shortfallOpti

288、ons to fundAction planInstruments to deliver funding0123456Estimated impact of SAF on aviation industry(2023-50)Trillions of 2022 USDCumulative SAF spend gap(2023-50)Impact of SAF on aviation industry profits(2023-50)$0.2trn$0.4trn$0.3trn$1.7trn$2.8trnCumulative aviation industry operating profits(2

289、023-50)No SAF ScenarioOEMsLessorsFuel producersAirportsAirlinesc.$3.5-5.5trn$0.8trnc.$5-6trnWhilst the industry would still be expected to grow its volumes with the introduction of SAF,the slower expected growth rate would reduce overall profit expectations from the aviation industryThe impact of SA

290、F on aviation industry profit is estimated cumulatively at c.$1trn for 2023 to 2050(rounded from$0.8trn in exhibit)|Fuelling the Future of Aviation54There are four options to close this remaining$1 trillion profit gap,with further fuel efficiency playing a key roleStrategic support from governmentsR

291、educed investor returns43Additional funding from within the industryAdditional funding from external stakeholdersReduced fuel consumptionAdditional fare increases for end users12Accelerating rate of improvements in fuel burn efficiency to industry targets could materially reduce the residual funding

292、 gap,though these could be challenging to deliverAdding an incremental 4ppt to the initial 18%fare increase could fully offset the residual funding gapGovernments could provide support to the aviation industry in order to avoid air travel becoming less affordable during the energy transition and in

293、line with actions to support other transport sectors(e.g.,rail,bus)As a last resort,the aviation industry and its investors could absorb the outstanding c.$1trn from its operating profit pool over the period The role of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliv

294、er fundingOptions to close the profit gap|Fuelling the Future of Aviation55The quantification of SAF spend shortfall,and the consequent impact on the industry,is sensitive to many key assumptions:fuel burn reduction,and hydrogen pricing are particularly important cost levers18%15%21%18%17%18%17%19%1

295、7%19%19%17%16%20%-17%16%22%18%18%0.90.70.70.90.80.80.80.80.80.80.70.80.80.70.80.70.91.80.9Note:*ReFuel EU targets 63%in 2050(vs IATA 65%)with ramp-up skewed to 2040-50;*IATA targets accelerated from 5.2%to 10%in 2030 and 17%to 20%in 2035;*Upper and lower bounds of IEA projectionSource:ReFuel EU;IATA

296、;IEAHigh and low case assumptionsCumulative spend shortfall(2023-50)Trillions of 2022 USDCustomer fare increase(2050)PercentAviation industry profit impact(2023-50)Trillions of 2022 USD4.25.05.34.04.14.04.75.14.44.74.83.74.34.64.94.44.14.84.5$4.5trn18%$0.8trnReference Case:LowHighKey:LeverDescriptio

297、nLowReference CaseHighIndustry demand growth(Ton-km)Annual growth post Covid-19 recovery starting in 20240.5%4.0%4.5%Fuel burn reductionAnnual reduction in fuel burn per RPK0.5%1.0%1.5%SAF blend targetsPlanned profileReFuel EU targets*IATA targetsAccelerated IATA targets*PathwayShare of G-FT(vs ATJ)

298、from biomass availability30%40%50%Feedstock pricesPercent change from reference case-10%Dependent on pathway+10%Green hydrogen priceIn 2050,with same reduction trajectory as ref.case$1.00/kg*$1.48/kg$2.50/kg*Economies of scalePercent change to impact on unit capex of facility capacity-10%0.6-0.7+10%

299、Hurdle rateHurdle rate for investment in SAF production facility5%6%7%SAF producer marginFuel producer operating margin for SAF production10%15%20%Airline pricing policyPercent change to reference case price elasticitiesIndependentLockstep-The role of SAFSAF premium and spend shortfallOptions to fun

300、dAction planInstruments to deliver funding|Fuelling the Future of Aviation56What are the action plansfor stakeholders?What are the instruments to deliver this SAF funding?What is the role of SAF in decarbonising air travel?CO2What is the SAF premium relative to kerosene(the spend shortfall)?What are

301、 the options to fund?Industry and government have the tools to ensure SAF develops,using combinations of incentives,mandates,and enablersWhile the SAF funding shortfall can be closed,there remains a significant role for industry and government to create the conditions that enable scale up:Provide co

302、nfidence in the investment economicsLevel the playing field by addressing competitive concernsDefine and deliver a set of common standards and enablersAchieving the rapid scaling of the SAF ecosystem will likely require combinations of all available instruments(incentives,mandates,and enablers)Combi

303、ned policy instruments(e.g.,Inflation Reduction Act,EU Green Industrial Plan)demonstrate the powerful role of strong financial incentivesThe policy regime will need to evolve materially over the next 30 years to ensure alignment of incentives with the right SAF outcomes:In the first 10 years(market

304、development),there is a role for all three levers,with particular focus on setting comprehensive standards,mobilising near voluntary demand(via book and claim)and investment enablersFrom 2030 to 50(market scaling and maturity),incentives should swiftly evolve to favouring R&D and early commercialisa

305、tion of PtL ahead of other pathwaysThroughout the period,targeted taxation and policy could play a key role in creating a level playing field for cost pass through|Fuelling the Future of Aviation57Uncertainty in SAF demandMobilising funding and creating fertile ground for SAF to accelerate requires

306、five key issues to be resolvedInsufficient investment in R&D12Investment in R&D is needed to drive nascent technologies to commercialisation without which SAF production will be constrained by feedstock limitationsHEFA,G-FT and ATJ are all limited in capacity by feedstock constraints whilst PtL is t

307、heoretically unlimitedFactorDescriptionUncertainty of future demand for SAF deters investment in,and production of,SAF which incurs a significant upfront capital costWhilst industry and government have set targets for SAF penetration in fuel blends,and there is a positive outlook for growth of aviat

308、ion demand,there is currently no guarantee of future SAF demandUncertainty in SAF production economics3Uncertainty in the production economics of SAF,and primarily in the price of SAF,impedes investment in SAF production as returns are unpredictableLack of clear standards5A lack of clear standards l

309、eads to inconsistency and uncertainty in the quality and sustainability of fuels being produced,driving greater investment insecurityPrice competition in airline industry4Airlines acting independently of one another to increase prices will exacerbate the end customer demand response and reduce airli

310、ne operating profitsInsufficient SAF supplyThe role of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliver funding|Fuelling the Future of Aviation58Interventions in the form of incentives,mandates or enablers can be targeted at different participants across the value c

311、hain to overcome these challengesThe role of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliver fundingSummary of potential interventions by governments and international agencies across the value chainEnd customersAirportsFuel producersAirlinesFeedstock producersInce

312、ntivesMandatesEnablersCarrotsSticksProduction tax credits(PTC)Investment tax credits(ITC)Research tax credits(RTC)Contracts for Difference(CfDs)Fuel subsidyGreen flight taxesKerosene taxationCarbon taxSAF usage targetsFuel burn targetsSAF production targetsSupply targetsBook&ClaimRegulationStandards

313、|Fuelling the Future of Aviation59Deploying the full range of interventions will enable governments and international agencies to maximise the rate and level of SAF adoptionEnablers onlyFeedstockproducersAirlines&airportsEnd customerAt a minimum,government and industry need to implement systems,stan

314、dards and regulation to enable the SAF marketEnabled by systems,standards and regulationEnablers&MandatesGovernment can encourage SAF uptake and production by setting mandates to apply to fuel producers and/or airlines and airportsEnabled by systems,standards and regulationMandatesInsufficient inves

315、tment in R&D1Uncertainty in SAF demand2Uncertainty in SAF production economics3Lack of clear systems and standards5Price competition in airline industry4Insufficient investment in R&D1Uncertainty in SAF demand2Uncertainty in SAF production economics3Lack of clear systems and standards5Price competit

316、ion in airline industry4Enablers,Mandates&IncentivesGovernment and industry can accelerate SAF uptake and production by applying incentives;this can pull cash backward in the value chain and help to fund productionEnabled by systems,standards and regulationIncentivesPossible cash movementInsufficien

317、t investment in R&D1Uncertainty in SAF demand2Uncertainty in SAF production economics3Lack of clear systems and standards5Price competition in airline industry4The role of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliver fundingFuelproducersFeedstockproducersAirline

318、s&airportsEnd customerFuelproducersFeedstockproducersAirlines&airportsEndcustomerFuelproducersMandatesChallenges addressed|Fuelling the Future of Aviation60In order for actions to have the maximum impact,they must be part of a coherent,holistic solution that manages the development and rollout of SA

319、F to 2050:the right stimulus will be needed at the right time0200400600800202223242526272829303132333435363738394041424344454647484950Power-to-liquidGasification/FTAlcohol-to-jetHEFAMatureScalingDevelopmentSAF production by technology pathway(2022-50)Millions of tonnesBuild confidence for producers

320、and investors through interventions targeted at incentivising R&D,investment and productionStimulate capacity growth through interventions targeted at increasing certainty of production economics(e.g.,through incentives)and certainty of demand(e.g.,through mandates)Once production has scaled,product

321、ion incentives can be focused on maximising the potential of newer technologies(e.g.,PtL).Mandates and enablers are still required to provide market certainty and directionFuel subsidies and tax credits for all pathwaysAPathway-specific CFDs to increase certainty of production economicsBCarbon/keros

322、ene tax and green flight taxes to encourage uptake of SAFCSystems,regulations and standards to enable SAF marketEMandates to provide certainty of demandDPtL RTCs to develop technologyPtL ITCs and PTCs to scale productionGreen flight taxes to enable price increases in lockstepDecreasing scope of inte

323、rventionThe role of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliver fundingSource:Bergero et al.(2023);IATA;ATAG(2020);WEF(2021)|Fuelling the Future of Aviation61Tax credits and/or fuel subsidies can be used in the Development phase of SAF to stimulate production g

324、rowth on all pathways but in the mid-term their scope should be restricted to PtL010020030040050060070020352040204520500 2 4 6 8 11131618273747202269901121341592025184204225247270295316203033836138541158PtLG-FTAtJHEFASAF production by technology pathway(2020-50)Millions of tonnesGeneral PTC/ITC for

325、capacity1aGeneral PTC/ITC to stimulate capacity investment In the mid term,PTC/ITC credits for SAF capacity could provide greater confidence in economics and return,supporting industry scaling in a similar fashion to wind/solar analoguesThese incentives should be time boundedATJ/G-FT RTC to stimulat

326、e R&D investmentRTC for ATJ and G-FT would incentivise timely investment into R&D to ensure these pathways are able to scale in the Scaling stageFuel subsidies to stimulate capacityOver the short term,governments can provide fuel subsidies to support the ramp up of SAF production by enabling high pr

327、ices to meet higher costs of production compared to kerosenePtL RTC to enable scalingGiven the long run importance of PtL,RTC both for PtL specifically and hydrogen more broadly are critical to ensuring the pipeline for SAF scalingPtL ITC/PTC to scale productionOnce PtL is commercialised,PTCs and IT

328、Cs specifically for PtL can be used PtL RTC2PtL ITC/PTC31a23Fuel subsidies1c1bMatureScalingDevelopmentATJ/G-FT RTC1b1cThe role of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliver fundingA|Fuelling the Future of Aviation62CfDs could be deployed to incentivise early i

329、nvestment into SAF production pathways during their development phases0100200300400500600700203520402045205002 4 6 8 11131618273747202269901121341592025184204225247270295316203033836138541158PtLG-FTAtJHEFASAF production by technology pathway(2020-50)Millions of tonnesHEFA,ATJ&G-FT CfD1HEFA,ATJ&G-FT

330、CfDs to stimulate interim capacityIn the mid-term,CfDs for ATJ and G-FT could incentivise the development of ATJ and G-FT capacity to allow for overall SAF capacity to ramp-up before PtL reaches maturityPtL CfDs to ensure developmentGiven PtLs relative lack of maturity,CfDs for PtL also have a part

331、to play in driving their developmentIncentives for HEFa,ATJ,and G-FT pathways will need to be appropriately balanced/wound down to ensure investment for PtL is not crowded out by investment for other pathwaysPtL CfD212The contract lengths of these CfDs should reflect the maturity of these pathways a

332、nd expected time-to-maturity such that the contract expires when the production economics are expected to stabiliseMatureScalingDevelopmentSource:UK BEIS:Evaluation of the Contracts for Difference schemeThe role of SAFSAF premium and spend shortfallOptions to fundAction planInstruments to deliver fu

333、ndingB|Fuelling the Future of Aviation63Taxation can be used in the near term to encourage growth in SAF demand and the continuation of green flight taxes into the Scaling and Mature phases can support industry-wide ticket price increases01002003004005006007002030203520402050PtLG-FTAtJHEFA0 2 4 6 8 11131618272045475869901121341592022184204202524727029531637338361385411225Kerosene and carbon taxes