# Green Jet Fuel Mandates Lift Demand for Scarce Supply

An episode of [Switched On](https://invisiblenetwork.ai/podcast/1469286286), 24 Apr 2024, 30 min.

Audio: https://podtrac.com/pts/redirect.mp3/traffic.omny.fm/d/clips/e73c998e-6e60-432f-8610-ae210140c5b1/01a10738-3608-4dec-883c-ae3c00026b36/40db5ce8-3c8a-42f2-8027-b15c0088ab4d/audio.mp3?utm_source=Podcast&in_playlist=6d114f63-833d-4b78-bbf5-ae3c00026b44

Sustainable aviation fuel, or SAF, has the potential to help decarbonize aviation and is the most scalable technology for this hard-to-abate sector in the near term. With offtake agreements for SAF surging over the past two years, the nascent industry has been showing promise. However, hurdles remain due to scarcity of supply, resource competition from renewable diesel, and a lack of technological diversification. On today’s show, Dana is joined by Daisy Robinson and Rose Oates, two members of BloombergNEF’s renewable fuels team. Together they discuss the regional policies that are driving the uptake of cleaner jet fuels, the different feedstocks used to produce SAF, and the greenium that SAF faces when compared with traditional fuels. Complementary BNEF research on the trends driving the transition to a lower-carbon economy can be found at BNEF<GO> on the Bloomberg Terminal or on bnef.com Links to research notes from this episode: 2024 Sustainable Aviation Fuel Outlook: Getting Airborne - https://www.bnef.com/insights/33497/view See omnystudio.com/listener for privacy information.

## Transcript

[0:00] Speaker 1: This is Dana Perkins and you're listening to Switched on
[0:03] Speaker 1: the B andF podcast. Sustainable aviation fuel, or SAFF for short,
[0:07] Speaker 1: is the most immediate solution to decarbonize aviation, and since
[0:11] Speaker 1: staff feedstocks include either organic material like biomass or waste
[0:15] Speaker 1: products like used cooking oil, it has a lower carbon
[0:18] Speaker 1: footprint when compared to conventional jet fuel. With off take
[0:21] Speaker 1: agreements for SAFF surging in the past two years, the
[0:24] Speaker 1: industry has been showing promise, but of course hurdles remain.
[0:27] Speaker 1: In this case, it's due to bottlenecks and supply or
[0:30] Speaker 1: competition for feedstocks with renewable diesel, and a lack of
[0:34] Speaker 1: technology diversification. On today's show, we highlight some of the
[0:37] Speaker 1: findings from B and EF's recently published twenty twenty four
[0:41] Speaker 1: Sustainable Aviation Fuel Outlook. To talk us through the details
[0:44] Speaker 1: are two of B and EF's renewable fuels analysts, Daisy
[0:47] Speaker 1: Robinson and Rose Oates. We get into the longer term
[0:50] Speaker 1: outlook for sustainable aviation fuel, as well as the policies
[0:53] Speaker 1: and strategies in different parts of the world meant to
[0:56] Speaker 1: encourage production and adoption. BNF subscribers can find this report
[1:01] Speaker 1: and related research on staff at benif dot com or
[1:04] Speaker 1: at BNF on the Bloomberg terminal. Make sure to subscribe
[1:07] Speaker 1: to switched On on Apple Podcasts, Spotify, or wherever you
[1:10] Speaker 1: get your podcasts, and consider giving us a review to
[1:13] Speaker 1: make us more discoverable by others. But right now, let's
[1:15] Speaker 1: speak with Daisy and Rose about sustainable aviation fuel. Rose,
[1:29] Speaker 1: thank you for joining us on today's show.
[1:31] Speaker 2: It's a pleasure to be here.
[1:32] Speaker 1: And our second flower name Daisy. Good to have you
[1:35] Speaker 1: on the show today.
[1:35] Speaker 3: Too, Thanks for having me.
[1:37] Speaker 1: All right, so here we go sustainable aviation fuels. Now,
[1:39] Speaker 1: this falls firmly into airlines and airplanes generally fall into
[1:44] Speaker 1: this hard to abate space wherever AND's trying to still
[1:47] Speaker 1: figure out how we're going to decarbonize it. And invariably
[1:50] Speaker 1: you see these occasional electric planes that can hold one
[1:54] Speaker 1: passenger that are being developed, and we'll see how that
[1:57] Speaker 1: technology actually continues forward. But we're gonna talk today about
[2:00] Speaker 1: sustainable aviation fuel, which is the more near term and
[2:04] Speaker 1: more immediate fix or partial fix for this space. Can
[2:07] Speaker 1: you provide some context around how important sustainable aviation fuel
[2:11] Speaker 1: is to decarbonizing airplanes.
[2:14] Speaker 3: So when we look at airline decarbonization strategies, which is
[2:18] Speaker 3: something that we're tracking quite closely at BINA, pretty much
[2:21] Speaker 3: every major airline that we're tracking has some form of
[2:24] Speaker 3: sustainable aviation fuel strategy, whether that's kind of an explicit
[2:28] Speaker 3: target to have a certain percentage of their jet fuel
[2:31] Speaker 3: consumption as SAFF by a certain day in the future,
[2:35] Speaker 3: or whether it's just kind of investing in the R
[2:37] Speaker 3: and D or collaborating with startups. So pretty much every
[2:41] Speaker 3: major airline has something like that, and when we look
[2:44] Speaker 3: at decarbonization strategies overall, this is something kind of we're
[2:47] Speaker 3: tracking over time, and by the latest count, over thirty
[2:51] Speaker 3: percent of those strategies are to do with SAF in
[2:54] Speaker 3: some shape or form. Like you mentioned, there's a bunch
[2:56] Speaker 3: of other options like electrification or hydrogen craft. They're looking
[3:00] Speaker 3: into those as well, but these are either like electrication,
[3:04] Speaker 3: you know, kind of contained to the more short haul journeys,
[3:07] Speaker 3: or for hydrogen it's much much more long term. We're
[3:09] Speaker 3: talking decades away. So SAF is something that is probably
[3:13] Speaker 3: one of the very few near term solutions that can
[3:16] Speaker 3: be implemented and acted on today. So that's why it's
[3:20] Speaker 3: so important for airlines.
[3:22] Speaker 1: What do these decarbonization targets look like. Are they all
[3:25] Speaker 1: roughly in the same percentage terms or are they very
[3:27] Speaker 1: widely airlined to airline.
[3:29] Speaker 3: Normally, for saf it's around ten percent by twenty thirty,
[3:32] Speaker 3: that's the typical one that we see, but it does
[3:35] Speaker 3: have some variations. So the airlines in Asia tend to
[3:38] Speaker 3: be a little bit more conservative, so that tends to
[3:40] Speaker 3: be around five percent SAFF by twenty thirty. The cargo
[3:43] Speaker 3: airlines like FEDEXDHL, they've gone a bit higher, so they're
[3:47] Speaker 3: targeting thirty percent by twenty thirty. So there is some variation,
[3:50] Speaker 3: but generally speaking ten percent by twenty thirty is the
[3:53] Speaker 3: overarching theme.
[3:54] Speaker 1: I have on occasion looked at these maps where they
[3:56] Speaker 1: show you all the different airplanes that are in the
[3:58] Speaker 1: sky at any given moment, and for those who haven't
[4:01] Speaker 1: looked at that, it's absolutely wild to just see how
[4:03] Speaker 1: many different routes there are and how many planes there
[4:05] Speaker 1: are in the sky at any point in time. When
[4:08] Speaker 1: we look into the future and actually even just look
[4:11] Speaker 1: at the past few years, what has been the increase
[4:13] Speaker 1: in air traffic and essentially is this expected to grow
[4:17] Speaker 1: over the next few years.
[4:19] Speaker 3: Yeah, great question. So obviously COVID really hit aviation hard.
[4:24] Speaker 3: We're pretty much back to pre pandemic levels now. Everybody's
[4:28] Speaker 3: keen to keep flying, keep traveling, and BEENA actually expect
[4:32] Speaker 3: demand for air travel and for jet fueld to double
[4:35] Speaker 3: by twenty fifty, which again is kind of why SAF
[4:38] Speaker 3: is so important, because without solutions like SAF, that's all
[4:42] Speaker 3: just going to be fossil jet fuel.
[4:44] Speaker 1: So two things are happening at the same time. One,
[4:47] Speaker 1: airlines are increasingly looking at adding more bile fuels to
[4:51] Speaker 1: the jet fuel that they have, and at the same time,
[4:54] Speaker 1: more airplanes are going to be joining the sky if
[4:56] Speaker 1: these forecasts hold true. So let's talk about the demand side,
[5:00] Speaker 1: sort of demand scenarios have we looked at for sustainable
[5:02] Speaker 1: aviation fuel and you know, really, does the demand currently
[5:05] Speaker 1: outstriped supply or at what point do we think that
[5:08] Speaker 1: that will becoming imbalance.
[5:10] Speaker 2: Yeah, that's a great question. So at the minute, we've
[5:12] Speaker 2: certainly seen that in a certain regions, such as in
[5:15] Speaker 2: the US and in Europe, there's a really high demand
[5:17] Speaker 2: and a growing demand, and that's kind of due to
[5:19] Speaker 2: certain policies that are being put in place by the governments.
[5:22] Speaker 2: So the EU is really big on saff mandates. So
[5:26] Speaker 2: they are about to install the Fuel Aviation, which is
[5:30] Speaker 2: basically a blending mandate that will be legally binding in
[5:32] Speaker 2: all the countries in the EU, and they're going to
[5:35] Speaker 2: have to meet certain blending rates from twenty twenty five.
[5:38] Speaker 2: It starts at two percent and then it gradually increases
[5:40] Speaker 2: every five years all the way to seventy percent of
[5:42] Speaker 2: jet field demand in twenty fifty. So it's definitely gonna
[5:45] Speaker 2: be a big challenge kind of meeting that with supply
[5:47] Speaker 2: in the YOUU because from our tracking of projects of
[5:49] Speaker 2: saff production in twenty twenty three, there was less than
[5:51] Speaker 2: one billion gallons of saff production and that it just
[5:55] Speaker 2: pales in comparison to the kind of saff demand in
[5:57] Speaker 2: the EU, So that is probably going to be short
[6:00] Speaker 2: for the next few years, all the way to twenty
[6:01] Speaker 2: thirty and then whereas in the US they have the
[6:04] Speaker 2: SAFT Grand Challenge and which starts with three billion gallons
[6:07] Speaker 2: of saff by twenty thirty being blended in the region
[6:09] Speaker 2: and then it goes all the way up to basically
[6:11] Speaker 2: equivalent to one hundred percent of jet field demand. So yeah,
[6:14] Speaker 2: there's definitely those two regions in particular. I think there's
[6:16] Speaker 2: going to be a huge demand all the way from
[6:19] Speaker 2: now to twenty fifty and then and that kind of
[6:22] Speaker 2: other regions such as APAC. There's kind of a few
[6:25] Speaker 2: countries are starting to bring in policies, but it's a
[6:27] Speaker 2: lot more fragmented. There's not one common aviation market, so
[6:30] Speaker 2: it'll be harder for this supplied growl there because it's
[6:33] Speaker 2: much more challenging for first movers because it will be
[6:35] Speaker 2: much more expensive and the demand might not necessarily scale
[6:38] Speaker 2: up as quickly.
[6:39] Speaker 3: Yeah, I would also say that one of the big
[6:41] Speaker 3: challenges with SAFA is it's a lot more expensive than
[6:44] Speaker 3: jet fuel, and so it kind of does rely on
[6:47] Speaker 3: policy to create that market. So we've got these two
[6:49] Speaker 3: scenarios that we've run in our Sustainable Aviation Fuel outlook
[6:52] Speaker 3: for demand. The first one is kind of our base case,
[6:55] Speaker 3: which just takes policy that's already existing and so that
[6:58] Speaker 3: pretty much is the EU mandates that Rose explained and
[7:03] Speaker 3: also the US policy, and so just relying on that,
[7:06] Speaker 3: and then an element of these voluntary staff targets that
[7:09] Speaker 3: airlines are setting themselves, we get to about three and
[7:12] Speaker 3: a half percent of jetfield demand by twenty thirty. And
[7:16] Speaker 3: then our second scenario is what we call the boosted
[7:18] Speaker 3: policy scenario, where there's a lot of other policies around
[7:22] Speaker 3: the world being considered that just haven't been implemented yet.
[7:25] Speaker 3: So there's a few in the Apat region and elsewhere.
[7:29] Speaker 3: So if we add in all of these that are
[7:30] Speaker 3: under consideration, that number goes to just under eight percent
[7:34] Speaker 3: of global jetfield demand by twenty thirty. And it's important
[7:37] Speaker 3: to also note that these are just policies that are
[7:40] Speaker 3: currently being either implemented or under consideration, so there's a
[7:44] Speaker 3: lot of scope there to actually increase if more regions
[7:48] Speaker 3: and countries come up with new ones that haven't yet
[7:50] Speaker 3: been announced.
[7:51] Speaker 1: Would you say that the EU has the most aggressive
[7:53] Speaker 1: targets at this point time, given that it's seventy percent
[7:56] Speaker 1: by twenty fifty.
[7:57] Speaker 3: Yes.
[7:58] Speaker 1: How has the Inflation Redaction Act played into this in
[8:01] Speaker 1: the US?
[8:02] Speaker 3: Yeah, So the Inflation Reduction Act has been quite important
[8:05] Speaker 3: for saf because, first of all, the US market is
[8:08] Speaker 3: the biggest market in the world for biofuels, but historically
[8:12] Speaker 3: it's always focused on road fuels, and so the Inflation
[8:14] Speaker 3: Reduction Act is quite important because it's trying to address
[8:18] Speaker 3: that imbalance between incentivizing road fuels and incentivizing biofuels for aviation.
[8:24] Speaker 3: So in the past, the way the US market is
[8:27] Speaker 3: built for biofuels is it kind of stacks these credits
[8:29] Speaker 3: on top of each other, and historically aviation was missing
[8:32] Speaker 3: out because it got less credits than road fuels, so
[8:35] Speaker 3: producers are always incentivized to produce road biofuels instead of aviation.
[8:39] Speaker 3: So now the change is adding an additional tax credit
[8:42] Speaker 3: for sustainable aviation fuel, which aims to level that playing
[8:46] Speaker 3: field and make it more attractive for producers to be
[8:49] Speaker 3: producing aviation fuels instead.
[8:51] Speaker 1: I'm glad you brought up road fuels because I have
[8:52] Speaker 1: a very basic question here, which has to do with
[8:55] Speaker 1: the fact that when we talk about cars that can
[8:57] Speaker 1: take biofuels, the engine actually has to be specifically just
[9:00] Speaker 1: in order to be able to handle that. Can sustainable
[9:02] Speaker 1: aviation fuels be used on the exact same aircraft we
[9:06] Speaker 1: have in the sky right now, or do these engines
[9:08] Speaker 1: need to be made differently?
[9:10] Speaker 3: Yeah, for now. That's one of the big pluses of
[9:14] Speaker 3: sustainable aviation fuel is that it's a drop in fuel
[9:16] Speaker 3: and so when you compare it to something like hydrogen,
[9:19] Speaker 3: which would require a complete overhaul of the current infrastructure,
[9:22] Speaker 3: whether that's engines, logistics, any of that stuff, Refueling needs
[9:26] Speaker 3: to be changed, which is really time consuming and really expensive.
[9:29] Speaker 3: So the big benefit of SAF is that you don't
[9:31] Speaker 3: need to do any of that because it's a drop
[9:33] Speaker 3: in fuel. So in theory it can be used as
[9:36] Speaker 3: a like for light replacement for jet fuel. You know,
[9:38] Speaker 3: there's some aromatics blending that needs to take place, and
[9:41] Speaker 3: at the moment there's regulations in place that you can
[9:43] Speaker 3: only blend it up to fifty percent, but the industry
[9:46] Speaker 3: is working pretty hard on addressing that and in time
[9:49] Speaker 3: it's expected that that will go to one hundred percent.
[9:51] Speaker 3: So when it comes to road biofuels, some of the
[9:53] Speaker 3: kind of more traditional biofuels like ethanol biodiesel, they're limited
[9:57] Speaker 3: to very low level blending and if you want it
[9:59] Speaker 3: to go higher than that, you would have to have
[10:01] Speaker 3: a specialized engine, which is called a flex fuel vehicle.
[10:04] Speaker 3: But they were also a drop in biofuels on road
[10:06] Speaker 3: as well, aka renewable diesel, which is the main competitor
[10:09] Speaker 3: with SAF. When it comes to supply because producers can
[10:12] Speaker 3: either make this renewable diesel, which is a drop in
[10:15] Speaker 3: fuel for diesel, or saf.
[10:17] Speaker 1: Now, we did a show recently on another hard to
[10:20] Speaker 1: evate sector, So maritime and the International Maritime Organization of
[10:24] Speaker 1: the IMO has been a driving force in trying to
[10:27] Speaker 1: set emission standards on their side. We've talked about how
[10:30] Speaker 1: companies have their own emission standards, and then there's policy
[10:33] Speaker 1: intervention different parts of the world. Is there a third party,
[10:36] Speaker 1: non governmental organization across the aviation space that's doing a
[10:40] Speaker 1: similar thing.
[10:41] Speaker 2: Yes, so there is the international body IATA, which is
[10:44] Speaker 2: the International Air Transport Association, and yeah, it's part of
[10:47] Speaker 2: the roadmap. SAFF will contribute sixty five percent of the
[10:50] Speaker 2: emission reduction as part of the goal for net zero
[10:52] Speaker 2: by twenty fifty.
[10:53] Speaker 1: So we've talked a bit about the airlines and about
[10:56] Speaker 1: the targets that are out there, but let's talk about
[10:58] Speaker 1: the infrastructure. And I'm thinking about airports and where we're
[11:01] Speaker 1: actually refueling these planes. Now, logic would lead me to
[11:04] Speaker 1: believe that the largest number of airports would be in
[11:07] Speaker 1: Europe given these aggressive targets, But really where and how
[11:10] Speaker 1: many airports are reactually seeing have the capacity to deliver
[11:14] Speaker 1: the fuels that are required in Is this a Battlemack.
[11:16] Speaker 3: Yeah. At the moment, staff is highly concentrated in the world.
[11:20] Speaker 3: I would say the highest concentration is in California actually,
[11:24] Speaker 3: because that is really the epicenter of renewable fuels globally
[11:28] Speaker 3: thanks to their low carbon fuel standard policy. So really
[11:32] Speaker 3: San Francisco and LA are the big kind of centers
[11:35] Speaker 3: for saf refueling. And so when you look at the
[11:37] Speaker 3: availability at airports and off take agreements actually, because that's
[11:41] Speaker 3: one thing we've been tracking is with these off take agreements,
[11:44] Speaker 3: quite often they will disclose a location for where that
[11:48] Speaker 3: SAFF is going to actually be exchanged, and typically it
[11:50] Speaker 3: tends to be there. But over time this is changing
[11:54] Speaker 3: and it's becoming a little bit less concentrated. So, like
[11:56] Speaker 3: you say, European airports are getting involved because the mandates
[11:59] Speaker 3: have actually been implemented yet, but that market is definitely
[12:03] Speaker 3: catching up with California. So we are seeing some kind
[12:06] Speaker 3: of hubs emerging, like the UK for example, and France
[12:10] Speaker 3: because France also has its own blending mandate as well.
[12:14] Speaker 2: I'd just like to add on to that, there is
[12:16] Speaker 2: one your port particular in Singapore, the Government of said
[12:18] Speaker 2: a really interesting blending mandate there which includes one percent
[12:21] Speaker 2: of all flights that leave Singapore from twenty twenty six,
[12:24] Speaker 2: and basically the passengers will pay a lavay that's going
[12:27] Speaker 2: to cover the cost of the staff. And I think
[12:28] Speaker 2: it'll be easy to implement, as the government responsible for
[12:31] Speaker 2: kind of sourcing the saff there and then the leavy
[12:33] Speaker 2: will pay for it.
[12:34] Speaker 3: That's kind of an interesting mechanism actually, because one of
[12:37] Speaker 3: the big uncertainties about staff is the cost, and particularly
[12:41] Speaker 3: where there isn't policy in place, that's kind of a
[12:43] Speaker 3: big challenge for airlines not knowing how big this liability
[12:47] Speaker 3: could be. So the Singapore government has gone about it
[12:49] Speaker 3: in a kind of interesting way where they come up
[12:52] Speaker 3: with a price expectation going forward and they fix the
[12:55] Speaker 3: levee based on that expectation, and that levee gets passed
[12:59] Speaker 3: through to passenger.
[13:00] Speaker 2: Yeah, it would only add an additional cost of twelve
[13:02] Speaker 2: US dollars from single war to London, and then the
[13:04] Speaker 2: business class passengers will pea slightly more.
[13:06] Speaker 3: So then they fix that levee and then the income
[13:09] Speaker 3: from that levee will enable them to purchase the quantities
[13:12] Speaker 3: of SAP, so they've fixed the price and varying the
[13:15] Speaker 3: volume basically, so their target for how much SAF is
[13:20] Speaker 3: being blended is slightly variable. So it starts at one
[13:23] Speaker 3: percent in twenty twenty six, and then they aim to
[13:25] Speaker 3: increase that to between three and five percent, depending on
[13:28] Speaker 3: how much they can actually procure using the income from
[13:30] Speaker 3: that levee.
[13:31] Speaker 1: And that's across all of the airlines that are going
[13:33] Speaker 1: in and out of Singapore, so it's not just associated
[13:36] Speaker 1: with a specific airline that has a more stringent target exactly.
[13:40] Speaker 3: So that's the beauty of mandates because it creates this
[13:43] Speaker 3: level playing field. This is a big challenge for an
[13:46] Speaker 3: international industry like aviation is competition because of the high prices.
[13:50] Speaker 3: Airlines are kind of hesitant to be the first mover
[13:53] Speaker 3: because that will directly impact their competitiveness. And so mandates
[13:57] Speaker 3: create this level playing field across every everyone. Everyone has
[14:00] Speaker 3: to blend the same amount, everybody has to pay the
[14:02] Speaker 3: same for this premium product, and so that's why it's
[14:06] Speaker 3: seen as a necessary step in order to boost demand.
[14:09] Speaker 1: I mean, if you go back in our back catalog,
[14:11] Speaker 1: just a couple episodes ago, we had the chief sustainability
[14:14] Speaker 1: officer at United Airlines, which is the number one user
[14:17] Speaker 1: of staff in the world at the moment, and she
[14:20] Speaker 1: talked a bit about this issue of the higher premium
[14:23] Speaker 1: for it and the passing it on to the customers
[14:27] Speaker 1: and whether or not the customers are going to be
[14:28] Speaker 1: willing to pay it, and what those incentives really look like.
[14:31] Speaker 1: Can we talk a little bit about that price differential?
[14:33] Speaker 1: How big is it if we didn't actually amortize it
[14:36] Speaker 1: across all of the different airlines like Singapore is doing.
[14:39] Speaker 1: What sort of premium is an individual airline paying?
[14:42] Speaker 3: So it really depends on the type of saff because yeah,
[14:45] Speaker 3: we haven't gone into too much detail about the different
[14:47] Speaker 3: pathways to produce staff, but there's several different kind of
[14:50] Speaker 3: routes you can go down. But it starts around three
[14:53] Speaker 3: times multiplier versus conventional jet fuel. That's kind of the
[14:56] Speaker 3: starting point. So the traditional staff that's on the market now,
[15:00] Speaker 3: it's the cheapest to market. They say it's around three
[15:02] Speaker 3: to five times more than conventional jet fuel, and that
[15:05] Speaker 3: multiplier goes all the way up to nine times if
[15:08] Speaker 3: you're looking at something like e fuels or power to liquids,
[15:10] Speaker 3: which are much less developed at the moment.
[15:13] Speaker 2: So these kind of alternative technologies like power liquids, they
[15:15] Speaker 2: are looking at like five to nine times the price,
[15:18] Speaker 2: so they seem a bit unattainable at the moment in
[15:20] Speaker 2: terms of cost. However, some of certain regions in the
[15:22] Speaker 2: world that EU they're starting to turn their backs to
[15:24] Speaker 2: the more traditional staff just to the nature of the feedstocks.
[15:27] Speaker 2: They want to look more advanced bile fuels and power liquids,
[15:30] Speaker 2: which will, like the comm at higher cost. So that
[15:32] Speaker 2: is interesting to see how that will play it.
[15:33] Speaker 1: Why is there a luck to some of these higher
[15:35] Speaker 1: cost bile.
[15:36] Speaker 2: Fuels, It's just because they want to move away from
[15:39] Speaker 2: so there's a lot of competition with agricultures. So it's
[15:41] Speaker 2: things like they don't want crops going in the main
[15:43] Speaker 2: growing season for food going to aviation. And there's alternative
[15:46] Speaker 2: technologies like it's called gas to liquids where they can
[15:48] Speaker 2: basically convert waste feedstocks from agriculture forestry into fuels. But
[15:54] Speaker 2: it's still quite a nascent technology that you in particular
[15:56] Speaker 2: are looking more towards those types of fuels, so then
[15:58] Speaker 2: they're not competing basically food crops.
[16:01] Speaker 3: Yeah, ultimately it comes down to feedstock, which is possibly
[16:04] Speaker 3: the biggest challenge when it comes to scaling up SAF.
[16:07] Speaker 3: So the more traditional route, which pretty much all of
[16:10] Speaker 3: the SAF that's available today, is via this route that
[16:13] Speaker 3: is called heifer and that relies on oil type feedstocks
[16:17] Speaker 3: like vegetable oils or use cooking oils. So it's the
[16:19] Speaker 3: cheapest to produce, but it also sees pretty constrained feedstock supply,
[16:25] Speaker 3: and so that's potentially limiting growth of the sector in
[16:28] Speaker 3: the future. And then so the reason that there's a
[16:30] Speaker 3: lot of talk around these other more expensive technologies is
[16:33] Speaker 3: that they have the ability to convert a much more
[16:36] Speaker 3: abundant supply of feedstocks and waste feedstocks as well, so
[16:39] Speaker 3: agricultural residues, municipal solid waste even And then when you
[16:43] Speaker 3: get to ethiels, they are quite different because they don't
[16:46] Speaker 3: rely on biogenic feedstock at all, and so they don't
[16:49] Speaker 3: come with the same potential land use issues that biogenic
[16:53] Speaker 3: feedstocks do. So interestingly, the EU is quite big on
[16:57] Speaker 3: e fields or quite big on trying to encourage this
[17:00] Speaker 3: gale up of this market, which currently is very very nascent,
[17:02] Speaker 3: doesn't really exist yet in any commercial scale, so that
[17:06] Speaker 3: euse actually set a sub target for these feels, whereas
[17:09] Speaker 3: I don't know if you want to elaborate on those, yeah, yeah.
[17:12] Speaker 2: Happy to. They kind of map blendy mandate I mentioned
[17:14] Speaker 2: before the refield EU aviation. They have a sub blending
[17:16] Speaker 2: target which starts in twenty thirty with zero point two
[17:19] Speaker 2: percent of get field demand being perat liquids, and then
[17:21] Speaker 2: it goes up to thirty five percent in twenty fifty,
[17:24] Speaker 2: which is half of the bull mandate. But I think
[17:26] Speaker 2: that it will be challenging because currently the supply there's
[17:29] Speaker 2: two or three pilot plant level efuel production facilities around
[17:33] Speaker 2: the globe, so it really needs to scale up massively.
[17:35] Speaker 2: But it's seeing a lot of investments. Some countries like Japan,
[17:37] Speaker 2: UK are putting money into it, so there is a transferred.
[17:40] Speaker 1: To scale up.
[17:40] Speaker 2: But currently it's difficult just because of the high cost
[17:42] Speaker 2: and it relies on green hydrogen which is expensive, and
[17:45] Speaker 2: it also relies on carbon so either carbon dioxide that
[17:48] Speaker 2: other comes from direct air capture which also needs to
[17:50] Speaker 2: be scaled up, or potentially from a biogenic seal two source.
[17:54] Speaker 2: So it's sung like an eth mool plant or a
[17:55] Speaker 2: paper and pulp mill plant. So it does face a
[17:57] Speaker 2: lot more challenges than the traditional kind of hydro process technology,
[18:00] Speaker 2: which is already used extensively in the US to day
[18:03] Speaker 2: to make renewable diesels. E mean, it'll be interesting to
[18:05] Speaker 2: see how those technologies skill up.
[18:07] Speaker 1: It seems like there are a lot of different variables
[18:09] Speaker 1: here in terms of the feedstocks that could have a
[18:11] Speaker 1: dramatic impact on the future, depending upon supply. So when
[18:15] Speaker 1: you take a moment to actually think about the forecasts
[18:18] Speaker 1: in the longer term, how many different avenues did you
[18:21] Speaker 1: need to go down, and how do you go about
[18:23] Speaker 1: even thinking about creating a forecast? And how many I guess,
[18:26] Speaker 1: how do you narrow down the variables to the scenarios
[18:29] Speaker 1: that you're going to look at?
[18:30] Speaker 3: Yeah, no, I think when it comes to trying to
[18:32] Speaker 3: forecast demand, it is it's very difficult at this stage
[18:35] Speaker 3: because the industry is so new and there is very
[18:38] Speaker 3: little policy to go by, and policy really will be
[18:41] Speaker 3: the driver of this until costs come down, because it's
[18:44] Speaker 3: very difficult to rely on voluntary targets alone when the
[18:48] Speaker 3: costs are so much higher. Our forecasts are predominantly based
[18:52] Speaker 3: on those policies that exist. But then longer term, when
[18:55] Speaker 3: demand really starts to pick up, because between now and
[18:58] Speaker 3: twenty thirty, you know, it's sarting from practically nothing. So
[19:02] Speaker 3: even though it is growing very rapidly, we still only
[19:05] Speaker 3: get to around five percent of total demand by twenty thirty.
[19:08] Speaker 3: But beyond twenty thirty, when the mandates start to kick
[19:10] Speaker 3: in and when that scale really starts to get significant,
[19:13] Speaker 3: that's when the feedstock constraints really start to kick in.
[19:17] Speaker 3: And so yeah, there's a lot of uncertainty about how
[19:20] Speaker 3: this is going to play out. We've looked at the
[19:22] Speaker 3: potential supply of these different feedstocks and how they're going
[19:26] Speaker 3: to interact with each other going forward. We've estimated the
[19:29] Speaker 3: supply of global waste oils, greases, and fats, and according
[19:33] Speaker 3: to our two demand scenarios, if you think about the
[19:37] Speaker 3: boosted policy scenario, demand will actually outstrip that supply before
[19:40] Speaker 3: the end of the decade, which is pretty significant because
[19:43] Speaker 3: at the moment that's the feedstock that everybody's relying on.
[19:46] Speaker 3: And beyond that there's going to be a serious need
[19:48] Speaker 3: to scale up these alternative technologies or explore different feedstock
[19:53] Speaker 3: avenues that can be converted via the heifer pathway.
[19:56] Speaker 1: How concentrated is the market in terms of the companies
[19:58] Speaker 1: that are actually playing in it, because when you bring
[20:00] Speaker 1: up different cooking wastes and those things, it makes me
[20:03] Speaker 1: think of nest Ay and the actual drive that they
[20:05] Speaker 1: have to get household cooking waste back to use as
[20:09] Speaker 1: a feedstock. That does feel like it would require some
[20:12] Speaker 1: major logistical support and scaling around the world in order
[20:15] Speaker 1: to meet demand. So we're back here too, how do
[20:18] Speaker 1: we get enough of this fuel? But also how many
[20:20] Speaker 1: companies are actually concentrating on this and how are they
[20:23] Speaker 1: going to be able to scale it? So is it
[20:25] Speaker 1: a really fragmented market or are we talking about a
[20:28] Speaker 1: few companies that really are the future of this.
[20:31] Speaker 3: Yeah, it's a really interesting one in terms of the
[20:33] Speaker 3: market structure because you've got in terms of who's actually
[20:37] Speaker 3: making fuel today, it's highly concentrated, and it tends to
[20:41] Speaker 3: be big oil refiners because they've got the scale and
[20:44] Speaker 3: the expertise and the infrastructure. So you've got neste to
[20:48] Speaker 3: tell any Diamond green diesel in the US P sixty
[20:52] Speaker 3: six all oil names, and now we're starting to see
[20:55] Speaker 3: these producers they've got the infrastructure to actually convert and
[21:00] Speaker 3: use to fuel, but they're integrating into the feedstock industry
[21:03] Speaker 3: as well. So you mentioned NESTE. They're a really good
[21:05] Speaker 3: example of a company that's been really proactive in making
[21:09] Speaker 3: deals and acquisitions in order to get priority access to
[21:13] Speaker 3: these low carbon feedstocks. So they acquired two waste collection
[21:17] Speaker 3: companies in the US, for example, so that they have
[21:19] Speaker 3: priority access to use cooking oil, which is the kind
[21:21] Speaker 3: of most high in demand feedstock for SAFF. And I
[21:24] Speaker 3: think going forward we might see different geographies going in
[21:28] Speaker 3: different ways. So for example, China, there's a lot of
[21:30] Speaker 3: potential there for used cooking oil, and we're starting to
[21:33] Speaker 3: see more production facilities being planned where the feedstock is.
[21:38] Speaker 3: So for example, just this month, to Tell Energies and
[21:41] Speaker 3: Sinopec agreed or announced an agreement to build a SAFF
[21:45] Speaker 3: production facility in China at one of Signipec's refineries. And
[21:48] Speaker 3: I think we might see more of this to come,
[21:50] Speaker 3: trying to not just think about where the facilities are,
[21:54] Speaker 3: but where the feedstock is, to try and locate yourself
[21:57] Speaker 3: near ample feedstock supply.
[21:59] Speaker 1: Now you'd mentioned a little bit earlier off take agreements,
[22:02] Speaker 1: and I know you're used to spending your time talking
[22:04] Speaker 1: to sophisticated commodities investors. But for the benefit of those
[22:07] Speaker 1: who might be listening today who aren't falling into that category,
[22:10] Speaker 1: can you explain what an off take agreement is and
[22:12] Speaker 1: then how important it is to the adoption of SAFF.
[22:15] Speaker 2: Yeah, so off take agreements are basically essential for the
[22:18] Speaker 2: scale up of SAFF because SAFF comes set of premium
[22:21] Speaker 2: to fossil basedjet fuel as well as the industry requiring
[22:24] Speaker 2: scale up is important for general investment in the industry.
[22:26] Speaker 2: So the kind of nature of the agreements we see
[22:28] Speaker 2: are generally between producers and airlines and they tend to
[22:30] Speaker 2: be very long term, over several years, five to ten years,
[22:33] Speaker 2: and sometimes they come with an investment in the company
[22:36] Speaker 2: it's a small startup or otherwise it is just they'll
[22:39] Speaker 2: pay for the fuel over that entire time period. And
[22:41] Speaker 2: I think it's important for the airlines to just lock
[22:43] Speaker 2: in a future supply, especially for when all these mandates
[22:46] Speaker 2: will come in the EU for example, as well as
[22:49] Speaker 2: just helping the industry grow, because I'd say that in
[22:51] Speaker 2: terms of the main players in industry of SAFF production,
[22:54] Speaker 2: there's as Daisy mentioned, the kind of large refiners who
[22:57] Speaker 2: have all the existing infrastructure they're able to convert exist
[23:00] Speaker 2: refineries to produce renewable fields in a couple of years.
[23:02] Speaker 2: You have the other side of the coin, which is
[23:04] Speaker 2: kind of startups. Then they just require a lot of capital.
[23:06] Speaker 2: Right now, like gasification has high kpex as well as
[23:09] Speaker 2: the paratial liquids is still being developed. So I think
[23:11] Speaker 2: it's really important for those newer, smaller companies to get
[23:14] Speaker 2: a lot of investments from airlines and other companies, So
[23:17] Speaker 2: I of take agreements that are going to play a
[23:19] Speaker 2: large role in just the general scale up of supply.
[23:21] Speaker 2: One of the issues with the sector is that, for example,
[23:24] Speaker 2: there's some large plants being planned in like Chile to
[23:27] Speaker 2: produce SAFF, but there's a lot of airlines concentrated on
[23:29] Speaker 2: other parts the world that wouldn't nessarily fly there. So
[23:31] Speaker 2: that's why a lot of these book and claim systems
[23:33] Speaker 2: are being promoted, because as well as the production facilities
[23:36] Speaker 2: need to be located near feedstocks, they also need to
[23:38] Speaker 2: be located on like popular flight paths, or obviously they
[23:41] Speaker 2: can be transported. But a lot of companies are looking
[23:43] Speaker 2: to book and claim systems where they can kind of
[23:45] Speaker 2: say that they've bought the SAFF, but it doesn't necessarily
[23:47] Speaker 2: have to go and there the exact plane, but you
[23:49] Speaker 2: get the credit and it still flies in a plane.
[23:51] Speaker 3: Yeah, I think the industry is still figuring it out,
[23:54] Speaker 3: but yeah, it seems like there's this book and claim
[23:57] Speaker 3: system emerging which essentially acts like an offset where the
[24:01] Speaker 3: fuel that you're purchasing doesn't necessarily have to be loaded
[24:05] Speaker 3: into your plane at a specific airport, but you can
[24:07] Speaker 3: bank the credit and purchase it. So I guess it's
[24:10] Speaker 3: fungible in that way.
[24:12] Speaker 1: It seems very similar to like a renewable power purchase
[24:14] Speaker 1: agreement in that you're producing the renewable energy somewhere, but
[24:18] Speaker 1: the actual electrons that are showing up but your home
[24:20] Speaker 1: or your facility are not necessarily generated in that way.
[24:23] Speaker 2: We've even seen like a couple of announcements of corporations
[24:26] Speaker 2: who are trying to like Microsoft AMS, and they're trying
[24:28] Speaker 2: to offset their Scope three emissions like business travel and stuff.
[24:31] Speaker 2: So they started purchasing staff, but obviously they're not earlines,
[24:34] Speaker 2: so they don't have any infrastructure to use this app.
[24:36] Speaker 2: So that's quite interesting new avenue that we're kind of
[24:39] Speaker 2: being explored. But once again, it's really brand new, so
[24:41] Speaker 2: I don't know what direction will goal.
[24:43] Speaker 3: Yeah, And I think it's important to add that a
[24:45] Speaker 3: lot of these off take agreements, they don't tend to
[24:47] Speaker 3: be necessarily legally binding, but they're still very important in
[24:51] Speaker 3: establishing this market because it's a statement of intention, really,
[24:55] Speaker 3: and airlines are doing all they can to show their
[24:58] Speaker 3: support in every way they can to this market and
[25:01] Speaker 3: helping it to scale up basically. So I think that's
[25:04] Speaker 3: why these off take agreements are important.
[25:06] Speaker 1: So well, aviation is this global industry because literally, these
[25:10] Speaker 1: planes are flying all over the world. The feedstocks seem
[25:14] Speaker 1: to be really this pinch point in terms of staff
[25:16] Speaker 1: adoption and availability, and the natural resources that are given
[25:20] Speaker 1: country or region are actually endowed with are quite local.
[25:23] Speaker 1: Can you talk about some of the issues there and
[25:25] Speaker 1: maybe opportunities that might be arising out of different regional
[25:29] Speaker 1: assets and commodities that are the feedstocks that are producing
[25:33] Speaker 1: the fuel.
[25:34] Speaker 3: There's kind of a theme emerging of, you know, the
[25:37] Speaker 3: different technologies can convert different types of feedstocks, So the
[25:40] Speaker 3: different technologies are probably going to end up emerging in
[25:43] Speaker 3: specific geographies where they have abundance of those feedstocks. So
[25:46] Speaker 3: an example is alcohol to jet, which is a technology
[25:50] Speaker 3: under development which can convert ethanol. So it's quite an
[25:53] Speaker 3: interesting one because specifically the US and Brazil are huge
[25:57] Speaker 3: ethanol markets which are blended into road fields. But over
[25:59] Speaker 3: time time, as we expect road field demand to be
[26:03] Speaker 3: eroded by electric vehicles, there's this huge ethanol market which
[26:06] Speaker 3: is going to be displaced, and so there's now a
[26:09] Speaker 3: lot of talk around whether this ethanol can be converted
[26:12] Speaker 3: into SAF because SAFA is an industry where demand is
[26:14] Speaker 3: expected to grow a lot, but feedstock constraints is a
[26:17] Speaker 3: huge problem. So trying to match up these two problems
[26:21] Speaker 3: of declining demand on road versus a need for an
[26:24] Speaker 3: alternative source of feedstock with SAF. So that's still very
[26:28] Speaker 3: much under discussion, but there's kind of an expectation that
[26:31] Speaker 3: markets like Brazil or the US could be big hubs
[26:35] Speaker 3: potentially for this alcohol to jet technology. But again it's
[26:39] Speaker 3: very very new. The first operational commercial scale plant only
[26:43] Speaker 3: opened earlier this year in the US, so yeah, still
[26:46] Speaker 3: very early days.
[26:47] Speaker 1: Which in many respects presents an opportunity because these are
[26:51] Speaker 1: existing production facilities that need to find customers for long
[26:54] Speaker 1: term growth for their business, and so what you're saying
[26:57] Speaker 1: is that they could switch to this new customer universe.
[27:00] Speaker 1: Would it stay local in terms of the customers that
[27:02] Speaker 1: they're trying to service, So would it stay within North
[27:05] Speaker 1: America or South America depending upon where it's produced, or
[27:08] Speaker 1: is this something that's going to get shipped all over
[27:10] Speaker 1: the world before then being put on a plane and
[27:12] Speaker 1: then flown all over the world.
[27:13] Speaker 3: Yeah, I mean I think that's still TBD. Really. So
[27:16] Speaker 3: there's discussion in Brazil because Brazil is a very feedstock
[27:20] Speaker 3: rich region and right now doesn't really have any saff
[27:24] Speaker 3: conversion capacity to speak of, and so now there's this
[27:27] Speaker 3: drive to try and emerge as a big saf region
[27:31] Speaker 3: and capitalize on this feedstock abundance that they have. So
[27:34] Speaker 3: there is discussion some of the big ethanol players are
[27:37] Speaker 3: looking into potentially building some of these alcohol to jet facilities.
[27:41] Speaker 3: But yeah, so I guess watch this space.
[27:43] Speaker 1: So this is really a space of emerging technologies that
[27:46] Speaker 1: are going to be changing aviation, certainly in the medium
[27:50] Speaker 1: term and potentially in the long term as well. So
[27:53] Speaker 1: within these different feedstocks that we're talking about and different
[27:56] Speaker 1: things that are being piloted and really a lot of innovation.
[27:59] Speaker 1: It's easy to get excited about innovation at least from
[28:01] Speaker 1: my standpoint, because you see all of the potential. So
[28:03] Speaker 1: what are some of the innovations in this space that
[28:05] Speaker 1: you are most excited about.
[28:07] Speaker 2: Well, for me, I'm particularly excited about by metaphor was
[28:10] Speaker 2: pertal liquid technology because you have a bit of tagline
[28:13] Speaker 2: that's like you can make the feel from thinnear in
[28:16] Speaker 2: theory because the carbon source is common outside and so
[28:19] Speaker 2: for me in terms of technology, it's really fascinating. It's
[28:22] Speaker 2: just that there will be a lot of hurdles in
[28:23] Speaker 2: terms of the price and improving the technology before it
[28:26] Speaker 2: can really scale up. But for me, that could be
[28:27] Speaker 2: a really good technology that won't be limited by feedstocks.
[28:30] Speaker 3: For me, I think that heifer will always play a
[28:33] Speaker 3: really important role because that's the dominant technology. So I'm
[28:36] Speaker 3: kind of excited to see how that industry innovates to
[28:40] Speaker 3: come up with these novel feedstocks to remove this potential
[28:44] Speaker 3: bottleneck for feedstock, So coming up with novel crops, or
[28:48] Speaker 3: there's genetically modified crops that have a higher oil content
[28:52] Speaker 3: so you can get more out of the crop, things
[28:54] Speaker 3: like that. So I'm kind of enjoying seeing these different
[28:57] Speaker 3: developments on innovating on the feedstocks of things.
[29:01] Speaker 1: Rose Daisy, thank you very much for coming to talk
[29:03] Speaker 1: about sustainable aviation fuels. I'm really curious to see what
[29:06] Speaker 1: happens with the different feedstocks. It seems like there are
[29:09] Speaker 1: going to be many in many parts of the world.
[29:12] Speaker 2: Thanks a lot, Daniel, thank you for having us.
[29:23] Speaker 1: Today's episode of Switched On was produced by Cam Gray
[29:26] Speaker 1: with production assistance from Kamala Shelling. Bloomberg NIF is a
[29:30] Speaker 1: service provided by Bloomberg Finance LP and its affiliates. This
[29:33] Speaker 1: recording does not constitute, nor should it be construed as investment,
[29:36] Speaker 1: a vice, investment recommendations, or a recommendation as to an
[29:40] Speaker 1: investment or other strategy. Bloomberg ANIF should not be considered
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[29:46] Speaker 1: Neither Bloomberg Finance LP nor any of its affiliates makes
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[29:53] Speaker 1: of the information contained in this recording, and any liability
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