In this episode, SGS INSPIRE interviewed Laurent Donceel, Deputy Managing Director at European industry federation, Airlines for Europe (A4E), and Klaas Pel, Global Head of Aviation Regulation at Neste.

Together, they discussed the impact of the EU Sustainable Aviation Fuel mandate of 2% usage for all aircrafts departing from EU airports effective as of January 1, 2025. This concerns all flights, domestic and international, and all airlines passing by EU airports with the exclusion of a few small airports.

The conversation touched upon the current sustainable aviation fuel (SAF) production and consumption levels and the feasibility of increasing production capacity to meet the global demand triggered by the EU.

They also look at the various SAF feedstocks, including used cooking oils and animal fats. The conversation went on about synthetic fuel or e-SAF and the likelihood of its commercial availability, as it is included in the EU mandate.

Hello everyone, welcome to the inspiring energy talks. My name is lucky and I'm senior market analyst for Asia Pacific at SGS Inspire. In this episode, we will discuss sustainable aviation fuel or SAF in more details with the industry representatives. With me here, I have Laurent Donceel from airlines for Europe and Klaas Pel from Neste. Laurent is the Deputy Managing Director for airlines for Europe or A4E for short, in his capacity he oversees sustainability policy. A4E is Europe's largest airline association and is based in Brussels. With a modern fleet of more than 3200 aircraft, A4E carried 75% of Europe's passengers market in 2022. Since 2016, Laurent lead A4E for his members work on industrial decarbonization, including carbon markets and sustainable aviation fuels. Klaas leads Neste’s renewable, Aviation Global Advocacy. In this capacity, he engaged with policymakers and regulators worldwide to help countries decarbonize the aviation industry and influence sustainability standards. Klaas and Laurent, welcome to the Inspire podcast.

Hi Lucky, Thank you for having us Lucky!

Thank you for having us Lucky!

We are here today to understand more about synthetic and sustainable aviation fuel from targets to reality. According to the refuel EU aviation requirements, sustainable aviation fuel or SAF used is mandated to start at 2% for all aircraft departing from EU airports effective from January 1st, 2025, that's approximately about 1 1/2 years from now. Laurent is this mandate applicable for all flights, including domestic? Let's say within the EU and inter-regional flights.

Yes, that's right Lucky, in a sense, because the mandate falls on the providers of fuel at the European airports who are mandated to provide a certain percentage of blended sustainable aviation fuel. Irrespective of the destination of your flight, whether you're flying from Paris to Marseille or from Paris to Barcelona or Paris to New York, the percentage has to be uplifted. So, all flights, domestic, international or EU are all covered, with the small exclusion come from minor airports in in Europe, but that covers the majority of the of the flights. Roughly 95% of all the CO2 emission from the aviation in Europe is covered by the mandate.

Does that means also including non-EU Airlines?

That's right, independently of the nationality or the origin of the carrier. Whether you're an European airline or Singaporean airline, when you uplift and tank fuel at the European airport or at the airport falling under the mandate, there is only one type of fuel available, and that's the fuel that as of the 1st of January 2025 as you said, will include a certain percentage of sustainable aviation fuel. So, it's non-discriminatory in a sense. Every airline passing through European airport falls or is affected by the mandate.

I see. Thank you. 2% of aviation fuel, how much is that in absolute volume of SAF?

So, if we're looking into the 2% and 2025, we obviously have to look into 2%, of what not all aviation has recovered since the COVID crisis, especially the transatlantic market. The transcontinental market has not recovered yet fully, but roughly with assuming pre COVID levels plus the conservative 10% we see there, there has been very strong demand. The overall fuel consumption per year in 2025 will be 43 million tonnes. If you take 5% of that in 2030 or 6% in 2030, we're roughly 2.66 million tonnes of SAF in 2030. That's what we expect to be the mandated SAF at the 2030 horizon.

OK, OK.

And about one Million tonne in 2025.

1 million tonnes in 2025. OK.

At least that's our assumption. That's where we're preparing for in our production capabilities.

What is the EU SAF production capacity to this day?

Lucky, maybe just a small, let's say disclaimer, SAF is produced globally, even the SAF that is produced in Europe. I mean normally that would be supplied to EU airports because, as Laurent said rightly, the obligation is on the fuel supply and not on the airlines, so the fuel supplies will transport it to the airports. So globally, the global production is around 200,000 KT kilotonnes, and that is not a lot. However, the good news is that with the mandates around the corner, there will be a steep ramp up in production capabilities, not just by us, but also by other sustainable aviation fuel suppliers and oil companies. So that is basically the context and that is we have, like you said, we have 1 ½ years to make it work and then there will be around 1million tonnes for the European mandate, but also globally where we have increasing policy and incentive schemes being ramped up.

Thank you Klaas, what I imagine when it's mandated that all over the globe SAF producer will concentrating on sending SAF to Europe or is that just my imagination?

It's great to have imagination. The reality is that SAF is basically produced on a number of locations. In our case, it's three locations in Finland, Singapore and Rotterdam. Rotterdam will be ramped up next year. Singapore is currently being started up. That SAF will be shipped where the demand is, where the markets are. Realistically, what we will be producing in Rotterdam will be for the European markets, but if there's more demands on their mandate then we'll, ship it from Singapore to Rotterdam. It's a global business, like fossil fuels, you know, Jet A1 is also shipped all across the globe from the refineries. There is this thinking sometimes that's every country should have its own SAF Refinery. You know the chances of that happening are maybe a little bit slim. Building a refinery typically cost around $2 billion and it takes a lot of years to build a refinery. The reality is that we will see supply chains, global supply chains like is currently the case.

OK, interesting. Thank you. Coming to the technology side, what I understand so far is that there are 7 approved technologies by ASTM. What is the technology that Neste used and what kind of feedstock does Neste use as well?

The technology is called HEFA and the feedstocks are basically two, used cooking oil (UCO) and animal fats. The two components are the drop- in solution that is currently available, and it will be available for decades to come. But in order to be able to supply increasing volumes of SAF, we will be looking at other feedstocks and technologies.

Speaking about that increasing demand and you know ramp up the production for example, do you think we will have enough supply to fulfil the mandate, let's say in the period of 2025 to 2029?

Yes, we will. There is sufficient feedstock, I don't want to make it too technical, but it has to do with the sustainability requirements. In Europe we have what we call the Renewable Energy Directive that sort of determines or sets the criteria for the eligibility. On a global level, we have CORSIA certification, on ICAO what is important is that we align or harmonise or come to a set of requirements that promotes eligibility of a very broad feedstock base. Of course, under the most stringent sustainability criteria, then we will have potentially 40 million tonnes of feedstocks available by 2030 and that is substantial.

If I may, what's also interesting here is to take a step back from the aviation sector and look at the dynamics across the market and obviously in Europe. Lucky, as you probably know, there's a very strong push towards electrification of road transport and maybe not happening to all types of road transport. But that also frees a certain capacity of sustainable fuels, including the biogenic fuels, which as airlines will be more than happy to use. Probably in the past Neste was producing it for road transport, but in the short to medium term, that's something that Airlines will certainly rely on to be able to meet their SAF targets.

That's an interesting point of view. So, they may have a shifting demand from the road transport to SAF because of the electrification like you said just now, Laurent. By 2030, the mandate will increase to 6% of SAF, of which some part of it 0.7% is synthetic, which is made from non-biomass. Or also known by the term renewable fuel of non-biological origin (RFNBO) it’s a little bit tongue twister. So, my question to you, Laurent, in absolute volumes how much SAF is required to meet the 4.8 plan and how much synthetic SAF will be required?

You're touching here on a very interesting feature of the European SAF mandate, these dual targets on the one hand, you have a general target for sustainable aviation fuels. And then as of 2030, you're talking about the synthetic fuels or E-fuels or as we mentioned earlier, a bit of a mouthful the (RFNBO) Renewable fuels of non-biological origin, what's interesting here is there is going to be a limit as to how much biomass can be used sustainably. Between now and 2030 we very much expect that biogenic SAF will be the main source and Neste has really been a pioneer and the champion of this, what we call HEFA and the production and they've been doing a great job of commercialising it. We're looking forward now to seeing production going up and more actors coming into the market. But as of 2030 and to be able to meet what the 70% target in 2050, we'll need to start to use every single source as possible. This is why in the European mandate for sustainable aviation fuel we see appearing in the 2030 horizon, this sub target for what we called E-fuels or RFNBO. How much does that represent in the 2030 horizon? Roughly if you count 6% of the 43 million tonnes of SAF of fuel that we produce or we consume at the European airports in 2030. That's 2.6 billion tonnes of fuel in 2030 and then a small percentage of that we roughly represent 0.3 million tonnes of RFNB0 or the E-fuels. Keeping in mind that this is a technology that has proven it's working really well, but the production is almost inexistent for the moment, so as much as there is a challenge to ramp up the production and the supply for the HEFA or the biogenic fuel, there's a very similar challenge when it comes to these electro-fuels or these RFNBO’s.

Yes, I can only support that lucky. There is currently extremely limited production of this synthetic SAF. There are some projects very much in infant stages, but I think everybody is aware that there needs to be more production of synthetic aviation fuels. You know there's other technologies, right? Like Laurent said, I mean we call that Fischer Tropsch, methanol to jets. If you look in the US, Latin America, there is a very keen interest in in these type of fuels for obvious reasons.

That's, the E-SAF and SAF itself. The mandate actually triggers a curiosity in myself, for the economic side of it. I understand that actually even SAF is really more expensive than the kerosene days and Jet A fuel. Now we coming to 2030, which is not too far off, 7 - 6 1/2 years. In terms of profitability, what is the impact of this SAF mandate on your members long term commercial strategies, I mean the price of SAF and synthetic SAF being a crucial element to consider.

It's a very crucial question and obviously you know we're looking into this very closely, the concerns about the external negative externalities of aviation, the impact on climate change is not going away. If we listen to science, you know we need to reduce our CO2 emission by 2030 by 35%, so the need for SAF is strongly going to be there. Now there are two elements to your question. The 1st is the price of the SAF and that's clearly something that you know there's a challenge for the moment because of limited production and also limited availability. The price remained really high and it's essential for us as airlines to see the price becoming closer to jet A1. Would it ever match current fuel prices? We doubt it, but certainly with scale the price will start to drop and that's a good thing, but the mandate in itself, because we are focusing on rather small numbers and small percentages, even if it's still significant, will not have a very significant high impact in the 2025 or 2030 target. I think it's more the 2050 targets where the cost of compliance to the mandate can really easily reach €40 billion every year. So that's why we need to see proper industrial strategies to develop the feedstock. But in a sense that is something that we are not afraid of because there's such a strong strategic interest for the airlines to be able to access the SAF and to be able to see the production increasing. Notably in the context of the carbon price that we are paying for every time that we fly in within the European continent. For many airlines the compliance to the European carbon market, which is now reaching roughly €100 per tonne of CO2, is going to be so high that the demand for SAF or the urge to be able to use sustainable aviation is going to be extremely important. It will be one of the few ways that an airline can reduce its CO2 invoices here to bill if you want. So, we also have a very strong incentive to be able to uplift these carbon neutral fuels that that the Neste is producing.

Yes, can I comment Laurent? You're absolutely right and I mean I think in the wider scheme of things, the cost of doing nothing are a lot higher. I mean, if we want to combat climate change, if we want the aviation to help reach the Paris climate goals. We need to start internalising external costs and the external costs are the cost to the environment. So yes, SAF is three to five times more expensive compared to the fossil. Just also here another word of caution, it will never be as cheap, you know between brackets as fossil because the feedstocks are so expensive. But that's the reality, and I think as Laurent said, the industry is very much aware of that reality. But there is no alternative and there's no way back and in addition to that, synthetic SAF’s fuels or E-SAF’s are going to be even more expensive because of the sourcing the energy, the renewable, the green energy. So, there is always a possibility that prices may come down, as Laurent said. You know there will be more supply, there will be more competition, there will be more efficient supply chains, more efficient production. But let's manage expectations a little bit here. Flying will never be as cheap as maybe we were used to, but the society is willing to accept that, and I think it's being embraced. That's also more for Laurent to comment on, he knows better. We see that end users, passengers, shippers are very much willing to support that.

Maybe what I can add to this is one thing is talking about the mandate. You know we're mentioning here 2% and 2025, 6% in 2030. It's very important to keep in mind that many large airline groups in Europe, and I can mention IAG for example, which is not a company which Airways or Iberia or Ryanair want not to do 6% in 2030, but they want to do 10% or 12% in 2030. There's a very strong demand there and we're very confident that the market and the supply will follow. I think this is what needs to happen now is that investors need to feel strong and secure about the long-term demand and demand will be there in Europe. First in the United States very soon as well. And then and hopefully the rest of the world as well.

I will say something from the passenger side. I'm the passenger here, what's the sub mandate with the E-SAF? What are the price differences in fuel? Typically, the costs it will pass on to the passengers at the end of the day? Do you think the passenger demand will increase, keep increasing or maybe in some part decrease because of the price is too expensive.

You know, we already feel the increase of prices due to the energy transition coming from a high carbon price. The carbon price in Europe is unprecedently high and it will remain high even before the SAF mandate has started. But at the same time, we're looking over our shoulder of 2030 summer season and that has been extremely good. We are very confident about next year as well and the transatlantic market is only recovering and the transportation Market, EU and Asia is only at 40% of what it used to be pre COVID, next year will be maybe at 75% and we still think that people want to travel. It's becoming such an Important part of people's life and for access to education to goods, to services and in the grand scheme of things, especially as we hope that SAF prices will decrease, the percentage of the price of your ticket that will go into sustainable aviation fuel still will remain very limited. It will still remain affordable and especially in Europe when you compare it to percent, potentially prices to travel by air in the North American market.

Yes, that's a very good point, Laurent. SAF, you know, the premium on the ticket is just a couple dollars for intra EU flights and a little bit higher of course for intercontinental flights. I think what you're also alluding to Laurent but correct me if I'm wrong. I mean, what your example shows is that there is a need going forward, not just to have sort of this mandated environment in Europe, but also to roll that out over towards other regions, where of course all aviation connects continents and countries and people. So, I mean it, it's going to be very difficult to harmonise policy, but you could align policies and I think there's a way positive development, especially in Asia Pacific where countries such as Singapore, Japan are very keen to introduce, maybe they don't call It mandates not every country likes to use the word mandates, but some form of offtake mechanisms. Then you sort of you know you create equal opportunities. I mean level playing field is also something that is in aviation. Not something that, you know, given the different, you know, jurisdictions, different regulations, a level playing field is hard to achieve but some equal opportunities might materialise and that is, you know that's good.

You said it's extremely limited and, in its infancy, but is there any company actually already producing synthetic SAF? And typically, what kind of feedstock they use.

Yes, I think like I said earlier, there's some pilot projects, that's all we know. On the ethanol, I think what is interesting about that pathway is that it is currently let's say under the European legislation it's not eligible, so you could be producing it, but if it's not eligible, you know. What's the use? So that's also where the certification and the policy angle is very important here. But I mean there will be synthetic SAF production for sure because it is mandated and the good thing about a mandate from a fuel producers point of view is that it gives some certainty, predictability and clarity, because then we have a stable demand and if we know there's going to be stable demand for the decades to come, that helps investment decisions in production capabilities and, as I said, building a refinery or even transforming a refinery. It's a very costly business with a, you know, a substantial upside risk. So that's why a mandate is so important and as, Laurent said it's very positive that a lot of airlines and the major airlines have committed to a much higher offtake, but that's still voluntary. We really are looking at where is the regulation going, what is the direction of travel there.

So, does Neste plan to produce E-SAF?

Yes. Absolutely. We will.

OK, so you will have both sides covered.

We are already doing research in that. 20% of the Neste staff is involved in research. We're a renewables company. We're not just the typical fuel supply or a fuel producer or we're a renewables company.

Yes, I understand that. When actually Neste commissioned the first plant in Singapore back in 2010. I was there. I was witnessing the Commission of that plant.

Yes, and a lot and a lot has happened since, as you may know.

Yes, very true. As mentioned, Europe is the first to start with biofuels and now the first also to start with SAF mandate and it really won't be long until other countries follow. I mean in Singapore, they already have. I'm in an area starting some of the commercial flights from Singapore Airlines. Japan is preparing for 10% by 2030 but they start with the domestic flights instead of international Flights. The US doesn’t have any mandate on SAF yet, but I think California will start as you know California typically start doing on the environmental thing. Showing the way to all other States. If the world globally starts having SAF targets. How much SAF will be required? I think you mentioned earlier as well, but I kind of got lost in the numbers.

Again, it will depend on the demand and how much traffic is picking up and we know, I mean I mentioned earlier that there's some wiggle room there for growth and then we see people want to travel more. So, if we have a medium traffic demand scenario in 2030, we could see global fuel demand to be around 344 million tonnes. If you take 2% of that, that's roughly 7 million tonnes. To put this into perspective, we just talked about the US and the EU together at the same time horizon in 2030. The EU and the US would already basically produce 6 million tonnes of the 7 million tonnes, so that that additional volume is actually quite limited. As for us, as European, because of the demand, there is not only in Europe and in the US, but also you mentioned Asia, but also because of the potential for economic development in Asia, in Africa, huge potential for sustainable aviation fuel, which is good for green growth and green jobs that I'm not even talking about energy security. We would hope that in 2030 we would have doubled what you mentioned now, you know, not focusing only on you know 2% of SAF in 2030 but you know 3, 4, 5% and this is also what would be needed for the aviation sector to be on track to be able to support the goals of the Paris Agreement in 2015 and zero.

That's a very good point, Laurent. I was just going to, you know mention what we expect and it’s in line with your figures on the 2% by 2030, if you're talking globally, we have calculated that global demands will be 15 million tonnes by 2030. So that is both mandate and voluntary markets.

Do you think we have enough feedstock, especially when we look into animal fats and UCO? Bearing in mind that use cooking oil (UCO) is also in high demand because of the marine sector. the marine sector is also looking into using the used cooking oil. Will there be enough supply? And I think the price will become increasing even higher, the UCO price, what do you think Klaas?

I think you have a point there. I think the feedstock pool, which we call, waste residues, fats and oils are limited. So, I mentioned, I think we you know we have a potential 40 million tonnes, but we need other feedstocks like other vegetable oils and lingual cellulosics. We're looking into algae even we just started an algae plant in the North of Spain, near Cadiz, we are very much exploring all avenues that are sort of possible and should become eligible. But it's not just us. The whole industry needs to embrace that and work towards that and not sit on the fence and wait until the mandate is high enough and then it will be starting to think about producing, you know, time is of the essence. You know it has to start now.

Yes. Here in Singapore, they started also with that for marine. And then in one point of time they are looking for algae oil. I understand that actually there's in Indonesia nearby, Singapore in Batam Island. They have one algae oil producing, but it's so expensive, I think it's even more expensive to be used as fuel in the end. So, it's interesting to see the feedstock race, I may say. It is already there, the feedstock race, the potential demand of the aircraft and of the marine industry as well. At the same time. So, it's really crucial. I think the feedstock is used here.

You're right and it's really essential for the credibility of sustainable aviation fuel as a solution to be able to fly in a climate friendly way. We have very strong concerns from our passengers to make sure that this sustainable aviation fuel that they will pay for, you know has no impact on deforestation and it doesn't lead to increased food prices, for example. So that's something we need to be very careful about and we will constantly keep an eye on that. But on the other hand, the potential in terms of new feedstock is very strong and with the potential new revenues for a number of farmers for example, and that is something that we need to keep in mind. The other thing I should mention also is that we also need to look at it from a horizontal perspective, aviation has very little alternative to liquid fuels. You know we cannot use, you know, batteries or only to the limited extent, we cannot use LNG for example, unlike maritime. So there needs to be also in the thinking, especially as we talk policy from the policy makers perspective to think about what the hardware-based sectors are, what are the options for these hardware-based sectors, and whether the options are available to some more than others.

Yes, that's a very important point. It this is about choices. If aviation is the hardest to abate sector, then you know you should prioritise that.

Yeah, that's a good point actually, because others can try to find something else, some alternative. So, my last question to you both. Like you mentioned. I think maybe most of this question is more suitable for Laurent. How likely is hydrogen used in commercial flights and maybe the timeline? If you can answer it.

So, I would say it's very likely, technology is on its way. We've been told that Airbus is at the forefront in development of an aircraft that can do three or four to five hours. So typically, intra-Asian, intra-European in the middle of the next decade. We have strong demand from airlines who want to be, you know, using this hydrogen aircraft on their medium haul flights. So, we expect to see this already happening in the middle of the next decade in 2035 onwards with the time that it will take to renew the fleet. But in the short term it's going to take a long time. What we'll see, however, is that hydrogen will see demand in the production of the RFNBO’s, the synthetic fuels. if hydrogen has a future 2035 onwards by 2050 and the short term is likely that hydrogen will first find its way in the production of these electric fields. Demand needs to come; production needs to start. But on the other hand, it's important to keep in mind that in the long term, we don't see hydrogen replacing the liquid fuels for the long haul, Singapore to London, Singapore to Paris, Singapore to New York. Even in 2050, you would still need these liquid fuels that are biogenic now and increasingly sustainable as we move towards the 2050.

It's very interesting discussion that you I still have a lot of questions, but I don't think we will have enough time to cover everything. It's good we look into sustainable and everything. So finally let let's hope that whatever we do now to reduce carbon emissions will not lift the unintended consequences for the next generation to deal. Thank you very much for the discussion in the podcast. Really appreciate it and it's really an interesting discussion and thank you for listening to this podcast and talk to you in the next episode. Thank you.