In the quest to combat climate change and embrace sustainable investment opportunities, investors play a crucial role in driving the transition to a net-zero greenhouse gas (GHG) emissions energy sector. The urgency of achieving this transition is paramount to limit global warming to 1.5°C.7 Fortunately, ongoing research and development in various biopathways (discussed in our previous post) have generated excitement and progress in the field of SAF biomanufacturing. As science continues to contribute to climate change mitigation, the adoption of SAF holds immense potential for unlocking economic growth in the United States. With the aviation industry’s current annual contribution to global GDP nearing $2 trillion, achieving exponential growth in the SAF sector positions it to be valued over $400 billion by 2050.1 This potential is comparable to other renewable sectors like wind and solar, as SAF offers stable bioproduction levels, cost reduction, and innovation in the biofuel industry. However, despite significant monetary pledges and corporate investments from influential players such as UAV JV and the Department of Energy (DOE), SAF still faces challenges related to fuel scalability, price parity, and supply chain proficiency. Addressing these challenges regarding SAF production costs, supply availability, and input costs for biomanufacturing is crucial for wider adoption. Therefore, joint venture partnerships, government support, and public-private collaborations that leverage manufacturing expertise are essential in developing and implementing scalable technologies that hold promise in overcoming these obstacles. By doing so, the aviation industry can achieve efficient and cost-effective SAF production.5
A Glance at the Numbers:
Challenges in market cost competition with traditional Jet A remains one of the primary hurdles in the aviation industry’s transition into SAF. In many cases, SAF prices are still more than double than conventional fuel. This stark difference poses a significant barrier to a full SAF transition. However, the industry remains optimistic, drawing lessons from our previously failed attempts in bio-integration of the crop-based biofuel, ethanol. With progressive science at the forefront of SAF manufacturing, R&D continues to add long-term solutions to a long-term problem.
To achieve carbon-neutral growth and jumpstart competitive Jet A market pricing by 2030, an estimated investment of $40-50 billion per year is required, 20 years ahead of the DOE’s goal of full integration by 2050.7 Looking further ahead to 2050, a $175 billion investment is needed to facilitate SAF’s large-scale market entry. Within these investment figures, approximately 92%-96% is allocated to the actual production of renewable fuel. This includes investments in crucial upstream assets, with 30%-50% of the capital directed towards production plants, electricity generation capacity, and CO2 capture plants. The remaining 4%-8% of the total capital investment expenditure is dedicated to the development of various hybrid or fully electric aircraft that incorporate novel biofuel engineering. These substantial investment requirements highlight the level of capital commitment necessary to achieve carbon neutrality goals and drive the transition towards sustainable aviation.1,7
Government Support and Industry Engagement: Mitigating Risk
To address the aforementioned financial challenges, the federal government has recognized the importance of supporting SAF development. Federal funding initiatives provide crucial support for scaling up manufacturing capabilities, reducing risks for investors, and attracting more capital to the industry by employing carbon credits as one of their main tactics.6 For instance, the U.S. Department of Energy’s Advanced Research Projects Agency-Energy (ARPA-E) invests in breakthrough technologies for SAF while fostering the implementation of carbon credits, which create economic incentives for airlines to invest in SAF.9 According to a study conducted on the Memphis Int’l Airport in 2021, incorporation of carbon credits could lead to financial gains ranging between $12 million and $51 million annually opposed to a scenario without.8 Additionally, the European Commission’s proposal to include aviation in the EU Emissions Trading System can potentially bolster SAF economics by establishing a market for carbon credits. Aside from the technological advancements that are improving energy density, contributing to reducing production costs, government supervised usage of carbon credits have become an increasingly popular move to incentivize industry players while reducing GHG by nearly 65%.8
Manufacturing to Scale: Issues in Infrastructure
While promising SAF production methods have been developed in laboratories, scaling up to commercial production requires significant infrastructure investments. Bridging the gap between lab-scale and large-scale manufacturing is crucial for making SAF widely available. Unfortunately, this is where start-ups fall short. Most market challenges arise during this transition due to SAF’s unanswered manufacturing demands of, bringing high production costs right with it. Most notably LanzaTech, a company specializing in converting waste carbon gases into sustainable fuels, has encountered infrastructure challenges on its journey from lab production to commercial-scale manufacturing.9 This is where industry engagement, particularly during the early stages of start-up development, plays a pivotal role. Industry stakeholders can provide guidance on manufacturability and help align the supply chain, thereby reducing execution risks and creating a supportive ecosystem for SAF growth.7 This is precisely why the BioWell was created—an initiative that fosters public-private partnership and provides support to startups and pilot facilities during their transition from research and development to commercialization. The BioWell offers early companies the necessary tools to overcome the “valley of death” by providing a stable growth platform that connects innovators with investors. It also offers business mentorship, financial resources, and corporate engagement. Although the financial figures and projected risks may seem deterrent, transition into SAF and adjacent synbio technologies are well within reach our reach if actionable steps, like involvement from BioWell-type funds and the US government, are taken sooner than later.
Success stories like Neste, the world’s largest producer of renewable diesel and aviation fuel, have demonstrated that scaling up SAF production is feasible. These examples highlight the importance of committing resources to infrastructure development and creating an environment conducive to large-scale manufacturing.
Supply Chain Orchestration: The Final Product Challenge
While significant progress has been made in the development of sustainable aviation fuel (SAF) components, such as feedstocks and refining technologies, there is a pressing need to shift the focus towards establishing a robust and efficient supply chain for these final products. The successful blending of various SAF components and the seamless execution of the supply chain are pivotal for achieving widespread adoption and attracting investment within the industry.
The aviation sector heavily relies on a consistent and reliable supply of SAF to meet its sustainability goals. To ensure long-term viability and scalability, it is imperative to establish a well-connected supply chain that effectively links SAF producers, distributors, and end-users. This interconnected network becomes the backbone of the SAF ecosystem, facilitating the smooth flow of fuel from its creation to its utilization.2
Collaboration between industry stakeholders, including established players and innovative start-ups, becomes instrumental in aligning the diverse requirements of the SAF supply chain. To achieve this, private-public collaboration enables the identification and implementation of best practices throughout, ensuring optimized processes, minimized bottlenecks, and enhanced overall efficiency. It allows for the seamless coordination of activities such as feedstock sourcing, fuel production, quality assurance, storage, transportation, and end-user integration.5
Establishing strong partnerships between SAF producers, distributors, and end-users helps mitigate risks and provides a solid foundation for long-term growth and stability. By actively engaging start-ups and leveraging their innovative approaches, SAF makers can benefit from fresh perspectives and agile problem-solving capabilities.3 A well-functioning supply chain not only ensures a steady and sustainable supply of SAF but also contributes to the overall confidence and trust in the industry. Stakeholders, including influential players like UA JV, the DoD, aircraft manufacturers, and regulatory bodies, will be more inclined to embrace SAF when they are confident in the existence of a dependable supply chain that effectively caters to their operational requirements that feed into a $2 trillion annual GDP.2,3
For SAF to reach its full potential, collaboration between the public and private sectors is crucial. Moreover, transforming the initial risk of being an early adopter/investor into a competitive advantage is key to inspiring hesitant investors to embrace sustainable aviation. By demonstrating that the initially high costs associated with this technology can be reduced within a short timeframe, we can create an environment where climate-neutral aviation becomes the new norm. Early adoption and buy-ins from both sectors are vital in mobilizing capital and generating momentum for SAF. Along the same vein, the establishment of purchase agreements between governments and airliners, along with encouraging manufacturers to invest in large-scale SAF production facilities, will stimulate demand and incentivize bio-manufacturing throughout the aviation value chain.4 The continuity of end-user agreements and the development of scaled production facilities are pivotal in keeping pace with the increasing demand for SAF.
While challenges still exist, the combined efforts of governments, investors, and industry stakeholders, like the BioWell initiative, are creating an environment that accelerates SAF development. The potential of carbon credits, technological advancements, and infrastructure investments gradually improve SAF’s economics, scalability, and supply chain reliability. By tackling these challenges head-on, we can propel the aviation industry towards a greener and more sustainable future, ensuring soaring success for both investors and the environment.
References:
- Study Shows Global SAF Markets Would Move $402 billion by 2050 – https://www.biofuelsdigest.com/bdigest/2023/02/01/study-shows-global-saf-markets-would-move-402-billion-by-2050/:~:text=In%20Delaware,%20market%20research%20firm,reach%20$402%20billion%20by%20205
- Sustainable Aviation Fuels: The Key to decarbonizing Aviation – https://rhg.com/research/sustainable-aviation-fuels/
- The need for biofuels as part of a low carbon energy future – https://onlinelibrary.wiley.com/doi/abs/10.1002/bbb.1559
- Why the Military Should Use Sustainable Aviation Fuel – https://www.thirdway.org/blog/why-the-military-should-use-sustainable-aviation-fuel
- SAF Grand Challenge Roadmap – https://www.energy.gov/sites/default/files/2022-09/beto-saf-gc-roadmap-report-sept-2022.pdf
- Net Zero 2050: Sustainable Aviation Fuels – https://www.iata.org/en/iata-repository/pressroom/fact-sheets/fact-sheet—alternative-fuels/
- Making Net-Zero Aviation Possible: An industry backed, 1.5°C-aligned transition strategy – https://missionpossiblepartnership.org/wp-content/uploads/2023/01/Making-Net-Zero-Aviation-possible.pdf
- Economic Analysis of Developing a Sustainable Aviation Fuel Supply Chain Incorporating With Carbon Credits – https://www.frontiersin.org/articles/10.3389/fenrg.2021.775389/full
- ARPA-E: LanzaTech – https://arpa-e.energy.gov/technologies/projects/carbon-negative-chemical-production-platform
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