Decarbonizing the aviation industry

Dominique Barker: Welcome to The Sustainability Agenda, a podcast series focusing on the evolving complexities of the sustainability landscape with a view on addressing current issues in a concise format to help you navigate and take action. I’m your host, Dominique Barker. Please join me as we explore today’s most pressing matters with special guests that will give you some new perspective and help you make sense of what really matters.

Andrew Chen: And then maybe even more importantly, when does that trajectory for offsetting or for market based measures switch from allowing general offsets, which could be paying for someone else not to emit carbon into removals?

Dominique Barker: In partnership with The Centre for Climate Aligned Finance, or The Centre, we’re pleased to welcome you to the fifth and unfortunately, our final episode of our series with them. On today’s episode, we’ll be focusing on the aviation sector and the Sustainable Aviation Buyers Alliance for SABA. It’s an initiative by the RMI and the Environmental Defense Fund to drive investment toward Sustainable Aviation Fuel, or SAF, through a certification system. So today I’m pleased to be joined by Andrew Chen. He’s head of RMI’s Sustainable Aviation Team. We’re pleased to welcome him to The Sustainability Agenda. Welcome, Andrew.

Andrew Chen: Thanks very much. Pleasure to be here.

Dominique Barker: So let’s just start by setting the stage. How carbon intensive is the global aviation industry? And maybe you could give a bit of an overview for our audience today on where those emissions are coming from, where the decarbonization opportunities lie, I suppose, and why it’s so difficult to decarbonize the sector.

Andrew Chen: Great. Yeah. Happy to. Just to set the scene in terms of aviation and its emissions, globally aviation accounts for roughly two to maybe three percent. So let’s call it two and a half percent of global CO2 emissions or global greenhouse gas emissions. That is an important fact in that it’s relatively small today when you think about the total mix of things. But as other sectors of the economy and as other activities are able to decarbonize, they will do so at a much more rapid pace than aviation. So aviation, along with a few other sectors, are generally considered hard to abate, meaning that it’s difficult to take carbon out of the underlying value chains. But what that means is that if aviation doesn’t speed up its act and head towards net zero as quickly as possible, it could stick out like a sore thumb. So it could go from representing two percent of today’s global emissions to representing something like maybe 10 to 15 percent of global emissions in 2050. The overall aviation emits in the neighbourhood of one metric gigaton of carbon. So that is roughly or exactly a billion metric tons of carbon. It’s quite a substantial amount of carbon when you think about it in those terms, and there are a number of efforts that the industry has been embarking on over the years to try and help reduce that and to set more aspirational and higher ambition goals to reduce carbon and get to net zero as quickly as possible. Generally speaking, they fall into four buckets or four areas of effort. The first is around operations and efficiency, which is a traditional proven area for aviation. So how do you fly your plane? How cleanly and efficiently can you fly your plane? And that’s a question of airspace management, generally speaking and making sure that we’re providing the most efficient paths or routes for individual aircraft to fly. Another traditional area for the industry is on engine efficiency or how clean is the technology that you’re using to fly with? And this is an area where the industry has historically been very strong, making generally speaking, year on year improvements in efficiency. And if you think about that, that’s pretty core to their business model as fuel costs represent roughly a third of their overall operating costs. So anything they can do to burn less fuel is generally going to be within their plans going forward. A third area is around infrastructure and specifically sustainable aviation fuel, so this is a critical pillar for the industry and one that we’re laser focused on within the Sustainable Aviation Buyers Alliance, and that is for a number of reasons. One, it is the most effective and available technology today to reduce carbon from the industry. It’s a drop in ready fuel. That means it can be mixed with other fuel, be used in all of today’s aircraft with some specifications for requirements of blend percentages and things like that. But it’s also important because as you move out towards 2050, despite the fact that we’ll start seeing more electric aircraft and we’ll even see some other types of propulsion like hydrogen, we will still see a large proportion of primary energy for aircraft coming from liquid fuels. So you have to find a replacement for those liquid fuels and you have to start scaling them up very rapidly in order to hit the targets that are necessary for aviation to get to net zero. And then the fourth and final basket or bucket of measure is around market based measures. So as I pointed out, aviation will not be able to decarbonize as quickly as other parts of the economy will. And there’s already a historic agreement set by ICAO, which is the UN regulator for aviation on a scheme called CORSIA or the Carbon Offset and Reduction Scheme for International Aviation, which requires that airlines purchase and retire carbon offsets so that they do not grow their net emissions above historic 2019 or 2020 levels.

Dominique Barker: Thank you. And just, I do like to always put things into perspective, Andrew, I appreciate you said it was that the aviation sector is two to three percent of global emissions, or one gigaton. And this is a number I’ve repeated on this podcast many times. Global emissions today are around 50 gigatons or 50 billion tons. So just to put that into perspective. So Andrew, in 2009, the International Air Transport Association had called for a reduction of 50 percent in global aviation emissions by 2050, compared to 2005. Are we on track for that goal? And I guess the key question, is net zero possible for the sector?

Andrew Chen: Yeah, thanks for that one. I think the more important question is, how are we going to achieve net zero? So if you think back to when that goal was established, the concept of one point five degrees C and net zero was still not incredibly widespread. It existed within the academic and scientific communities and the researchers looking at climate science. But that IPCC report on one point five degrees in net zero that came out toward the end of October 2018 hadn’t yet landed, so most of the world had not yet realized how important it was to limit global warming to less than 1.5 degrees C and how catastrophic it would be to get above that. So I think that’s important to note in the context of the previous industry backed goal to halve net emissions by 2050 compared to 2005 levels. Well, that was at its time, a historic goal in the fact that it was the first time a global sector had volunteered and had successfully gotten a goal ratified at an international level by ICAO, the UN body for aviation. It was set in the time of what we expected to be the most relevant target for aviation in terms of the climate science and the issue we saw with climate change at the time. As that has progressed, it’s very clear that halving of aviation emissions is not sufficient enough to meet a 1.5 degree target. And to be quite honest, there were some questions about whether or not that target would have even been sufficient to meet a two degrees warming scenario. So in light of that more recent information on the impacts of warming above 1.5 degrees C, there was immediately a response from within the industry but behind the scenes, and it was quite clear that we knew as an industry we were going to have to revise that goal. That goal needed to be net zero. And the question became, how can we get as much of the industry and the value chain on board for a net zero goal? And how can we ensure that that goal is set for mid-century and that net zero goal isn’t set for 2070 or 2080 or sometime in the second half of the century. In terms of how we’re doing or how the industry is doing with its aviation emissions growth, emissions are still growing from aviation. However, it’s important to note two things. One is that every forecast will have some continued growth of emissions before we peak and before we start bringing down net emission levels towards a goal of zero net emissions by 2050. But the other important thing to note is that there has already been a disconnect between the growth in aviation demand and carbon intensity. So those efforts done by the industry and the value chain over the years to improve efficiencies and to improve how cleanly we fly and to continually improve the technology with which we fly, have allowed for that disconnect to happen where you don’t see a growth in the carbon intensity per passenger mile or per revenue ton kilometre or any other metric you see for activity. So that’s an important thing to note. And then the other thing to note is obviously with the pandemic, which was quite devastating to the aviation industry and to the travel industry as a whole. While we will see a drop and we’ve seen a drop in global emissions from the aviation sector due to that, all estimates and scenarios expected, that activity will pick back up within at least a few years’ time and we’ll be back on track to, in a business as usual scenario, exceeding our targets. So there’s quite a lot of work that has been going on during the pandemic, which is very, very great to see from the industry, from airlines, from aircraft manufacturers and the rest of the value chain to double down on those sustainability commitments. And most importantly, IATA, led by one of their sister groups within IATA, called the Air Transport Action Group, or ATAG recently revised that industry-backed goal to reach net zero global aviation emissions by 2050, which is, I think, a really historic landmark.

Dominique Barker: Great. And you mentioned in our opening remarks, you talked about how there are four areas of efforts. Maybe we can just zero in on fuel efficiency and how material that is in reaching net zero?

Andrew Chen: Great. Yeah. Fuel efficiency, as I was saying before, comes from two areas. It comes from how you fly your aircraft, how efficiently you can plan out the routes and avoid things like holding patterns or stacking once you arrive to your destination airport, but it also has to do with the technology that you’re flying, the plane that you’re flying, the engine that is burning the fuel that is propelling that plane. Both of those are quite critical to reaching net zero. As I was saying, the year on year improvements of both how efficiently you fly and how efficient the technology is that you fly with have been getting better. And historically, if you look back 25 years ago, we were incredibly more efficient, or whatever metric you want to use in terms of aviation’s carbon intensity. But that business as usual trajectory won’t be enough to reach net zero and it has to be accelerated. And some of the ways that it will be accelerated is by the adoption of advanced propulsion technology. What I mean by that are other forms of energy other than a liquid fuel that will propel the plane. So that could include battery electric or that could include hydrogen as a form of fuel directly. Or it could be a combination of hydrogen and a fuel cell providing that electricity to propel that aircraft forward. The challenge that we see with that is fundamentally a physics challenge. For long haul air travel, there are very large aircraft that fly very long distances. Right now, there are almost no trajectories of technology for battery electric or in some cases with hydrogen, where you could see a feasible path to replacing liquid fuels and long haul aircraft. And that’s just because of the energy and density and weight requirements of achieving what is quite significant in terms of the modern marvel of sending people around the world in planes. And that’s why when you come back to this picture of 2050 and how we’ll meet net zero, more and more of the solutions that we are developing are centred around sustainable aviation fuels as an alternative to fossil based kerosene for aviation.

Dominique Barker: And yeah, from a CIBC perspective, we would also view hydrogen or other propulsion methods for not only the aviation sector, but long haul trucking, for example, and the maritime industry. And yeah, so you’ve touched on it, SAF, or Sustainable Aviation Fuel. You spoke about how it’s a critical piece. Why don’t you tell our audience? Not everyone is as familiar as you or I. Why is it important and what are the challenges in scaling SAF and what are the opportunities?

Andrew Chen: Yeah, there’s really quite a lot of challenges to talk about, but let me focus on the opportunities. But first, I’ll describe what I mean by sustainable aviation fuel and generally what that definition includes. So sustainable aviation fuels typically today are going to be similar to biofuel. So they’re going to come from maybe a crop based waste feedstock or other waste feedstocks that are then converted into a liquid fuel that can then be used and dropped in to the exact same aircraft engine and really the aircraft’s wing, which is where aircraft store their fuel and then be burnt and combusted in that aircraft’s engine. So we refer to them as drop in fuels because to even enter into an aircraft, they have to meet certain safety specifications and fuel standards. And right now, one small little nuance is that to be certified and allowed to fly, fuel that’s delivered to an aircraft can only be up to 50 percent sustainable aviation fuel. So it has to get blended with a traditional fossil kerosene before it’s delivered to the aircraft. A really notable exception to this is the very recent flight that United accomplished using one hundred percent SAF in one of their engines to help test the feasibility of that. We can get back to those technological limitations later. I think the more important aspect is what is SAF and why is it helpful for reducing carbon? So as with any biofuel, there is a lifecycle carbon assessment that’s associated with it. And in theory, if you’re looking at that diagram and you’re thinking about SAF as a biofuel, you have a standing area of land where a crop is growing. That crop is actually taking carbon dioxide out of the atmosphere, turning it into carbon in plant material itself. Once that’s harvested and in this case, for SAF, once that crop waste or residue is harvested and refined, you can create a liquid product that can be combusted in an aircraft engine. In general, that biofuel SAF could result in up to an 80 percent lifecycle reduction of carbon compared to fossil fuels today. And the reason it’s not one hundred percent is a little bit nuanced. But if you imagine again that diagram as a circle at several points in that circle, when you go from a crop into a liquid fuel and back to combusting and putting emissions into the atmosphere, there are steps along that process like collection and refinement of the feedstock refinery of the actual fuel product and derivatives themselves. Transportation, processing, blending requirements at every step in that process, there’s an opportunity for carbon to be emitted. And so from a life cycle assessment that reduces the potential of that fuel to be a one hundred percent carbon reduction. I spent a little bit of time talking about that because today almost all sustainable aviation fuel that is being used, which is a very small percentage of the total amount globally, comes from bio feedstocks. However, as we move into the future, other technologies for creating these sustainable aviation fuels become much more relevant. And so you move from something today, which is very much a biofuel to future fuels where you’re using alcohol to jet pathways or other gasification pathways where you’re turning a waste stream, maybe municipal waste or an industrial waste stream into a sustainable aviation fuel. And then finally, further down the road and something that is quite a high potential for carbon reduction are a type of fuel that are generally referred to as synthetic fuels or power to liquid fuels. So this is the concept of taking direct capture of carbon combined with green hydrogen and creating a synthetic hydrocarbon that you can refine to make molecularly look exactly like kerosene and act and formulate and operate just like we have today. With that type of fuel, because of its potential and if you are able to use renewable energy sources to sequester or capture carbon and also to create hydrogen, then you are able to get up to a ninety nine percent or ninety nine point nine percent carbon reduction potential. It could never be a true one hundred percent carbon reduction just because of the every step in that process of going from different feedstocks into a final product, could add some form of energy intensity and therefore some form of CO2e to those steps. But it is truly one of the most powerful potential SAF production types that we have out there, and one that will require quite a lot more facilitation from a policy and technology standpoint to bring its costs down. If you can imagine today the fuels that exist are in the neighbourhood of two to three times more expensive than their fossil fuel analogues. And when you start talking about more future fuels like power to liquids, they are even more expensive, so they need even more work to help reduce those costs and to be able to scale up.

Dominique Barker: Well, there’s some really exciting Canadian technologies out there, and so audience pay attention, SAF or Sustainable Aviation Fuel is a really growing and interesting area to pay attention to. So Andrew, why don’t we talk about carbon offsetting? This is a big thing in the aviation industry, and carbon credits is an area that’s close to CIBC’s heart, where we’re part of a global voluntary carbon market trading system. So we’ve been paying attention to what’s happening, and the aviation industry has always been very good about offering offsets on your flight. Can you talk about the role that offsets play and maybe make some comments about the future of offsets?

Andrew Chen: Yeah, thanks. I think it is a really important thing to point out. And one of the reasons that aviation is an active player in the world of offsetting is precisely because it is a hard to abate sector, and it recognizes that the speed at which it will be able to decarbonize is not nearly as fast as the speed at which other sectors of the economy can. So rather than sitting back and saying we’re going to invest all of our effort into the technology and the sustainable aviation fuels, there’s been a strong acknowledgement that there has to be compensation for the climate impacts of aviation and offsetting represents a good way to do that today. I mentioned that that big offsetting scheme called CORSIA the Carbon Offsetting and Reduction Scheme for International Aviation, which was put into legislation by ICAO and ratified by UN member states a few years ago, and that effectively caps net emission levels as a goal from 2020 onwards. And so therefore, if an airline increases its historic emission levels above that baseline, it’s required to go out, purchase offsets, retire them and therefore bring its net emission level down to roughly a 2020 or 2019 baseline. Generally speaking, there is, let’s say, anxiety around the concept of offsetting, and it’s not unique to aviation by any means. I think if you are to speak with a number of environmental groups and NGOs, many of which are partners with RMI, there has been rightfully so criticism of how offsetting schemes have functioned in the past, and there’s an opportunity for some form of either double counting or other types of miscounting of carbon reductions or carbon avoidance from offsets in the past, so many of those issues have to get addressed and our actively being considered by groups like ICAO or other groups, including the UN, CDM, so thinking about how do we improve offsets to improve transparency, reduce potential for fraud or any other nefarious activities? My take on offsetting is actually a bit more future looking. So right now that scheme CORSIA is meant to cover the 2020 to 2035 period. And if you think about aviation on a trajectory to getting to net zero by 2050, there are still residual emissions that will exist all the way out to 2050. And to be quite honest, there will probably be some residual emissions, even with all the SAF and the electric and hydrogen technologies that will be deployed by that point in time. So the question becomes what happens after 2035 with CORSIA? When does that trajectory of just capping at net emission levels of 2020 start to actually come down and start pointing towards zero? How fast is that trajectory fall from 2035 onwards? And then maybe even more importantly, when does that trajectory for offsetting or for market based measures switch from allowing general offsets, which could be paying for someone else not to emit carbon into removals? So paying either to directly capture carbon from the air and stored away forever or use it again in a sustainable aviation fuel? And that becomes really important because as we know, any definition of net zero requires fundamentally two things, deep cuts in the emissions that activity, that business, that organization, that economic sector is associated with, coupled with an equal amount of investment in carbon removals for whatever residual emissions still exist for that organization or entity or sector.

Dominique Barker: All right. We’re completely aligned with our carbon marketplace that we’re developing. We really see this as a platform that could help be a catalyst to create carbon removal credits, because that is absolutely the future. Carbon removal will absolutely be an important element of decarbonization. Last question for you, what role can financial institutions play in decarbonizing the aviation sector and how can they get involved in the Aviation Climate Aligned Finance Working Group that you are leading?

Andrew Chen: Yeah, thanks for that question. I think there are a number of ways in which financial institutions can contribute. Most importantly, I think the summary is that the finance community has a really significant role to play in speeding up the transition of the aviation sector to net zero in a few different ways. On one aspect, the finance community is able to allocate capital, which is in support of important new technology development. So when we think about the fuels, the innovative technologies and business models, some of the other propulsions that we talked about with battery electric or hydrogen, or whatever those concepts may be, there’s a role for the finance community to play in helping to finance that transition in itself. Secondly, banks and financial institutions have a huge role to play in terms of the client engagement and advocacy that they have the potential to do. So as we know, banks are incredibly well connected across the entire aviation value chain and can be quite an effective player to help nudge or move that value chain along and become more ambitious and play a bigger role individually in how they facilitate that transition. And then finally, banks are also a really crucial focal point within that value chain, as I pointed out. But they can help play a role in terms of promoting better transparencies, better disclosures, generally better reporting across the sector, especially on climate alignment, which can be incredibly influential in driving the rest of the value chain and the rest of the sector towards a net zero goal.

Dominique Barker: Andrew, this has been incredibly informative, and I almost feel like we could have a second part. I’d love to hear more about airports, about how governments can play a role and how COVID played a role in the past couple of years in terms of reducing demand. Thank you so much for your time today. Really appreciate and I appreciate all of our listeners taking a listen as well. Thank you.

Andrew Chen: Thanks so much.

Dominique Barker: Please join us next time as we tackle some of sustainability’s biggest questions providing different perspectives to help you move forward. I’m your host, Dominique Barker, and this is The Sustainability Agenda.

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