How airlines and producers can work together to accelerate SAF adoption
As one of the few sectors that cannot primarily rely on electrification to decarbonize, Aviation’s share of emissions is expected to rise until it can shift to low-carbon fuels. Aviation represents just under 3% of (GHG) emissions today, but this number could jump toover 20% by 2050 if unmitigated.
Switching from conventional jet fuel to sustainable aviation fuel (SAF) is the most promising solution to decarbonize the hard-to-abate aviation sector. SAF, while molecularly similar to fossil jet fuel, produces a fraction of the emissions because it’s made from non-petroleum feedstocks like canola oil, biomass, used cooking oil, forest residue, and municipal solid waste.
A handful of airlines, fuel producers, and technology developers are beginning to lead the global SAF transition, but there's still a long way to go. Although SAF production is on track to triple in 2024 compared to 2023, this will only account for less than 1% of total aviation fuel needed.
SAF producers, airlines, and other value chain stakeholders face formidable challenges in accelerating SAF production and adoption. Read on to learn about some of the largest barriers to SAF and creative ways producers and users can come together to overcome them.
Main barriers to SAF adoption
For the most part, airlines and industry groups recognize the importance of low-carbon fuels in decarbonizing the aviation sector, have set goals, and want access to products like SAF. However, there are sizeable hurdles to address:
Lack of production
In today’s volatile economy, SAF producers are navigating several “valleys of death." Building a SAF production facility isn’t cheap. To stand up a commercially viable refinery, producers need access to huge amounts of capital – anywhere from hundreds of millions to billions of dollars.
Capital costs aside, producers also need durable, supportive policies to incentivize the creation of less GHG-intensive fuels, minimize the green premium, and drive cost parity with conventional jet fuel. For instance, the US Inflation Reduction Act’s Clean Fuel Production Credit (CFPC) offers great incentives but expires in 2027, long before most producers will even be producing fuel.
Justifying the green premium
Commercial aviation is a very competitive industry with limited margins, and over 30% of annual operating expenses are spent on fuel. When you’re buying billions of gallons of fuel, even a tenth of a cent difference in price per gallon makes a big impact.
But the problem isn’t just that SAF is more expensive than traditional jet fuel, per se (although this is often the case). It’s that the cost of conventional jet fuel fluctuates with the volatility of the crude oil market, whereas new SAF producers must price their fuel with a floor to guarantee revenue certainty for investors. So, even though the cost of crude oil changes daily and is closely tied to geopolitics, there’s no competitive advantage or disadvantage because everyone is ultimately paying the same price.
This creates a dynamic where, in some cases, offtakers (commercial airlines, private aviation, and other jet fuel users) see it as advantageous to pay more for conventional fuel than SAF so long as they know their competitors are paying the same price. The price per gallon of SAF could be lower than jet fuel today, but that might not be true tomorrow, and you could end up paying more per gallon for SAF if there's a sustained dip in the conventional jet fuel market.
There’s also the issue of scale – if you’re only using SAF for 1% of your fuel, that probably isn’t too concerning. Transforming your entire operations is a different question altogether.
Food for thought: Can private aviation jump-start the SAF market?
While commercial aviation may not have the appetite to tackle SAF’s green premium, private aviation companies can be less price-sensitive. Fuel accounts for a smaller portion of their overall costs, and their customer base may be willing to accept higher fares for sustainable travel.
This gives them a unique opportunity to help jump-start the market and give SAF the initial support it needs to begin scaling production and reducing costs to the point of mass adoption.
Availability of feedstocks and energy
The feedstocks used to create SAF (fats, waste, biomass, etc.) can be challenging to procure and transport. Many of these products are thrown away after use, meaning new, low-carbon supply chains must be created to transport, blend, and distribute them. No matter what production pathway is used, refineries also require an immense amount of energy, both electricity and hydrogen, which are often expensive and in limited supply.
Not all offtakes are created equal. SAF projects are still very risky in the eyes of banks and investors, and an airline or offtaker’s financial standing in the marketplace significantly impacts the value of a particular offtake agreement. As a result, lenders don’t always recognize their validity.
If these agreements are recognized, a shorter term creates higher interest rates (like a mortgage) and, ultimately, a higher cost per gallon of SAF, which further jeopardizes the ability to sign a large volume, long-term deal.
And therein lies the problem. SAF producers rely on banks to fund new projects and need the longest-term offtake agreements possible (with the lowest interest rates) to scale, whereas airlines and other offtakers often favor shorter contracts that don’t lock them into long-term fixed prices.
Another example of this tension can be found in termination clauses, which outline when and how an offtaker can terminate the contract. Termination clauses for conventional jet fuels typically aren’t problematic because they're executed on shorter terms. However, with SAF, airlines and other offtakers need clauses that mitigate financial risk if crude oil prices experience a sustained drop. By allowing offtakers to terminate the contract during these conditions, it severely hinders producers’ ability to secure financing.
Ideas for accelerating SAF adoption
To make SAF a viable alternative to conventional jet fuel, commercial aviation needs to embrace a paradigm shift in how they work with producers, procure fuel, and collaborate across the entire SAF value chain. Here are 4 ideas to help shift the narrative:
1) Develop strategicrelationships with producerswith radical transparency
SAF producers shouldn’t be viewed as on the “other side” of the table. Forge meaningful partnerships to tackle challenges like supportive policy, feedstock development, and more. Work together to:
The logistics of transporting SAF to where it’s needed can be a serious challenge, further compounded by limited feedstock access. What if you helped SAF producers obtain permits for facilities close to your operationsso they could send their fuel straight to your airplanes?
Support policies incentivizing SAF production and encouraging cost parity with conventional jet fuel. This includes advocating for durable policies at the national level (such as the soon-expiring CFPC and blenders tax credit) and subnational intra-state aviation clean fuel programs.
Also, thoughtfully weigh the pros and cons of regulated versus voluntary markets for SAF. Is the current voluntary market serving the industry as well as a regulated market could? How would price transparency impact the SAF transition? These aren’t easy questions, but they're important to think about as you develop your policy advocacy strategy.
Partner on researching, advocating for, and implementing the infrastructure upgrades needed to support SAF production and transportation throughout the local economy.
Businesses dedicated to producing, collecting, and distributing woody biomass, plant oils, municipal waste, and other SAF feedstocks are still emerging. Consider co-creating an innovation fund or accelerator to help these critical feedstock solutions get off the ground.
SAF facilities need huge volumes of energy to operate. As a major offtaker, you could identify partnership opportunities that encourage local utilities to provide new, local SAF producers with wholesale rates. Similarly, you could work together to approach upstream feedstock suppliers for favorable prices on inputs, whether that’s woody biomass from forestry companies or waste products from local municipalities.Bothultimately lower the cost per gallon of SAF.
The logistics of transporting SAF to where it’s needed can be a serious challenge, further compounded by limited feedstock access. What if you helped SAF producers obtain permits for facilities close to your operationsso they could send their fuel straight to your airplanes?
Support policies incentivizing SAF production and encouraging cost parity with conventional jet fuel. This includes advocating for durable policies at the national level (such as the soon-expiring CFPC and blenders tax credit) and subnational intra-state aviation clean fuel programs.
Also, thoughtfully weigh the pros and cons of regulated versus voluntary markets for SAF. Is the current voluntary market serving the industry as well as a regulated market could? How would price transparency impact the SAF transition? These aren’t easy questions, but they're important to think about as you develop your policy advocacy strategy.
Partner on researching, advocating for, and implementing the infrastructure upgrades needed to support SAF production and transportation throughout the local economy.
Businesses dedicated to producing, collecting, and distributing woody biomass, plant oils, municipal waste, and other SAF feedstocks are still emerging. Consider co-creating an innovation fund or accelerator to help these critical feedstock solutions get off the ground.
SAF facilities need huge volumes of energy to operate. As a major offtaker, you could identify partnership opportunities that encourage local utilities to provide new, local SAF producers with wholesale rates. Similarly, you could work together to approach upstream feedstock suppliers for favorable prices on inputs, whether that’s woody biomass from forestry companies or waste products from local municipalities.Bothultimately lower the cost per gallon of SAF.
2) Adopt a new approach to fuel procurement
Develop symbiotic partnerships with a diverse portfolio of SAF producers and engage them in long-term offtake agreements that include provisions to maintain financial viability during downturns and share opportunities when markets are favorable. Also, consider partnerships with corporate fliers looking for Scope 3 reductions – engaging other stakeholders in longer-term offtakes can offer stability for everyone.
As mentioned above, long-term offtakes (5+ years) provide more favorable financing terms to SAF producers, allowing them to deliver lower-cost fuel to end users. These offtakes have the added benefit of enabling long-term feedstock and energy purchase agreements, which further reduce the unit cost of SAF.
It’s understandable if this feels risky – traditional 1-year SAF offtake agreements undeniably help mitigate the risk of exposure to sustained dips in conventional jet fuel prices. However, to scale production, lower the unit cost of SAF, and meaningfully decarbonize the aviation sector, airlines should embrace a shift in the user-producer dynamic through longer-term SAF partnerships and procurement.
If you’re in private aviation, use your position of flexibility and a less price-sensitive consumer base to be on the front lines of SAF procurement. Be bold about securing long-term offtake agreements to help launch the market and accelerate the transition to lower-carbon fuels.
3) Define more flexible termination clauses
Work with SAF producers and banks to map out more flexible, collaborative termination clauses for offtake agreements that better serve everyone’s needs. For instance, you could allow flexibility for both parties to walk away or restructure the agreement if unfavorable market conditions are sustained.
Even better – instead of walking away if the price per gallon of SAF exceeds the price per gallon of conventional jet fuel by a certain percent for a certain time, consider adopting more collaborative language like, “Both parties can come together to find a mutually beneficial solution until markets stabilize and will share benefits during market upturns.”
4) Build coalitions that drive change on a regional scale
SAF production in one region isn’t the same as in another – each territory brings its own nuances and opportunities. That’s why it’s critical to “think globally, act locally” to drive change in your region.
One of the best ways to do this is to build cross-sector coalitions that include stakeholders beyond airlines and conventional fuel producers. Broaden your mindset to also include:
SAF producers
Energy producers
Feedstock providers
Infrastructure developers
Scope 3 buyers (such as major corporations)
Research institutes
Local municipalities
The SAF ecosystem is precisely that: a system.It’s not just producers and consumers – it's distributors, aerospace manufacturers and suppliers, blenders, distributors, airports, consumer groups, researchers, and any other stakeholder witha vested interest in sustainable air travel.
Together, your coalition can facilitate systemic-level transformation across key focus areas like policy, infrastructure, feedstocks, and financing, accelerating the production and deployment of SAF in your region.
Thinking forward
Embracing SAF means embracing an ecosystem-wide transition. For commercial airlines, it’ll require deep collaboration across the entire value chain and a paradigm shift in fuel procurement. For private aviation, there’s untapped opportunity to step up to the plate and start accelerating the transition today.
If we work together to overcome the green premium barrier – through meaningful coalitions, supportive policy, creative contract provisions, and more – we can set the aviation industry up for success in a decarbonized world.
Want to learn more about the SAF challenge or explore how to get involved in the transition to lower-carbon aviation? Our team works with stakeholders across the value chain to forge relationships that support a viable, lasting market for SAF.
