What is SAF, and why is it important to aviation emissions?
Sustainable aviation fuel (SAF) is liquid fuel derived from alternative feedstocks to conventional kerosene, such as waste oils and fats, green and municipal waste and non-food crops. By using biomass as a feedstock, SAF can recycle CO2 absorbed by biomass during its lifetime rather than injecting new carbon into the system, allowing emissions to be reduced by up to 80%. Reducing aviation emissions is challenging due to the reliance on kerosene and the lack of viable alternatives. Electrification of air transport is currently only being considered for short-haul flights, and hydrogen for aviation remains theoretical. The industry is aiming for net zero emissions by 2050 and while this could be reached through the use of offsets, not only would this be costly under a rising carbon price, it would also not achieve the International Air Transport Association’s (IATA’s) second target of reaching a 50% reduction in absolute emissions by 2050. Depending on the technology pathway, SAF can provide around 60 to 80% reduction in emissions compared to jet fuel.
The primary technology solution to decarbonising aviation
While aviation is only 2.4% of global emissions today, on its current trajectory it would rise to become 6.4% of the total Paris agreement budget by 2050. To bend the curve, SAF would need to contribute 65% of the net zero plan outlined by IATA, and policymakers are moving fast to support market development – IATA and the International Civil Aviation Organization (ICAO) indicate that if 100% of aviation fuel was SAF, emissions would reduce 65% by 2050. Therefore, IATA’s net zero target relies heavily on SAF, with new propulsion technology and operations efficiency only making up 13% and 3% respectively of emissions abatement. The remaining 19% (~300MtCO2) will be saved with carbon capture and storage.
As the Global SAF market development accelerates, Australia indicates otherwise
ICAO's mandatory net emissions growth policy starting in 2027 and the IATA 65% SAF (Sustainable Aviation Fuel) blending target by 2050 are the foundations of global market development. In the EU, mandatory blending targets drive demand, enabling suppliers to scale and lower cost, whereas in the US supply-side Inflation Reduction Act tax-credits lower the cost gap. Airlines are implementing voluntary targets of 10% SAF by 2030, implying a steep 28% CAGR in demand and over 100 offtake agreements have been inked in the past decade totalling 46.3BL of SAF. However, SAF development remains muted in Australia.
Aus SAF could service 80% of demand and grow to a $16bn market by 2050
Our estimates show that with the feedstocks available today, Australia could produce up to 6.9 BL of SAF, the equivalent of 80% of jet fuel demand in Australia. Existing feedstocks and their contribution to SAF production include Agricultural Residue (61%), Sugarcane Bagasse (17%), Municipal Solid Waste (MSW) (9%) and Sawmill residues (7%). Given growing feedstock supply, the maturity of Power-to-Liquids and growth in Carinata yields, SAF supply could increase to 20 BL by 2050 and deliver c. 130% of total jet fuel demand. On this supply, we estimate that the total value of the domestic market could be $1.8bn in 2030 and $16bn by 2050, growing 9x over 20 years.
Declining cost of production: A key catalyst for wider deployment
SAF production costs are well above conventional jet fuel (CJF) today with the levelized cost of production 30 - 273% greater than CJF (at US$117/bbl) and rely on government policies to lower the cost and enable scaling advantages. By 2050, the range narrows to -3 - 64%, and is closed at $100 CO2-e/t. The Hydrotreated Esters and Fatty Acids pathway, one of the SAF technology platforms, is the lowest cost SAF at only 30% greater than CJF today due to low capex costs. For ATJ, the cost hinges on the price of ethanol and for FT high capex costs are a barrier. Today, the FT pathway is 60-100% higher cost than CJF. By 2050, FT-biomass becomes the lowest cost pathway at 3% lower than CJF. Offsets remain cheaper than many SAF technologies today but this changes at higher carbon prices and airlines are investing to lower cost.
