Aviation counts for around three percent of global CO2 emissions*. Yet, it is one of the sectors that will be more difficult to decarbonise. Without changes, its share of CO2 emissions could exceed eight percent by 2040**. This emphasises that change is required, in the short and long run. Sustainable aviation fuel (SAF) plays a critical role in the aviation industry’s goal of net zero emissions by 2050. But what are SAFs exactly? Why are they important and what is ING doing to support aviation sector clients in reducing emissions?
SAFs are non-fossil-based fuels that are very similar in chemistry to conventional fossil jet fuel. They are made from sustainable resources and can be blended with conventional fossil jet fuel to reduce emissions. Despite being used as far back as WWII to fly fighter planes when oil was scarce, the application of SAF is still very much in its infancy.
Shortage of alternatives
SAFs are especially important in aviation given zero emission alternatives like battery or hydrogen-powered aircrafts are seemingly still a long way away or might not even get off the ground at all. For electric-powered airplanes, current battery technology falls far short in energy density (weight and volume) to find application in commercial aviation, with the possible exception of very short-haul distances with a limited number of passengers. Hydrogen-powered planes require a complete redesign of the aircraft and the propulsion technology, including the insulated hydrogen fuel tank. Add to that the fact that hydrogen needs to be kept in a cryogenic state means that hydrogen-powered flight may be some while off.
So with new propulsion technologies yet to fully mature, it is no wonder that the use of SAFs has been identified by the International Air Transport Association as the main way to reach net-zero by 2050. It has been estimated that over its lifecycle, SAFs could reduce greenhouse gas emissions by as much as 80 percent compared to conventional fossil jet fuel.
Low production volumes currently
The first commercial test flight using blended SAF took place in 2008, and in 2011 blended fuels with 50 percent SAF were permitted for commercial flights. While the use of SAFs has been under discussion for some time, on a global scale, production volume is still low. That’s about to change though. If all publicly announced initiatives to start and expand production come to fruition, SAF usage should increase significantly. According to ING economists, available global SAF capacity is expected to increase five-fold in 2023 and continue to rise. Production capacity could reach a one percent share of global consumption in 2023, more than two percent in 2025 and nearly three percent by 2026. Airlines are taking bolder steps to reduce their carbon emissions. An increasing number of leading airlines are now publicly committing to blend-in SAFs up to 10 percent of total fuel consumption by 2030.
Costly to produce
But there are challenges. One of the major reasons for the small production volume of SAFs currently is that they are costly to produce compared to conventional jet fuel. The production of SAFs is still between 1.75 to 4.5 times as expensive as conventional jet fuel, depending on the type of SAF. That’s down to a combination of the current availability of sustainable feedstocks and the continuing development of new production technologies. Research has also shown that customers are not as much willing to voluntarily pay for lower net CO2 emissions yet and just 10 percent have done so previously. And while early moving airlines have taken the lead and are committed to blend-in SAF, a level playing field is required to increase SAF application and create economies of scale in production to bring down prices. Regulation is a logical consequence. However, it is unlikely that measures are the same across the globe and move in sync. Regulation will further evolve and is likely aimed at increasing the price of carbon emissions further (through carbon taxes or direct taxation of conventional jet fuel or otherwise), whereby the proceeds are, more than is currently the case, used for decarbonisation such as subsidising SAFs.
ING and aviation
So, what is ING doing to support its clients in the aviation sector? Hugo Kanters, global head of ING’s aviation sector said we are focussing on the most efficient, latest technology aircraft, which simply burn less fuel and emit less CO2 as a result. The proportion of latest technology aircraft in our aircraft finance portfolio is well ahead of the global fleet composition and we are committed to further increase this position.
According to Hugo, “increasing the amount of fuel efficient aircraft is more or less a prerequisite to SAF adoption by airlines given the current scarcity of SAF and the high production costs compared to conventional jet fuel.”
Hugo also mentions the importance of transparency in reporting on CO2 emissions, saying ING is one of the first banks to include the CO2 footprint per passenger of its aircraft financing portfolio in its publicly available Climate Report. ING aims to take a leading role in the sector on sustainability and is a founder and board member of the association ‘Impact on sustainable aviation’ which brings together over 35 financial institutions, aviation companies and universities to develop a credible framework to measure and promote sector decarbonisation.
Reducing our own impact of travel
ING aims to reduce air travel by its own employees. In 2022, it launched a green travel budget programme to make them aware of the CO2e impact of their travel choices and encourage them to take greener options where high-speed rail options exist.
Next to efforts to reduce air travel, in 2022 ING also started procuring sustainable aviation fuel (SAF) and SAF certificates. Although ING still reports the emissions resulting from its flights, the SAF and SAF certificates that ING purchased supported an in-sector reduction of approximately 3.2 kilotonnes of CO2e. While our strategy is to reduce our own business travel, the ambition is to grow the SAF procurement number to mitigate a growing percentage of emissions from ING's remaining business travel flights.
Society is transitioning to a low-carbon economy. So are our clients, and so is ING. We finance a lot of sustainable activities, but we still finance more that’s not. See how we’re progressing on ing.com/climate.
* : WEF 2019
** : The International Energy Agency's (IEA’s) net-zero emission scenario