A key concern is the aviation industry. The Transition Pathway Initiative investigated 20 airlines and found none on track to meet the Paris Agreement pledge. The historic growth of aviation emissions has far outstripped that of other sectors. Global aviation emissions increased by 110% between 1990 and 2017, while other sectors only increased by 60%. In developed economies, this disparity has been far more significant. For example, in the European Union, aviation emissions increased by 94%, while all other sources decreased emissions by 20%.
As aviation returns to growth and other sectors decarbonize, the industry will drive a growing share of emissions. An analysis by the Committee on Climate Change (CCC) on the United Kingdom’s net-carbon pathway projected aviation’s share of the United Kingdom’s net CO2 emissions to approximately double to 20% by 2050. Non-CO2 emissions from aviation, such as NOx, sulfate, soot, water vapor, and induced cirrus cloud, compound this figure. A recent study calculated these emissions might triple the warming effects (“radiative forcing”) compared to CO2 emissions alone.
How will climate change impact aviation?
While the direct financial impact of sustainability is currently relatively low, the reputational, regulatory, and disruption risks will increase.
The reputational risk is the clearest. The concept of “flight shame” has become widespread and is potentially already translating into reduced demand. In 2019, Swedavia— the operator of 10 of Sweden’s busiest airports—experienced declining passenger numbers, even while Sweden’s train operator saw increasing passenger numbers. Business demand is particularly at risk, with every organization forced to develop new ways of working through the pandemic. Mounting pressure to demonstrate social responsibility may encourage companies to consider retaining these policies long after the COVID-19 pandemic subsides.
Pressure from other stakeholders is also increasing. Air France and Austrian Airlines' bailout conditions both include “green” conditions, although these are admittedly relatively benign. Other sectors have seen a more immediate shift. BP and Shell wrote off stranded assets of $39.5 billion in anticipation of a future less reliant on fossil fuels. At the same time, the finance industry saw investors pour $9.7 billion into environmental, social, and corporate governance-focused funds in the first nine months of 2020—equivalent to nearly four times more than the same period in 2019.
While speculation on specific policies is difficult, it seems reasonable to expect greater interventions if aviation lags compared to other sectors.
Disruption already costs aviation up to $60 billion per year, and the direct and mitigation costs will both increase with climate change. Rising sea levels are just one example, with research suggesting that a sea-level rise proportional to 2oC of warming would inundate 44 global airports. Both San Francisco International Airport and Oakland International Airport have already started projects to mitigate this at projected costs of $587 million and $46 million, respectively. The whole industry is susceptible to extreme weather events, which have already more than doubled over the past three decades, suggesting operational disruption is likely to continue increasing.
How sustainable are airlines today?
Aviation is a comparatively efficient form of transportation, with many airlines emitting similar carbon per person-kilometer to cars. Higher load factors in aviation and the enthusiastic adoption of efficient technologies drive this data. New-generation aircraft emit approximately 20% less CO2 per seat than the last generation. At the same time, the emissions for new passenger cars in the European Union increased over the past few years, mostly due to passenger preference for larger SUVs.
There are significant differences in emissions between airlines. Low-cost carriers (LCCs) recorded average emissions of 66 gCO2 per passenger-kilometer (RPK), compared to 89 gCO2/RPK for full-service carriers (FSCs)—approximately a third less (see Figure 1).
Figure 1: Carbon emissions vs. flight revenues for a selection of European airlines (2019)
*Radius shows annual RPK
As all airlines currently use similar aircraft, variations in business models mostly drive this difference. By offering cheap fares and focusing on selling all seats, LCCs obtain higher load factors, which reduces their emissions per RPK by 12g (equivalent to half the difference to FSCs). LCCs currently operate younger, more fuel-efficient aircraft, and they pack more seats into a given cabin, both of which further reduce their emissions per RPK (see Figure 2).
Figure 2: Operating differences between LCC and FSC airlines
LCC-operated networks are also usually somewhat more efficient. FSC networks typically include regional and long-haul flights. Frequent energy-intensive take-offs increase regional flight fuel use, and long-haul flights need more fuel and structural weight. There can also be differences in carbon accounting methodologies, particularly for cargo transported and positioning flights.
How much value do airlines create per ton of carbon?While LCCs emit less CO2 per RPK, they also derive less revenue per RPK. Considering revenue as the price the market is willing to pay for a given product, we analyzed the ratio of revenue to the carbon emitted—effectively, the value created for each ton of CO2 emitted (see Figure 3).
Figure 3: Revenue per ton of CO2 emitted (2019)
*Most LCCs averaged revenues per ton CO2 ~ 20% less than most FSCs. However, their profit per ton CO2 was 60% higher than FSCs.
LCCs created approximately 20% less value per ton of CO2 emitted than FSCs, with a relatively high range. (Ryanair produced only over half the revenue per ton of CO2 compared to SAS and Swiss.) This is driven by the premium FSCs charge for operations from hub airports, their higher level of perceived passenger experience, and the offer of business/first-class seating, which creates two to three times more carbon emissions than economy seating (but is priced at much higher multiples). However, the cost of providing higher levels of service is substantial. Consequently, LCCs generated profits per ton of CO2 60% higher than FSCs.
Challenges to sustainability. The COVID-19 pandemic hit aviation at an awful time.
Sustainable aviation was gaining momentum, with Delta, JetBlue, and easyJet all committed to mitigating or offsetting all future carbon emissions at estimated annual costs of $100 million, $30 million, and $31 million, respectively. EasyJet estimated this would make them the largest single investor in carbon offset projects globally. IAG, ACI Europe, and the UK Sustainable Aviation Coalition all committed their members to achieving net-zero emissions by 2050. Norway regulated airlines to use 0.5% biofuels as the start of the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) loomed closer.
Since these commitments, the industry has been devastated. Airlines, airports, and suppliers face bankruptcy, millions have lost jobs, and demand will likely take years to recover. Despite this, in a survey we conducted in June of 2020, 92% of industry professionals expected their company to maintain or increase their focus on sustainability, and 88% of passengers indicated they would personally consider choosing a more sustainable airline or destination for future journeys.
Effectively addressing the sustainable aviation challenge while stimulating economic recovery is an incredible challenge. Practical strategies use three main trends.
Trend 1: Clean aircraft technologies will be key—but not enough
While technology improvements have been the traditional solution, these alone will no longer be sufficient. Before the pandemic, the International Civil Aviation Organization's central forecast estimated technology improvements would reduce fuel consumption by 0.98% per year, far below the expected passenger growth of 3.5% per year. In the Waypoint 2050 report, the Air Transport Action Group estimates the COVID-19 pandemic will permanently reduce traffic by the equivalent of 0.5% compound annual growth rate per year compared to pre-pandemic estimations. However, this still leaves a significant gap.
Technology does potentially deliver greater savings, perhaps through electric or hydrogen propulsion, blended or strutted wings, or open rotors, although these would require significant investment. Many conventional technologies (for example, propulsion) are experiencing diminishing returns as larger increases in the pressure ratio are needed for a given improvement to thermal efficiency, and the propulsive efficiency gains through higher bypass ratios are increasingly offset by the higher drag.
Trend 2: Sustainable fuels have significant potential but require investment
The foundations for sustainable aviation fuels (SAFs) are relatively mature. Seven different pathways to produce SAFs are certified through ASTM International, and over 250,000 commercial flights have used a fuel blend including SAFs, proving their feasibility and safety. The key obstacle is cost, with the cheapest feedstocks for the dominant hydrotreated esters and fatty acids pathway costing approximately 0.45 $/L, compared to 0.25 $/L for kerosene. Refinement, transport, and margins further widen this premium.
Sustainable Aviation Fuels have a critical role to play in the decarbonization of aviation in coming decades, owing to their significantly lower lifecycle impact on global warming than conventional jet fuel. But many airlines don’t know where to start or are facing internal challenges owing to myths and outdated perceptions.
Alternative pathways may offer a way to produce SAFs at a cost closer to parity with conventional fuels. Producers such as Fulcrum, Velocys, and Sky NRG are looking to use the Fischer-Tropsch process to produce SAF from wastes, which effectively have a negative feedstock cost (as the alternative is to pay for landfill or recycling). Similarly, the alcohol-to-jet pathway explored by LanzaTech avoids costly feedstock expenses. As these technologies scale, their cost will come down, and higher carbon costs will increasingly supplement the value of their fuels. This will allow them to develop and grow without outside support—much as wind and solar energy production have done.
However, SAF production faces immediate challenges to get the investment required to develop and scale refinery capacity. A guaranteed market would help, and this exists for biofuels in other uses. For example, in the United Kingdom, the Renewable Transport Fuel Obligation requires some road users to use a portion of biofuels; in 2017, over 1,600 million liters of biofuel, equal to 3.1% of total road fuel, were consumed. Norway has already implemented a similar aviation mandate, requiring jet fuel suppliers to blend 0.5% of SAFs into all fuel. Sweden and Finland have discussed similar mandates, although these are all now likely to translate to an EU-wide policy through the European Union’s ReFuel project, which would be far more efficient by minimizing market distortions.
Armed with a better understanding of the properties of SAFs, including the advantages and risks associated with each certified pathway, the financing methods available, the various supporting regulations, and the implications of potential future policy changes, airlines and investors should be better prepared to increase SAF usage and/or investment.OnDemand Webinar - How airlines and investors can maximize value from SAFs
While effective at ensuring a minimum level of uptake, mandates by themselves incentivize airlines to use the cheapest fuels available— potentially compromising their sustainability. California’s Low Carbon Fuel Standard provides an example of a policy that successfully drives SAF uptake by rewarding producers to produce fuels with the most significant emissions reduction. Pairing such a market-based measure with the mandates under discussion would be a potent combination.
Trend 3: Offsetting offers a temporary solution but risks diverting investments
Offsets promise a temporary solution by outsourcing the required carbon reductions to other sectors. However, while many technologies offer minimal or negative abatement costs (meaning they allow the aviation industry to save money and reduce emissions), offsets will always have a positive cost. The volatility of this cost makes it hard to build long-term plans around. We believe there is a high likelihood that the price of quality offsets will increase, both in the near term, as companies increasingly look to offset emissions, and in the long term, as expensive technologies such as direct air capture and bioenergy with carbon capture storage increasingly dominate the supply.
Schemes such as CORSIA are excellent mechanisms to incentivize emission reductions by increasing the cost of emissions. Still, they face a significant challenge to ensure the carbon cost is high enough to drive change while remaining politically and economically palatable. The COVID-19 pandemic may well increase this challenge by widening the gap between these objectives. The recent re-setting of the CORSIA baseline date to 2019 will lengthen the time before CORSIA has a significant impact, suggesting an inclination to favor economics over sustainability. Some airlines go well beyond their obligations, with easyJet, JetBlue, Delta, SAS, and Air France offsetting all or part of their passenger emissions.
Ultimately, offsets channel money out of the aviation sector, often to those who have generated offsets by successfully decarbonizing more rapidly than expected. At a time when the aviation industry desperately requires significant investments to move technologies from prototypes to production, we believe the extensive use of offsets is a poor strategy that risks enabling the delay of these investments until they're too late to have sufficient impact.
Pragmatic actions for airlines
Sustainability will have a permanent and significant impact on our industry. Carbon emissions represent a significant externality for which the aviation industry will increasingly have to pay. Indirect costs, such as potential reputational impacts and blocked airport expansions, will mount.
This change offers opportunities. An effective sustainability strategy will allow airlines and airports to significantly reduce their costs (compared to those that do not prepare), mitigate the risk from regulations, and strengthen their brand. While many improvements will require collaborations and government support, there is still much that individual airlines can achieve.
Here are six pragmatic actions individual airlines can take:
- Integrate sustainability into your strategy. Ensure your strategy recognizes the cost of inaction and the potential opportunities. Investigate setting a realistic science-based target supported by an understanding of the policies required to reach this target.
- Assess your operation for initial opportunities. The IPCC frames emissions as a “carbon budget.” In this context, any quickly implemented improvements to reduce emissions on an ongoing basis are especially valuable. These may include the continued optimization of onboard offerings, water loading, trim optimization, and emissions from offices and facilities. Joint initiatives with airports are a particular area that may provide positive financial returns before emissions are considered, such as decreased usage of auxiliary power units where ground power and air are available.
- Focus on increasing SAF uptake. SAFs are the key to any long-term sustainability ambitions, and any experience and connections gained now will be valuable (while also stimulating the market). Building the business case to use SAFs requires assessing the full value stack, including regulatory incentives, the lower cost for any offsetting obligations, and the reputational and hedging benefits. These will differ by region, so it may be possible to start using SAFs in some parts of your route network before others. A first step can be to work with passengers; for example, SAS, Lufthansa, and Finnair all offer passengers the option to fund SAF use to reduce emissions from their flights. Collaborations with corporations, such as that between Alaska Airlines and Microsoft, might enable this on a greater scale.
- Support the development of future technologies. The decarbonization of aviation will require many technologies not yet developed, such as electric, hybrid or hydrogen propulsion, novel aerodynamics, and carbon capture. Airlines may support companies developing such technologies, either through direct investments (such as United Airlines’ investment in 1PointFive to develop carbon capture technologies) or by providing advice on operational challenges and opportunities.
- Collaborate with industry efforts. Supportive governmental regulation and policies will be crucial to efficiently decarbonize aviation, particularly in the coming years. By supporting and steering industry groups with their lobbying efforts, each company should be able to achieve more influence.
- Consider the broader definition of sustainability, and be transparent. The United Nations defines 16 other sustainable development goals. While climate is the greatest challenge facing aviation, the industry has the opportunity to lead in other areas, particularly decent work and economic growth, gender equality, and responsible consumption and production. Aviation has done more to ensure efficient operations than many other industries, and it leads transportation in the effort put into decarbonization initiatives. As airlines continue to invest in such initiatives, it will be crucial to communicate the impact on passengers and other stakeholders.