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The real cost of green aviation

Evaluation of sustainable aviation fuel ramp-up scenarios and cost implications for the European aviation sector

Rapidly reducing greenhouse gas (GHG) emissions to limit the effects of climate change is one of the biggest challenges of our time. All industries, including aviation, need to transform to meet the commitment to mitigate the effects of climate change. Sustainable aviation fuels (SAFs) are considered the key element in the effort to create a more sustainable aviation industry. SAFs have been developed to substitute fossil jet fuels, as they enable CO2 emissions reduction dependent on the feedstock, the conversion pathway and the blending ratio. Currently, less than 1% of aviation fuels used in Europe are SAFs. SAF capacities are limited due to demand insecurities driven by the cost premium for SAF compared with fossil kerosene and by the high capital expenditures for initial investors. Such cost premiums can be a critical inhibitor in the somewhat low-margin and cost-sensitive aviation sector. Thus, support for SAFs becomes more important from an ecological, a legal, and a financial perspective.

This study takes a closer look at the potential of SAFs including their real cost markup compared with fossil-based jet fuel. It further evaluates how much SAF of what type needs to be blended to achieve the planned ReFuelEU blending directive by the EU up to a net zero target until 2050. It is further described how much this would cost by calculating the estimated cost markup for SAF. The study calculates the prospective cost markup for two archetypal airline business models (full-service network carrier, FSNC and low-cost carrier, LCC), as well as for three route types (short, medium, and long haul).

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What can the future use of SAF look like?

In the scenario analysis we calculated the expected cost markup of SAF from 2025 to 2050 in Europe. Here, we selected two main SAF ramp-up scenarios: The EU Quota Pathway (Scenario 1) and the IEA Net Zero Pathway (Scenario 2). To determine the cost markup, we then compared the resulting SAF costs to a baseline scenario. This scenario reflects the estimated future jet fuel costs if no SAF was used at all.

Scenario 1

EU Quota Pathway

This scenario represents the announced ReFuelEU directive quotas proposal, which will likely be in place as of 2025. The ramp-up in this scenario represents the minimum legal requirements.

Scenario 2

IEA Net Zero Pathway

This scenario is based upon the underlying requirements of the IEA Net Zero scenario by 2050. The ramp-up in this scenario represents the SAF share required to meet the 1.5°C climate target. It is the most widely accepted normative cross-industry scenario describing a pathway to reach the Paris Agreement climate targets.

Baseline Scenario

Fossil-based kerosene only, incl. CO2 costs

The baseline for the cost comparison is a theoretical scenario in which an airline uses as fuel solely fossil-based kerosene. The resulting cost baseline consists of the crude oil–linked kerosene price and the corresponding CO2 price over time up to 2050.

Blended jet fuel cost development of scenario 1 and 2 in comparison with baseline scenario [2025 – 2050]

Until 2040, we do not expect a major cost decrease for SAF, as feedstock is limited for certain SAF types, production need to be scaled up and the general competition of sustainable fuel alternatives (e.g. maritime or automotive). Looking at different flight route types, the largest relative cost markup per flight can be expected in the long-haul segment, with 6% in 2038 (compared with 2% in the short-haul segment) for the IEA Net Zero Pathway. On the contrary, when looking at different airline business models, the low-cost carrier (LCC) model is expected to experience greater effects, with potential cost markups being around 2-times higher than those for full-service network carriers (FSNCs).

The study is having a detailed look on the total cost markup per flight and passenger, and how these additional fuel costs can be distributed. We discusses three approaches that consider different cost distribution mechanisms airlines could apply and conducted a “100% SAF in air cargo” case study.

How the airlines can leverage SAF to stay a future-driven player in the aviation industry and reduce GHG emissions

The study shows that even high SAF fuel shares are not expected to lead to significantly higher costs than a continued reliance on fossil-based kerosene. In times of accelerating climate change we must realize that SAF offers a tremendous chance to enable flying in the future. With CO2 prices being an important instrument, kerosene in general is likely to become more expensive. Thus, the cost markup for SAF remains comparatively low. This will make SAF and the functioning of the evolving ecosystem around it even more important. With all the opportunities and challenges that will arise, it is on us all to shape this evolving ecosystem and to create a more environmentally friendly future for aviation.

Prof. Dr. Jürgen Peterseim, Anna Paulina Went, Annika Wollermann Umpierrez, Florian Schäfer, Dario Galvan, and Georg Reichel also contributed to this report.

Contact us

Dr. Jan H. Wille

Dr. Jan H. Wille

Partner, Strategy& Germany

Dirk Niemeier

Dirk Niemeier

Director, Strategy& Germany