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What do we need to do to decarbonise aviation?

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BNP Paribas Asset Management
 

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This material is intended for Institutional Investors (as defined in the Securities and Futures Act, Chapter 289 of Singapore) only and is not suitable or intended for persons who do not qualify as such.

The aviation industry and its emissions are both projected to grow over the coming decades. What policies and technologies can help limit the sector’s impact on the environment?

It’s said that aviation only contributes around 2.5% to global CO2 emissions. So is it a relatively minor activity in terms of its effect on climate change? Flying is one of the most emissions-intense activities an individual can undertake. Also, CO2 is only part of the picture. Due to the effects of vapour trails and other aviation gases in the upper atmosphere, the sector actually accounts for around 3.5% of global warming.

A layover for demand – For now

Lockdown measures pushed mobility – 57% of global oil demand – into a tailspin. By the end of March 2020, worldwide aviation activity was down by a staggering 60%. This came after years of rapid growth: Aviation emissions rose at an average annual 2.0% during 2000-2019, with 5% average yearly rises in total commercial passenger flight activity since 2000.

The COVID crisis is likely to curb near-term demand substantially. However, in past crises, aviation has been remarkably resilient. Accordingly, emissions are projected to continue to grow, stressing the need for significant action now to contain them.

The industry, regulators and technology developers have been working to devise policies and innovative technologies to make air travel with a lower environmental burden possible. Below, we discuss a number of these.

Policy background – On an EU scale

In the EU, CO2 emissions from aviation are included in the EU emissions trading system. Under the EU ETS, all airlines operating in Europe, European and non-European alike, must monitor, report and verify their emissions, and to surrender allowances against those emissions. They receive tradeable allowances covering a certain level of emissions from flights per year.

The system has so far contributed to reducing the carbon footprint of the aviation sector by more than 17 million tonnes per year, with compliance covering over 99.5% of emissions.

In addition to market-based mechanisms such as the ETS, operational measures such as modernising and improving air traffic management technologies, procedures and systems contribute to reducing emissions.

Policy background – Worldwide

On a global scale, the International Civil Aviation Organization (ICAO) has agreed two goals:

  1. Capping net CO2 emissions from international aviation at 2020 levels – this means that any increase in annual fuel use after 2020 should either be offset or met with sustainable fuels
  2. A 2% annual fleet-wide fuel efficiency target from 2020.

Two mandatory measures support these goals:

Airlines operating in Europe will eventually face carbon costs under both the EU ETS and the CORSIA systems, with the latter only becoming mandatory in 2027.

Policy measures – A limited effect

Analysis indicates that, despite its scope, CORSIA would only have a limited impact on European airlines and that it is not aligned with the Paris Agreement objectives.

Arguing that aviation faces unique challenges to decarbonise, ICAO is prioritising carbon offsets and the development of alternative jet fuels and fuel efficiency goals.

Offsets, however, are not preferred since they allow the current fleet to operate as it is. At the same time, pushing aircraft designs and routing to enable greater fuel efficiency has limited future returns – efficiencies have already been largely realised and improving planes is becoming more costly and difficult.

Approaches such as these will not significantly lower fuel demand. Fuel itself needs to be decarbonised.

Developing sustainable aviation fuels – It’s a start

International Airlines Group (IAG) members recently committed to using sustainable aviation fuel (SAF) made using bio or waste feedstock for 10% of their flights by 2030.

Major aircraft manufacturers have said flights using 100% SAF should be possible by this date. Test flights relying entirely on SAF have already taken off.

This April saw the establishment of the Council of Sustainable Aviation Fuels Accountability, an industry-led effort to bring about a consistent approach to the accounting practices for SAF production.

It’s not just the airline industry taking responsibility for the development of SAF. Big tech companies and financial services firms have signed up to the Sustainable Aviation Buyers Alliance, which aims to accelerate investment in sustainable fuels and scale up production.

One caveat, however, is that not all alternative fuels are created equal. Researchers have pointed out, for instance, that certain biofuels are not a viable alternative to conventional fuels due to their land and water use. Indeed, biofuel crops can compete with food crops and thus indirectly drive deforestation. SAF production without strong and verifiable standards may harm biodiversity and affect food production.

Alongside biofuels, ‘electro-fuels’ could help reduce emissions. These synthetic fuels use green hydrogen – produced using electrolysis powered by renewable energy – and combine it with carbon extracted from CO2. If this CO2 is sourced using carbon capture technology, the fuel could be close to being completely emissions free.

Using electro-fuels to meet aviation demand would require a significant expansion of renewables generation though (see exhibit 1)

 

Exhibit 1 - To meet aviation fuel demand with electro-fuels will require more than 94 of renewables generation; this would impact decarbonisation elsewhere

 

Finally, we mention Europe’s ReFuelEU initiative to encourage the uptake of SAFs in the sector. It has the potential to finally start decarbonising emissions sustainably.

Alternative planes – In a holding pattern for now

Aircraft propulsion systems with fewer – or even zero – emissions are unlikely to arrive any time soon. Airbus, for example, hopes to have hydrogen-powered commercial planes in service only by 2035.

The challenges include redesigning the fuselage and wings to provide for different hydrogen storage options. Manufacturing planes for long-haul journeys can be expected to require a combination of technologies, driving costs up.

Electric planes are being developed, with companies from outside the aviation sector, such as big tech firms, again seeking to invest in this technology. Small-scale electric and hydrogen powered planes are already being tested. Their use may be limited to short journeys due to battery weights and power densities. Electricity will not be able to power long-haul jets – responsible for most of aviation’s emissions – in the foreseeable future.

In an industry where new designs are costly and risky, fuel suppliers should be encouraged to supply green hydrogen or enter into joint ventures with zero emission aircraft makers.

Decarbonisation – It will take multiple technologies, and time

Without a reduction in demand, it’s likely a combination of technologies will be needed to decarbonise the sector. It may also be that society allows for a certain amount of residual airline emissions offset elsewhere by negative emissions technologies.

BNP Paribas Asset Management supports investor efforts towards sustainable aviation. This includes the framing of the Climate Action 100+ coalition’s investor guidelines and expectations for the aviation sector.

As a shareholder, we have used our voting power to encourage airlines to adjust to the Paris-aligned climate goals. We have also discussed our concerns over biodiversity loss and the topic of SAF with airlines.

For more on meeting the Paris Agreement climate change targets by tackling the harder-to-decarbonise areas of the economy and the technologies needed, read

What technologies do we need to get to net zero?


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