The Pulse by Seena Sarram

SAF won’t save the planet, but it’s still worth adopting.

In 2021, IATA member airlines – over 350 airlines carrying 80% of global air traffic – committed to achieving ‘net zero’ carbon emissions from 2050. About two-thirds of that commitment relies on the adoption of Sustainable Aviation Fuel (‘SAF’). IATA’s base scenario assumes airlines will use at least 80% SAF by 2050, which seems unrealistic when you consider that the amount of SAF produced in 2024 was only 0.3% of total jet fuel used. Airlines blame the slow uptake of SAF on its low availability and high cost relative to traditional aviation fuel (‘TAF’). But in the long term, airlines will benefit from using more SAF because its cost is likely to become lower, and just as importantly, more stable than TAF. Perhaps a more open discussion about the financial benefits of SAF will encourage airlines to use more of it.

Using SAF does not in and of itself reduce carbon emissions, because SAF is chemically almost identical to TAF. That’s why IATA estimates that even if airlines used 100% SAF their emissions would reduce by only 78%. It is the production of SAF that reduces emissions because, unlike TAF, the feedstock of SAF absorbs carbon from the atmosphere during the production process. But even if the use of SAF did not reduce emissions at all, there are sound financial reasons for airlines to adopt it widely.

As the non-renewable source of TAF depletes, the cost SAF will inevitably become lower by comparison. That lower cost will increase demand which in turn will encourage greater production of SAF and lower its cost further. According to the Energy Institute, global consumption of crude oil exceeded 100 million barrels per day for the first time ever in 2023. Without significant discoveries of oil reserves, and proven reserves sitting at about 1.7 trillion barrels in 2021, the source of TAF is likely to be depleted within 50 years from now. The cost of production of TAF is likely to increase well before that time and the cost of SAF will reduce correspondingly. Given the historically low profit margins of airlines, it is difficult to see how they can avoid using more SAF well before 2050.

One potentially significant benefit of SAF to airlines is that it can be produced from a variety of feedstock including food waste, used cooking oil, algae and wood biomass. This means production can be decentralised globally leading to a two-fold reduction in cost. Locating SAF production closer to airports is an obvious advantage which will reduce the cost of supply. But the potentially greater benefit is that the supply of fuel will not be reliant on a limited number of players that can control the price, as is the case with TAF. Of course, the downside risk is that with greater variability in production location and methodology there may also be greater variability in price. But if the industry succeeds in setting global standards, the single-biggest cost input for airlines is likely to be lower and less susceptible to price shocks.

The likely result of greater SAF use is that it will make airlines more predictable businesses and therefore lower risk investments. That in turn will drive down the cost of financing the significant capital expenditure airlines face when buying aircraft. So important is this issue for airlines that it has become common practice for airlines to buy fuel in advance at fixed prices, also known as ‘fuel hedging’. One of the few airlines with an investment-grade credit rating, Delta Air Lines, even purchased an oil refinery to reduce its exposure to oil price fluctuations.

While the initial trigger to use SAF by airlines was from a commitment to reduce carbon emissions, airline stand to benefit financially over the long term from the use of SAF. The source of TAF is not renewable and is estimated to be depleted within five decades, making SAF comparatively cheaper over time. SAF can also be produced from a variety of sources found across the world including cooking oil and waste. This means SAF can be produced closer to airports and by a broader range of producers, which allows for a more competitive supply chain. With appropriate standards in place, the increased use of SAF is likely to reduce the cost and volatility of inputs for airlines, making them more stable and profitable businesses.