Net Zero for Aviation - An Impossible Target?

DALLAS - Today, the 'IBA Webinar: Net Zero for Aviation - An Impossible Target?' was held online. Airways attended the event where a panel of IBA experts discussed this evolving critical issue and examined the latest industry developments on the pathway to net-zero. IBA is a leading market intelligence platform for aviation finance.

The pressure on the aviation industry continues to grow as it attempts to meet the demands and requirements of regulators, shareholders, customers, and other stakeholders in reducing carbon emissions. Topics covered in the webinar included:

• Regulation – what are the latest updates?
• How does the industry plan to de-carbonize, and what tech is available?
• What potential costs could be incurred due to the new regulation?
• Why is a Net Zero transition plan so important?

Latest Regulation, Decarbonization Plans

Aviation and aerospace companies face requirements and expectations as a result of environmental, social, and governance (ESG). It is now more critical than ever to identify the risks and opportunities arising from ESG factors to safeguard long-term viability and resilience in the commercial aviation sector.

The Paris agreement COP26 deals with the fundamental norms related to Article 6 on carbon markets, which will make it operational. In addition, the UN's net-zero coalition has gained momentum with more than 70 countries, which covers about 76% of global aviation emissions.

As a result of the ongoing efforts to reach net-zero emissions, CO2 emissions have fallen by 5.9% per seat kilometer since Jan 2018, but total emissions are still growing.

According to the IBA panel, offsetting carbon emissions is the only medium-term option for aviation. Global emissions trading schemes and carbon tax cover 21% of global greenhouse emissions, but the trading field is not leveled. The EU and UK carbon prices are significantly higher than other schemes, and carbon allowances will ultimately depend on demand.

In October 2016, the member states of the International Civil Aviation Organization (ICAO) adopted a global market-based measure for aviation emissions. This scheme is called the Carbon Offsetting and Reduction Scheme for International Aviation – CORSIA.

As the name suggests, CORSIA is a global offsetting scheme, whereby airlines and other aircraft operators will offset any growth in CO2 emissions above 2020 levels. This means that aviation’s net CO2 emissions will be stabilized, while other emissions reduction measures, such as technology, sustainable aviation fuel, operations, and infrastructure options, are pursued.

As per the presentation, the CORSIA reduction scheme for international aviation targets 325m tonnes of CO2 by 2050, compared to 600m tonnes in 2019.

Technologies

There's no readily available tech and won't be in the next two decades. Research is being done on hydroelectric, electric, and hydrogen.

Hydroelectric, electric, and hydrogen-powered regional aircraft are all poised to enter the market in the 2030s while large aircraft should be seen in the air in the 2040s.

eVTOL is exciting but it depends on a cost-per-seat proposal for its adoption. eVTOLs are seen more for regional short-haul flights. Perhaps the tech will replace helicopters as one application.

The aviation industry has a heavy reliance on SAF to achieve net-zero by 2050, though a poll conducted at the event showed that 47% of attendees saw 2080 as a more realistic date. SAF plants are growing in capacity, and 53 airports worldwide are distributing SAFs.

Whether from biofuels, advanced biofuels converted from waste products or synthetic liquid fuels, SAF is a good solution but experts say there will not be enough supply for many years. In 2021, 125m liters of SAF were produced. 449 liters are needed in 2050.

Cost of Regulation

'Fit for 55', which another IBA attendee poll result shows will be delayed due to the current energy crisis, will materially raise the cost of flying within Europe by about 29-39% for a typical medium-haul flight in 2030. Consequently, flying will become more seasonal and aircraft will be used more tactically.

These additional costs could reduce demand with consequential economic damage, lowering passenger demand growth in the next decades from 4.5% to 1.3% by 2050. Whether governments offer alleviation or not, it is a fact that aviation is very vulnerable to the cost of carbon, as the tech and fuel alternatives are many years away.

ESG will pressure older generation aircraft value, but supply constraints will offer some protection, though IBA states that aircraft will lose 50% to 70% of their value after 15 years of operations. Fuel-efficient aircraft will continue to be an important investment for airlines.

Another issue is the fact that the regulatory landscape is peppered with various regulatory and reporting taxonomies and regional variations that need to be unified into a coherent conceptual framework so the industry is not seen as greenwashing its operations. There needs to be a clear and foolproof way of comparing airlines' offset numbers, whether voluntary or not, against their emissions, which is currently a muddled calculation.

As costs increase, market-based nations (CORSIA) need to evaluate opportunities and costs, jurisdictions, offsets, carbon capture, ETD/SAF, and sustainable finance. To that effect, aviation finance is aligning on a pathway to decarbonize aviation, with various EU financial groups involved in supporting this goal.

Forecasting emission mitigation is now a key part of the business planning process for industry stakeholders. They also need to understand their current emissions and have a net-zero strategy.

Key Takeaways

• Net-zero for aviation by 2050 is possible but still requires offsets.
• New technologies and alternative fuels won't have an impact in 10-15 years.
• "Fit for 55' regulation will add material costs to European operations and will depress demand growth.
• ESG may pressure some older generation values but supply constraints could offer protection.
• Understanding current and future emissions is becoming ever more important.

If global aviation totals 2.4% of emissions, how can we justify the cost of going green? It's about present expectations as a result of ESG demands on the aviation industry. The goal is to implement a proper rate of lowering CO2 emissions across the board.

Featured image: The Boeing 2022 ecoDemonstrator will test 30 technologies to enhance safety and sustainability. Shown here, is an image of the airplane – a Boeing-owned 777-200 ER (Extended Range). Photo: Boeing