Power-to-liquids technology can accelerate aviation’s decarbonization journey.
Every major industry faces a complex path toward carbon neutrality, and aviation is no exception. Large commercial aircraft account for nearly 75 percent of the industry’s carbon dioxide emissions, and batteries that are light enough to power them for long distances remain decades away. Even after the technology is developed, rolling it out — and replacing the legacy fleet — will take decades more.
Yet aviation doesn’t have decades to spare. By 2050, annual air traffic will likely exceed 16 million flights, 44 percent more than the 2019 high, with carbon emissions on track to double under a business-as-usual trajectory. Prevailing wisdom tells us that, for the industry to achieve its net-zero ambitions by midcentury, a drop-in fuel solution — namely, sustainable aviation fuel (SAF) — is the most viable path.
To a point, the prevailing wisdom is correct. In reusing carbon absorbed by plant and animal material, SAF can reduce aviation’s lifecycle carbon dioxide emissions up to 80 percent. It blends safely with conventional jet fuel (Jet A or Jet A-1), and a 50:50 blend can already power today’s long-haul flights — without modifying engine, storage, or fueling infrastructure. Boeing and Airbus are both working to make their existing aircraft 100 percent SAF-compatible by 2030.
Producing SAF, however, is no simple proposition. Most of what is available today is derived from waste fats, oils, and greases — feedstock for which numerous sectors compete, and whose supply is increasingly scarce. Collecting this material from thousands of kitchens — and transporting the fuel from refineries to thousands of airports — is expensive, labor-intensive, and time-consuming.
The Power-to-Liquids Promise
The good news is that there’s a promising pathway for overcoming these feedstock constraints: power-to-liquids technology. In a power-to-liquids process, renewable hydrogen is synthesized with carbon (siphoned from an industrial source or captured directly from the air) to create methane (natural gas), which can then be processed via gas-to-liquids technology into a liquid fuel.
Unlike biofuels, synthetic SAF is carbon-neutral: Burning it emits only the carbon captured during production. Synthetic SAF can travel through the pipelines and tankers that bring fossil fuels to today’s aircraft, and its feedstocks are all abundant, eliminating the threat of a supply crunch as demand grows.
Power-to-liquids is still a nascent technology. And at roughly 5–8 times the cost of conventional jet fuel, synthetic SAF is currently too expensive for airlines to purchase in large quantities. For this reason, projects remain few and far between, and supply is nowhere near enough to accelerate aviation’s energy transition. Experts project that, by 2050, aviation will need 330–445 million metric tons of SAF per year to meet demand.
From Concept to Commerce
Increasing supply of synthetic SAF centers on making it more economical, and doing so entails creating conditions for projects to be commercially viable. To that end, prospective developers have much to consider, and three considerations stand out.
Reducing costs. Several Inflation Reduction Act tax credits — including for hydrogen, carbon capture, and clean fuel — can reduce the cost of producing synthetic SAF. The first two are eligible for direct pay, a powerful mechanism that enables developers to realize the value of the credits their projects generate as a cash payment from the IRS (generally, during the first five years of operation).
Planning is critical here. Securing the maximum value of the credits depends on meeting wage and apprenticeship requirements, and facilities generally cannot take more than one credit. So, developers will want to make sure they structure their projects (and credit mix) to deliver the most benefit.
Clear and consistent guidance from Treasury would also ramp up development, as would further policy support. This support includes providing reasonable parameters for calculating carbon intensity and credit rates, limiting application of anti-stacking provisions, and clarifying the circumstances in which projects reusing carbon could qualify for the carbon capture credit.
Securing offtake. Planning a sound tax-credit structure can help developers secure offtake agreements. By incorporating lower anticipated production costs into their project concepts and capex estimates, developers can approach airlines at a more feasible price point, and increase their chances of completing a deal. This is important because jet fuel is most airlines’ single greatest expense, limiting their ability to spend more on it.
In energy industries, these agreements have long been structured as take-or-pay contracts, where offtakers pay as much as 75 percent of the product cost, no matter how much they actually take. This model is promising, but unproven, for synthetic SAF. Most airlines have not historically contracted for jet fuel on a long-term basis, as will be necessary for synthetic SAF projects to obtain financing.
Attracting investment. With an offtake agreement in place, developers can demonstrate demand for their product, and begin thinking about the third-party financing they’ll need to build. The established technologies — like utility-scale wind and solar and gas-to-liquids — will likely draw interest from tax-equity investors and commercial lenders, as they’re familiar with the market terms, risks, and returns.
But conventional financiers have to date shown little appetite for newer technologies, such as renewable electricity and green hydrogen. To fill the gap, developers might explore deals for transferring tax credits. These include purchase-and-sale agreements, where buyers and sellers commit to a transfer even before a project has generated a credit.
A Look Ahead
We can be encouraged by aviation’s commitment to sustainability, and to using SAF as a centerpiece of it. Last year, airlines announced 48 offtake deals for 16 million metric tons of SAF, according to Ishka, a leading source of aviation finance data. That’s nearly 10 times the deals — and more than 20 times the volume — recorded in 2019, and these figures are on course to rise further this year.
Dozens of airlines are now targeting 10 percent SAF by 2030, signaling confidence that prices will fall, and that flyers will help absorb whatever cost increases remain. It’s essential now to begin incorporating synthetic SAF into these targets. Doing so will strengthen demand, and push production closer to scale.