Airlines are lining up to buy as much sustainable aviation fuel as they can, despite it costing two to three times more than conventional jet fuel, according to BloombergNEF.
United Airlines has secured 2.9 billion gallons of SAF, and others like Delta, Air France-KLM, and Southwest have secured around 1 billion gallons each. And yet to meaningfully decarbonize aviation, the SAF market needs to grow thousands of times larger than it is today. BNEF estimates that global production capacity will grow 10-fold by 2030, but by then supply will still only meet 5% of jet fuel demand.
So how are airlines thinking about scaling up their procurement of SAF?
In this episode, Shayle talks to Amelia DeLuca, chief sustainability officer at Delta. They cover topics like:
- Who pays the green premium
- Infrastructure considerations, like SAF hubs and blending
- Technical pathways, like hydroprocessing, alcohol-to-jet, and power-to-liquids
- The role of incentives and regulation, like ReFuelEU
- Why airlines should procure SAF instead of buying carbon removal
Recommended resources
- BNEF: United Airlines Is Betting Big on a Pricey Green Aviation Fuel
- The Verge: Delta Air Lines lays out its plan to leave fossil fuels behind
- Canary Media: Can corn ethanol really help decarbonize US air travel?
- Canary Media: How hydrogen ‘e-fuels’ can power big ships and planes
- Catalyst: CO2 utilization
Catalyst is supported by Origami Solar. Join Latitude Media’s Stephen Lacey and Origami’s CEO Gregg Patterson for a live Frontier Forum on May 30th at 1 pm Eastern to discuss Origami’s new research on how recycled steel can help reinvigorate the U.S. solar industry. Register for free on Latitude’s events page.
Transcript
Shayle Kann: I’m Shayle Kann, and this is Catalyst.
Amelia DeLuca: Delta’s approach has always been, everything should be on the table right now in terms of feedstocks and technologies, and we’re just going to go one by one and figure out which one proves itself out until we find one that for sure starts to take off. But it’s way too early to start to count things out.
Shayle Kann: Today, take to the skies with me. Let’s burn some of that good clean SAF. I am Shayle Kann. I invest in revolutionary climate technologies at Energy Impact Partners. Welcome. Well, I find the world of aviation decarbonization and SAF, sustainable aviation fuel, so interesting right now. For all the talk across many industries that the notion of a, quote, unquote, “green premium” is more myth than reality, and indeed in most of those industries it is, aviation is actually bucking the trend. There is real meaningful demand in the form of real sizable off-take for decarbonized aviation fuel. And let’s be clear, the price of those off-takes today are not competitive with fossil jet, usually not even competitive with subsidies, which there are a generous amount of. Also, SAF is not one thing, right? It’s a bucket term for a variety of different feedstocks and production processes, each of which have their own pros and cons.
So there’s a real emergent large market for a green premium product in a commodity sector, which we don’t see in a lot of other places yet and I think we’re going to need in order for those other markets to truly decarbonize. We’ve talked in the past on this pod, and I’m sure we will again about the different technical production pathways for SAF, everything from bio-based SAF to e-fuels. But given that we actually have the emergence of real demand, I wanted to also talk to a customer. So for this one, I brought on Amelia DeLuca, who is the chief sustainability officer at Delta Air Lines. Delta has been buying SAF since 2021 as you’ll hear, plans to buy a lot more of it, and is thinking a lot about how to build the ecosystem that’s going to be required to go from where we are today, which admittedly is very, very small scale, to where we need to be, which is very, very large scale. Here’s Amelia. Amelia, welcome.
Amelia DeLuca: Thanks, Shayle. Thanks for having me.
Shayle Kann: Let’s talk about sustainable aviation fuel. Maybe start with Delta’s journey in the world of SAF. When did Delta start getting serious about it? How has the world evolved? And then where would you say you are today?
Amelia DeLuca: Yeah, sustainable aviation fuel is obviously really important for us here at Delta. And we’ve been hard at work since, I guess it was about 2021 when we first started to procure large … and I say large in quotation marks even though you can’t see me because it’s still very small in the grand scheme of things. But every year, we’ve more or less doubled our SAF procurement. But more importantly, I think every year we’ve really accelerated the conversation that we’re having about the topic, whether that be through a policy lens, through a B2B customer lens, because they are very interested in SAF for their own emissions, as well as with our suppliers who we have a number of under contract right now.
Shayle Kann: Okay, so you said you started in 2021, and you’ve more or less doubled your procurement each year. Let’s put numbers on that. So how much SAF have you purchased in each of those years? And obviously contextualize it. What is that relative to how much aviation fuel Delta purchases?
Amelia DeLuca: No, I know. That’s where I’m so proud of the work that we’ve done, but also we have so far to go. So Delta as a company procures four billion gallons of jet fuel every year. Last year we used roughly three and a half million gallons of SAF, and that’s not for wanting more. That’s all we could get our hands on. We’ve sold or we’ve got a buyer for the Scope 3 emissions for every single drop that we have, and there’s way more demand for that than we can even get our hands on. So it speaks to the fact that it’s scaling. Whether you look at wind or solar, you can sit there and say, “Well, sure those industries took a while to take off,” but I think on the other side, there’s a real sense of urgency as a hard to decarbonize sector that is also very beloved for what we offer. We’ve got to outpace some of those other emerging industries in terms of we don’t have decades to get this right. It needs to scale sooner rather than later.
Shayle Kann: You just alluded to one thing that I think is really interesting about how this market is emerging. I’d like to actually see in other hard to abate sectors more than we have so far, which is you said you have a buyer for the Scope 3 emissions of each of those. I think we should walk through that for a second, because I don’t think everybody in the outside knows what’s happening, which is when Delta procures … Today, at least, when Delta procures SAF, if you buy a gallon of SAF, what you’re actually doing is you have a customer on the other side, presumably a company or a government or something like that, that flies a lot with Delta to whom you are passing on the credits. In other words, they’re paying you that green premium in the form of buying that to eliminate their own emissions, right? So you’re sort of a pass-through at the end of the day. Is that how you think about it?
Amelia DeLuca: Yeah, I think maybe step back for a second and just say Delta, just because of the service that we offer, we’re beloved by both our consumers as well as our corporate and cargo customers who trust us with whether it’s their business travelers or their cargo. So we’ve always had these really large enterprise relationships with our top B2B clients. We’re just transitioning that into sustainability. We’ve had probably 500 plus conversations with our top corporate and cargo customers just to say, “What are your sustainability goals and how can we support you on those?”
For many of our customers, their Scope 3 business travel emissions, think about your consulting firms or your banks for example, that’s the bulk of their emissions. They sit in that Scope 3 business travel. So they’re very eager to partner with us on SAF, not just for today to be able to show their employees that they’re doing something, but more broadly that they see the role for themselves often in the value chain. Because many of them provide us as well with their assets, whether that’s their people or their time or their expertise to similarly help us scale it. So it goes beyond just a transaction and more about just a huge ecosystem of our best B2B customers who are saying, “Delta and airline industry, we want to be there to support you.”
Shayle Kann: So I think this gets to one of the things that makes this market so interesting right now, which is, you said, and I think I’ve heard this from basically every airline who’s involved in this market right now, there is far more demand. In this case, that means amongst your B2B customers who want to decarbonize their Scope 3 emissions by purchasing these credits or whatever you want to call them. There’s far more demand than there is supply right now. So if you could snap your fingers and have five times as much SAF availability as there is today, you think you could find customers to essentially buy that, right? If that’s true, then because again you’re bearing no cost, the extra cost is being passed on to the customer. There’s no reason that you wouldn’t max out the amount that you purchase, right? It’s just a function of supply.
Amelia DeLuca: No, that’s spot on. It’s a function of supply. I’ll point to one of the industry-leading moves that Delta made last year was launching the Minnesota SAF Hub. That was a recognition that the supply of SAF is not scaling at the pace that was expected. So we stepped back and just said, “Well, what was the problem?” It’s because there was a relationship between two companies. You had an airline and a startup, and that wasn’t working. They weren’t getting financing. We can send all the demand signals we want, but still the way that essentially the contracts were written, that SAF supplier just wasn’t getting the financing they needed. So we stepped back and we said, “This needs to be a more ecosystem approach. It needs to be short, medium, and long term. It doesn’t need to just be project specific, but really just location specific in the case of Minnesota.”
So when you look at Minnesota, we’ve been really public in talking about there’s three horizons here. It’s maximizing the uplift of SAF today with what’s available. And we’ve got a number of corporate customers at the table with us saying, “We will be part of that horizon one, getting SAF out of the state of Minnesota for the first time ever, accelerated by some state policies that are making Minnesota one of the best states to uplift SAF.” Then moving into Horizon two and three, horizon two is really focused on a new emerging pathway called alcohol-to-jet, which provides an alternative to the ethanol industry to start to convert their ethanol product into SAF in the more medium term.
And then also acknowledging that if you really look at full scalability for that 4 billion gallons of jet fuel, we have to look even further into the future into power to liquid or synthetic fuels, which really need that access to renewable energy to essentially cut the water into hydrogen or green hydrogen in the case of PTL. So the point is it’s a more holistic approach. So it’s not just saying, “There’s one project, and that one project is a binary. Did it make it or did it fail?” And kind of say more holistically, “We have all the ingredients in Minnesota to make SAF now and way past 2050. And let’s do it as a systems approach instead of just these two players.” That’s the whole thing of sustainability, right, Shayle? Is that it’s systems thinking, futures thinking versus this one individual moment in time.
Shayle Kann: So you alluded to this, but I want to talk about what the SAF you’re actually purchasing today is, and then what it might be in the future. As you know, SAF is an umbrella term and there’s lots of different versions of SAF, different feedstocks, different processes to produce it. So let’s start with what’s actually happening today. Of that limited volume that exists today, what is the source of that SAF?
Amelia DeLuca: Sure. Well, here’s an acronym you may not know and you don’t need to necessarily remember it either, but the source of SAF today is using a process called HEFA, hydro-treated esters and fatty acids. The only reason I say that is fatty acids, the source of that today is things like vegetable oils, waste oils, used cooking oil for example, and fats. They go through a process that uses hydrogen to essentially move it into sustainable aviation fuel. It’s a proven technology. It’s straightforward. It’s being done today, and so it’s proven out. So most people would say, “Well, then why do you need to think of any others?” Well, of course it’s a feedstock constraint issue. So all those feedstocks I mentioned, there’s a limitation. They can’t be scaled to the 4 billion gallons of jet fuel that Delta uses, let alone what the industry uses.
And we are a growth industry too, so our fuel needs are going to be even greater in the future. And so with that, that’s where you start to look towards a couple pathways that are more scalable. So again, I mentioned the ethanol industry with alcohol-to-jet. That’s one that there’s a lot of excitement about. One, you get a lot of support from farmers and from rural states. It can be scaled quite a bit. It still can’t get to the 2050 net-zero, and that’s when you start to tack on power to liquid, which is your true zero emissions fuel that can really be scaled to an unlimited future.
Shayle Kann: So you think of this as coming in three phases. Phase one is HEFA, which we max out based on the availability of waste fats and so on. Then phase two is the alcohol-to-jet, which scales a lot higher than HEFA does, but still doesn’t get you all the way there. And then phase three long-term is power to liquids. On phase two, how do you think about ethanol? Ethanol, obviously there’s a lot to say about ethanol. It is definitely more scalable. We produce a lot of ethanol in the United States partially as a result of the subsidies that we’ve given for ethanol for ground transportation fuels. And it’s now starting to shift. It looks like the policy winds are shifting some of that toward aviation. From a sustainability standpoint, it’s got its pluses and minuses. So as you think about SAF procurement, is it anything that’s better from an emissions standpoint without significant negative externalities of anything that’s better than jet A today is worth procuring? Or do you grade it based on the degree of de-carbonization? What’s the right way to think about that?
Amelia DeLuca: Yeah, I think there’s a couple guardrails when you think about SAF. I would just mention a few at the outset. So one, in terms of the way incentives are written, you have to hit a 50% reduction in carbon intensity. So that is a threshold. So it’s not just a little bit. It’s got to hit that 50% threshold. I think the second thing is we are studying life cycle emissions, right? So we’re looking at the totality of the production of that fuel. And there’s some emerging science in particular in the pathway of ethanol that is going to be really important to study and quantify and to build into the model, things like climate smart agriculture, for example, which is the government … That’s top of mind for them right now. They’ve got to understand it, got to figure out addition-ality. Then if it counts, that’s where these fuels start to be pretty close to a zero emissions product. But there’s still some more studying that’s underway for that right now.
Then I think the next thing I would just comment on again is back where I started. We’ve got this ecosystem that similarly stands with us on these corporate and cargo accounts. They’re walking with us and saying, “We want the highest integrity SAF that’s possible, the most environmentally friendly, and we want to really look at that life cycle emission.” So we’re held accountable to a number of groups. Obviously, the way we think about it is we’re very transparent through our ESG report, what we’re purchasing, how it’s working, and how Delta is advocating for emissions counting as we move forward. I would just mention, though I mentioned ethanol, obviously that’s a great one because when we look at our Midwest states where our hubs are, ethanol in shifting and finding a new industry for the production of ethanol helps create jobs or secure jobs. It supports farmers.
And SAF is a growing market, so there’s a lot of interest in some of these states that have seen economic decline to move into the SAF space. At the same time though, there is a number of other technologies and feedstocks I haven’t mentioned. I’m taking this recording, for example, right now in the state of Georgia. The feedstock in Georgia is different. It’s not ethanol, right? It’s probably a woody waste product. Or sometimes I get asked about peanut oil. The point is Delta’s approach has always been everything should be on the table right now in terms of feedstocks and technologies. We’re just going to go one by one and figure out which one proves itself out until we find one that for sure starts to take off. But it’s way too early to start to count things out.
Shayle Kann: I’m sure you can’t talk in great detail about specific purchases, but I’m curious what you’ve been seeing in terms of the pricing of SAF in the market. As we’ve talked about, it’s definitely a seller’s market right now, which is a good thing because SAF in all of its forms, all the forms that you described, is certainly not cost competitive yet with traditional jet fuel. So there’s clearly a premium attached. The question is how big is that premium? How scalable is that premium, right? Is there some limit to the amount of volume you could pass on to customers today at today’s prices? And how is that going to have to trend, especially as we shift from HEFA, alcohol-to-jet, to power to liquids eventually?
Amelia DeLuca: Yes, the million, billion, trillion dollar question, the green premium. So I will just step back for a second and mention we procured 3.5 million gallons of SAF last year. We are actively planning for 15 million gallons plus in California over the next two years. The reason I’m starting with California is just mentioning that’s where the incentives are to date. But actually as you start to bring more SAF online, we also see more states stepping in. And this is important because when you think about the green premium, there’s really four levers that we as Delta believe that we play an active role in shaping amongst the ecosystem. So the first is the supply itself. So yes, you’re correct, Shayle. As you walk into these new technologies and feed stocks, there are opportunities to bring that green premium down as those products scale. So HEFA has a hard time of bringing that green premium down dramatically because you’re kind of constrained by the used cooking oil constraint.
And so there isn’t much more to walk down, but as you get into alcohol-to-jet and PTL, scalability will bring down that green premium. But in the short term, you have both federal and state level incentives that play a huge role. So again, as you start to see states like Minnesota or Illinois come online with a $1.50 tax credit, that starts to really help walk that price down from where it’s been to date with the HEFA going out of California because that’s a bigger state incentive. And then similarly, the fourth one, after you get through the supply itself, federal incentives and state incentives, is the corporate and cargo demand, which to date has been quite strong and really aided by a lot of the investor pressure that companies are feeling to make sure that they have transparency and that they have short and medium term climate goals.
And again, for many, that’s Scope 3. I think the other thing just to mention is we don’t make the SAF. We are a company that at the end of the day, we are a consumer brand. That’s the most important thing to us at Delta, and it means a lot to us when we think about customer service, when we think about consumer satisfaction, when we think about just the strength of our brand. It’s making sure that we have the consumer in mind with everything that we do. So when I start to think a little bit about willingness to pay, it’s about really maximizing out those things that I just mentioned so that we are not just passing this on to the consumer. That being said, I think there’s an interesting case study of who’s going to pay for it as SAF starts to scale with the European mandates that will start within the region in 2025. So we’re watching the European mandates closely to see the impact on the overall demand and cost to airlines.
Shayle Kann: Let’s talk about those mandates a little bit. That’s another component of the rising demand here. So what do you think of as the main mandates to which you will be subject? And how big a deal are they?
Amelia DeLuca: Well, I think biggest ones are the European mandates, ReFuelEU, which starts for the region next year. I will say that France started their mandates a couple of years ago, so we’ve got a running start at understanding how those are going to work. The mandate itself sits on the producer. It doesn’t sit on the airline, but obviously through the relationships that we have with our producers, our fuel producers there in Europe, we will certainly contribute to these mandates. Then I think the thing that’s interesting on the mandates is the conversation is spreading into other regions in the world. So I think that will be something to watch.
Again, it’s just they’re all case studies in terms of what works and what doesn’t work. As a sustainability professional, we’re very quick to just say we’re observing and we’re learning and we’re going to pivot as we go. I will say though, from the Delta perspective, we continue to think and are very appreciative of the support that we’ve gotten, not only from the Biden Administration in the United States, but as well as from many of our Midwest states that their government officials are incredibly supportive of SAF, because they see the benefit economically from SAF production coming in their states. Not rushing into mandates, but instead putting the right incentives in place ensures that we are really doing this in the thoughtful approach that ultimately does shield the consumer from that green premium.
Shayle Kann: Can you just go one level deeper on the ReFuel requirement? What is it actually going to mandate and when?
Amelia DeLuca: So the ReFuel requirement starting in 2025 is for the European Union. Essentially, it puts a mandate on top of producers to blend a portion of SAF into their conventional jet fuel. There’s different elements to it. It increases as it goes. Over time, it starts to dictate the type of SAF that you can blend in. They’ve got some smart things they’re doing behind the scenes to try to make sure that it’s not saying you have to have it at every single airport, or at least that’s what they’re debating right now, is making sure that it’s rolled out in a way that’s intelligent. So you’re not breaking down the environmental benefits of SAF by forcing it to go into every single pipeline throughout Europe.
SAF started in Europe though, so one of our first SAF relationships was with Neste. That SAF was coming out of Europe, and so Europe certainly has a head start on SAF. Again, I like that they advanced the conversation to say not just that SAF should be part of the equation when it comes to the airline industry, but that they’re really starting to be thoughtful and saying year by year, what is that mix of the types of feedstocks and technologies that they’d like to see? I think the flip side of that is I would say sometimes a mandate, and in this case, this is our position that it’s just a couple years ahead of where the supply is. So it’s forcing it into the market at a price point that is not … We don’t think it’s consumer friendly. Right now, it’s very small percentages, so most consumers will not see that, but that’s where I say it’s a watch and see for us in the United States and Delta just to see the impact to the consumer.
Shayle Kann: You mentioned blending mandates. I think one important point, we’re not really at this point yet, because as you said, the volumes are so small, but what is Delta’s view on how much SAF you can blend with traditional jet? It differs by what type of SAF it is, obviously, but at what point do we start to run into blending concerns?
Amelia DeLuca: So there’s a couple things on the blending side that are interesting to watch. The first is the fact that there is a maximum blend limit of 50% today. That’s just because the chemistry of SAF is slightly different than conventional jet fuel. If you’ve got it at 100%, there are some things in the infrastructure themselves that just need to be tested and certified. So the industry is certainly looking at that, but I think we’re probably at least a decade away from having that be a real issue in any single location. On the other hand, what is interesting is that when someone makes SAF, in order for it to go onto our plane, it needs to be blended in with our conventional jet fuel.
This is something the industry has noted is a concern to date because we’ve got these individual producers who are trying to figure out blending, whether that’s at their production site or potentially in a tank that’s just off an airport. None of that feels that scalable. And so we are really pushing to see blending hubs in some key markets such as Minnesota, so that we’ve got just one place where all SAF producers are able to blend in their SAF and then all airlines are able to access, so we’re not creating additional infrastructure that ultimately isn’t needed as the product scales.
Shayle Kann: All right, final question for you. I’ve talked about this before, but I’m interested to get your perspective on it. So as you said, longer-term future power to liquids maybe is the path to SAF. So power to liquids, if you’re going to do it truly sustainably means you’re capturing CO2 presumably from the atmosphere or biogenic CO2, combining it with clean hydrogen. Then you make your synthetic jet fuel. That requires you, in addition to capturing the CO2 of course, it requires you to make the hydrogen and then run this process with the two of them that gets you ultimately to jet fuel. So there’s clearly an additional cost beyond the CO2 capture.
The alternative thing you could do is you could just capture the CO2 and sequester it underground. In the grand scheme of things, if you just did that at large scale and continued to burn your traditional fossil jet fuel, you could net those two things out and you’d end up with the same emissions impact as producing a ton of power to liquids, but presumably at lower cost fundamentally. However, you’re not actually buying SAF at that point. You’re just buying carbon removal credits or something like that. How do you think about that from an airline’s perspective? Is there some future where that ends up being the path rather than buying actual jet fuel? Or is it more just of a practical … Look, at the end of the day we are an airline. We buy jet fuel. Even if it’s a little more expensive, we’re probably going to buy clean jet fuel rather than carbon removal credits?
Amelia DeLuca: Yeah, I think what’s interesting about power to liquid, and it starts to bring in other conversations that seem first off really far away, DAC in particular is in carbon capture. Sequestration is a little ways away until that becomes a large enough of a market to even really have that debate. But I think more importantly what I like about the topic though is we’re not alone as an industry in exploring these things. So when we talk about and show interest in DAC and in green hydrogen, it’s actually a really cool space to be in because it’s one of the first times that we’re not alone as an industry. There’s a lot of people who are exploring DAC and green hydrogen. And so while we as airlines are really focused on things like just scaling SAF today through the HEFA process or trying to stand up the alcohol-to-jet industry, we haven’t lost sight on these other items. But you just see a lot of other stakeholders that are interested in it for their own specific industries.
So that’s at a high level how we as an industry think about it. We’re certainly proponents of all of those items. We certainly look forward to them scaling so that we can figure out the right way for the aviation sector to play in it. I will say though, and this is the topic of the year, of the last few years, is this concept of how you take ownership for your environmental footprint. It’s that concept of insets versus offsets. And so SAF obviously looks at the entire value chain. Therefore, these items like carbon capture become part of the inset. They’re part of the life cycle, and that, as of to date, is the accepted path forward. I think the other thing I would say is also the economical value proposition. Conventional jet fuel is incredibly unstable. If you track the industry’s just highs and lows in terms of profitability, they’re often, not always …
The pandemic was different, but they’re often tied to the price of jet fuel. So there’s a real desire on our end to actually move to a synthetic fuel that is sourced from a feedstock that’s not fossil fuels because of the fact that it takes out some of the instability of our profits, that actually there’s a lot of models that suggest that power to liquid, the cost structure should be lower than conventional jet fuel and should sit and be very stable because you’re truly using these unlimited resources. So for us as an industry, there’s a real desire to see this scale because it’s also going to really help us just have a more stable industry as we move forward.
Shayle Kann: All right, Amelia, this was super interesting and I’m very excited to see SAF taking on real volume demand at this point. As I said before, I think we haven’t seen it in many of these, quote, unquote, “hard to abate” sectors. It’s clearly emerging here, and I’m excited to see what Delta has been doing along with other airlines on this. So appreciate your time and we’ll have you back on at some point to keep posted on progress.
Amelia DeLuca: Great. Thanks, Shayle.
Shayle Kann: Amelia DeLuca is the chief sustainability officer at Delta. This show is a production of Latitude Media. You can head over to LatitudeMedia.com for links to today’s topics. Latitude is supported by Prelude Ventures. Prelude backs visionaries accelerating climate innovation that will reshape the global economy for the betterment of people and planet. Learn more at PreludeVentures.com. This episode was produced by Daniel Waldorf and Aaron Hardick, mixing by Roy Campanella and Sean Marquand, theme song by Sean Marquand. I’m Shayle Kann and this is Catalyst.
