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Decarbonising Aviation: CLEARED FOR TAKE-OFF Industry Perspectives www.shell.com/DecarbonisingAviation #MakeTheFuture I N CO LL A BO R ATI O N W ITH 1 DECARBONISING AVIATION: CLEARED FOR TAKE - OFF
CONTENTS 3 Introduction 49 Decarbonising Aviation: a New Approach 4 Report Objectives Inflection Point – Ready for Take-off 5 Executive Summary 51 Solutions 16 Where We Are Today 52 Market and Customer Demand The Drive to Decarbonise 53 17 Regulatory Incentives Decarbonising Harder‐to‐Abate 57 18 Sectors 62 Technology Alignment 19 Carbon Dioxide Emissions in Aviation 67 Clarity on Roles and Decision Making 28 Ways to Reduce Aviation Emissions 70 Ease of Asset Replacement 32 The Deadlock: Barriers 73 Ease of Infrastructure to Decarbonisation Replacement 33 Decarbonisation Readiness Factors: 76 The Flight Plan: Accelerating Summary Decarbonisation 36 Market and Customer Demand 77 Decarbonisation Pathway 40 Regulatory Incentives 80 Flight Plan to 2030 41 Technology Alignment 82 How it All Comes Together 45 Clarity on Roles and Decision Making 85 85 Acknowledgements and Sources 46 Ease of Asset Replacement 47 Ease of Infrastructure Replacement 2 DECARBONISING AVIATION: CLEARED FOR TAKE - OFF
INTRODUCTION Aviation connects people, provides global access to goods and services, and has played a vital logistical role in the fight against COVID‐19. It is fundamental to the world economy and in 2019, supported $3.5 trillion (4.1%) of the world’s GDP. In the same year, before the pandemic, 4.5 billion passengers took flights. But it was also a source of around 3% of global carbon dioxide emissions. And aviation could represent up to 22% of global emissions by 2050, as other sectors decarbonise more quickly. Carlos Maurer Executive Vice President, Sectors and Decarbonisation There is a lot at stake when it comes to the It brings together more than 100 aviation Royal Dutch Shell future of aviation. If the industry is to cut business leaders and industry experts carbon emissions at the speed and scale representing 68 global organisations. I would needed, it must act together to make change. like to thank them all for their time, energy and Take SAF, perhaps the most promising of This is the third report we have published The International Air Transport Association, enthusiasm. The resulting report explores the today’s solutions for cutting carbon emissions. with Deloitte on decarbonising sectors where which represents most of the world’s airlines, sector’s net‐zero targets and what is needed There are still many challenges before it can low‐carbon change is hardest to achieve. aims to halve net emissions by 2050 (from to meet them. The report seeks to answer be deployed at the scale needed. They All three share a common message: whether 2005 levels). But the industry must go further three key questions: why the sector should include the need for greater availability of you operate exclusively in aviation or have and faster if it is to achieve net‐zero emissions. change, how it can change and how fast raw materials, better supply infrastructure and a supply chain that also spans road freight this change can happen. It is accompanied clearer policy to encourage production. These or shipping, it is time for action. This means not only setting out a clear route by a report on the actions Shell itself is elements have to come together – and the to net‐zero emissions but showing greater taking. At Shell we are exploring routes to faster, the better. As Executive Vice President of Shell’s ambition and stronger leadership. Roughly zero‐carbon aviation, including hydrogen, Sectors & Decarbonisation business, I believe half the industry has committed to achieving sustainable aviation fuels (SAF) and nature- So, whether your employees would normally these reports show how much potential there net‐zero emissions by 2050, including based solutions. fly for business, or your company transports is for change if we act quickly enough. The suppliers such as Shell, but we must all cargo by air, or you are an airline hoping to industry has a chance to reset after the global do more – and collaboration is critical. The report shows how a complex industry use more SAF – we invite you to collaborate shock of the pandemic. By working together, has the potential to make even greater with Shell. Together, we can work to identify I believe we can make the aviation sector fit We have to work together to understand progress, provided the right parties – opportunities to lower carbon emissions in for a net‐zero world. the challenges, then identify and agree government, customers, energy companies your operations and help the sector achieve on solutions. This report is a starting point. or airlines – are aligned on the right actions. net‐zero emissions by 2050. 3 DECARBONISING AVIATION: CLEARED FOR TAKE - OFF
REPORT OBJECTIVES 01 Research participants 102 aviation executives and experts... 35 CEOs 33 21 Technology 8 Policy and 5 Strategists This report reflects the perspectives of over 100 executives and experts, representing and senior Sustainability leads and experts regulation 68 organisations across almost all segments of the aviation sector, complemented with executives leads and specialists input from 6,000 travellers worldwide, both leisure and corporate. (see Exhibit 01). experts It aims to: ...representing 68 global organisations... Take a comprehensive view. Accelerate the pathway Many decarbonisation studies focus on to net‐zero. Aviation experts who 18 Com- 6 Airports 9 Shippers 9 OEMs, 10 R&D 8 Industry 8 Regula- mercial and cor- technolo- and groups tors and specific challenges or stakeholder groups participated in this research are at a airlines porates gy and in- financial NGOs in isolation. Given the interdependency point where they need to make decisions and cargo frastructure institutes of factors, the sector needs a more around decarbonisation. We worked with airlines providers comprehensive view, which includes them to converge on a set of solutions economic, regulatory and organisational and a flight plan that can help the industry 37 Europe 21 North America 10 Asia & Rest of the World factors. This report builds on the existing act now and clarify the path forward. body of knowledge in the market. ...and 6,000 travellers worldwide This report reflects the insights industry Reflect the voice of the sector. executives and experts shared with us No one stakeholder group can do this through interviews and working sessions 3,000 leisure travellers 3,000 corporate travellers Across 6 countries: alone, and everyone will have a role with the industry, not the views of Shell or Australia, Canada, China, Germany, UK and USA to play. It is essential to understand the Deloitte. All engagements with participants unique motivations and challenges of were conducted in a manner that respects different groups and locations, for the competition law boundaries. sector to be able to take collective action that will make an impact. Note: Regions indicate organisations’ headquarters. Most organisations involved operate globally. Aviation executives and experts were consulted in individual one-on-one interviews. Travellers were consulted through a detailed survey. OEMs refers to original equipment manufacturers. 4 DECARBONISING AVIATION: CLEARED FOR TAKE - OFF
Aviation is fundamental to the world economy, supporting $3.5 trillion (4.1%) of the world’s GDP1. It helps foster cultural exchange and provides global access to goods and services. 02 Research highlights Throughout the COVID‐19 pandemic, the industry has provided vital logistical support in the fight against the virus: empty planes have 1. Aviation has often been considered a 3. Long-term customer demand, enabled by recognition mechanisms and been modified to carry personal protective sector that will decarbonise later than differentiated propositions, will play a fundamental role in providing the equipment (PPE), vaccines and other essential others, because of the complexity involved funding and incentives for airlines to invest in lowering their emissions. Why should the and the view that aviation accounts for “just cargo. The sector also connects people around sector change? 3% of global emissions”. But there is a need 4. Country- and region-based policy incentives relating to supply and the world. The lockdowns of the past two years to act now. demand will accelerate the adoption of SAF and regulation at regional and have accentuated the need for human contact, global level. and aviation allows people to fly to see 5. Offsets can play an essential role in funding the early stages of friends, relatives and business relations. decarbonisation. But for this to happen, they must be made more transparent and verifiable. They need to be more emotionally appealing to But aviation is also a source of around 3% of passengers, and their impact should be clearer. global carbon dioxide (CO₂) emissions, and as Can the sector change? 6. Choosing SAF as the primary means of decarbonisation will have the global economy continues to develop in the 2. The sector is facing several barriers to a disproportionate impact on lowering emissions, because there is no need to coming years ‒ with new parts of society joining decarbonisation, mainly: redesign aircraft. As a result, investments and R&D efforts can focus mainly targets are insufficiently on scaling production and lowering cost. the middle class ‒ aviation volumes will grow. The ambitious, unsupported by local pandemic may have caused some changes to regulation, and constrained by the 7. Collaboration with other sectors is essential to the successful deployment the future of air travel, as people find new ways to perceived need for international alignment; of SAF. It can drive down the cost of required technologies, such as cost of Sustainable Aviation Fuel hydrogen production, direct air capture and biomass conversion, and ensure meet virtually and work remotely. But the long‐term (SAF) is prohibitively high, with effective use of scarce resources. forecasts suggest that overall, COVID‐19 is unlikely many in the sector expressing uncertainty to have a lasting impact on aviation volumes. If about how to reduce it and concerns 8. The pathway to decarbonisation needs to be more ambitious and about the availability of feedstock; nothing is done, emissions are expected to more How fast can the investments need to start sooner to address societal expectations, reach sufficient leisure passengers are reluctant than double by 2050 (from 2019 levels). SAF volumes and bring down cost to the levels required for large-scale adoption sector change? to absorb the cost of lower emission within 15 years. solutions; and concerns about offsets relating to Through our engagement with over 9. Individual initiatives should be integrated into comprehensive quality, transparency and communications 100 executives and experts across the global plans representing all points along the value chain – from energy producers to lead to limited uptake. end-customers. These plans should be systematically deployed in areas with aviation industry, we have broken down what favourable policies, market conditions, and access to SAF. is often seen as an insurmountable problem into manageable components. We did that by focusing on three core questions: Why should the sector change? Can the sector change? How fast can the sector change? This produced nine main research highlights (see Exhibit 02). 6 DECARBONISING AVIATION: CLEARED FOR TAKE - OFF
To make meaningful progress in reducing emissions in the next 20‐30 years, the aviation sector must make more use of the options 1. RESEARCH HIGHLIGHT available now. Aviation has often been considered a One of the most important of these options sector that will decarbonise later than is sustainable aviation fuel (SAF). It comes others, because of the complexity involved in a variety of forms, the large majority of and the view that aviation accounts for which have lower life‐cycle greenhouse gas “just 3% of global emissions”. But there emissions than conventional fossil fuels. All is a need to act now. forms of SAF have the further advantage of being drop‐in fuels, meaning they can be used without the need for major changes to aircraft design or supporting airport infrastructure. Aviation has been excluded from some major Offsets are another option that is efforts to tackle climate change, because available now. They allow passengers and decarbonising the sector is perceived as other people in the aviation industry to complex and it currently accounts for 3% of compensate for the emissions by buying global emissions. For example, aviation was carbon credits generated by projects that excluded from the Paris Agreement on climate either reduce the global stock of greenhouse change and partly excluded from the EU gases ‒ for example, by using plants to Emission Trading System (ETS), which only absorb CO₂ ‒ or avoid adding to it ‒ for counts flights within the EU. example, by preventing deforestation. The result can be net‐zero emissions, such “Policymakers and those within the sector as when the CO₂ emitted by a flight is use the proportionately low emissions as an cancelled out by the greenhouse gas excuse to defer action,” said one NGO. absorbed by the offset project. changing to them will be much harder than large share of their respective markets. This But, as other sectors decarbonise, aviation’s Interviewees suggested that these two options switching from kerosene to SAF. By starting to concentration of market share and influence share of total emissions will increase. Many should be the priority to reduce emissions in develop alternative propulsion technologies means decisions can be made relatively participants in this research said that it is the short term. At the same time, the sector now, they could become viable for some quickly and have a global impact. But the now time to increase the global focus on must work to continue improvements in aircraft applications by the late 2040s and 2050s. sector’s long investment horizons and fleet aviation decarbonisation. We have a chance and operational efficiency, and develop the renewal cycles mean that aviation must act to redefine the way we fly; to break the link alternative propulsion technologies, such as Aviation is a highly concentrated industry, now to sufficiently reduce emissions by 2050. between aviation and emissions. batteries and hydrogen. These technologies meaning that a relatively small number of offer the possibility of zero‐emission flying, but manufacturers, airlines and airports have a 7 DECARBONISING AVIATION: CLEARED FOR TAKE - OFF
2. RESEARCH HIGHLIGHT The sector is facing several barriers to decarbonisation, mainly: Targets are insufficiently this would equal an increase of 30–200% Leisure passengers are reluctant Concerns about offsets relating ambitious, unsupported by local of airline operating costs or ticket prices. to absorb the cost of lower to quality, transparency and regulation, and constrained Within decades this could break even, as emission solutions, because they communications lead to limited by the perceived need for supply and demand grows and the cost of have come to expect cheap air fares uptake. Some offsets are perceived international alignment. This carbon increases. Bio‐SAF, which is made and do not feel personally responsible to be of low quality and the market is creates a widespread wait‐and‐see from plant or animal material, such as crops, for emissions. “It will be very difficult to fragmented with many standards and approach across the sector. “Targets forestry or agricultural waste, is currently pass on extra cost for sustainability to project types. Many relate to projects that without incentives – or without clarity the cheapest form of SAF available, but its passengers who choose the cheapest have happened in the past, in places far on when those incentives will come – supply is structurally constrained and costs seat,” said an interviewee from a research removed from where emissions occurred, paralyse the industry participants,” said are likely to increase as readily available and development (R&D) organisation. and with no clear link between the an airline representative. feedstocks are exhausted. Synthetic SAF is Although 85% of surveyed leisure payment and the reduction of greenhouse made using hydrogen obtained from low‐ passengers say they are willing to pay gases. “People expect that when they Cost of SAF is prohibitively emission sources and CO₂ captured from to offset emissions, less than 1% do in pay for offsets, actual trees are planted high, with many in the sector other industrial processes or captured from practice. At the same time, corporate somewhere in the world, and it’s still expressing uncertainty about how the air. The technology behind synthetic travel is likely to reduce in share after questionable whether that is happening to reduce it and concerns about SAF is less developed than that for bio‐ the pandemic, putting more pressure on or not,” said an aircraft operator. As the availability of feedstock. SAF SAF, so production costs are considerably airline margins, which might impact ticket a result, offset uptake is limited, which today is two to eight times more expensive higher. Synthetic SAF also competes with prices for all passengers. makes it difficult for the aviation sector to than traditional jet fuel, depending on other sectors for hydrogen supplies, but it compensate for its emissions during the the feedstock. If all kerosene on a typical is thought that towards 2050 it could be period when it is developing other ways long‐haul flight were replaced with SAF cheaper and produced in bigger volumes to decarbonise. tomorrow, without any policy incentives, than bio‐SAF. 8 DECARBONISING AVIATION: CLEARED FOR TAKE - OFF
These four barriers were mentioned most across the sector, and the tendency to work 03 Barriers to decarbonising aviation¹ frequently by interviewees, but they also on many scattered and small‐scale initiatives, identified barriers relating to all six of the instead of approaching the problem in an readiness factors listed in the Exhibit 03. One integrated way. Readiness Why should the sector Can the sector How fast can the manufacturer said: “If you don’t have the questions change? change? sector change? assets, infrastructure, political support and Overall, while aviation is a hard‐to‐abate Ease of infrastructure Clarity on roles and the customers’ willingness to move, you will sector, drop‐in fuels will reduce the need for customer demand Readiness factors decision making not proceed. All these elements have to be in new aircraft and infrastructure. Sectors like place, and everyone has to be aligned – and road transport will need to change the asset Ease of asset replacement replacement Market and Technology Regulatory alignment we have to work on all those together.” As fleets, produce the alternative energy carriers incentives the manufacturer’s comment might suggest, like batteries and hydrogen, and set up the “softer” barriers are also preventing the infrastructure required to supply them. Aviation industry from making progress, such as an can take advantage of existing aircraft and incremental mindset, a lack of co‐operation refuelling infrastructure. 60% 90% 30% 30% 30% 60% Major Major Major Major Major Major barrier barrier barrier barrier barrier barrier 100% 100% 100% 100% 100% 100% Participants’ view on severity of barriers Aviation Minor Minor Minor Minor Minor Minor barrier 0% barrier 0% barrier 0% barrier 0% barrier 0% barrier 0% Notes: 1) Based on SAF drop-in solution. Ease of asset replacement and ease of infrastructure replacement will be more of a barrier for battery electric and hydrogen aircraft 9 DECARBONISING AVIATION: CLEARED FOR TAKE - OFF
4. RESEARCH HIGHLIGHT Country‐ and region‐based policy incentives relating to supply and demand will accelerate the adoption of SAF and regulation at regional and global level. Net‐zero targets need to be set for 2050, with ambitious interim steps for 2030, to align aviation with the rest of the energy system, and to create the urgency to act now. Targets should be underpinned by policy measures. On the supply side, fuel producers can be triggered to invest in producing SAF through blending mandates, contracts for difference, tax credits and market‐based incentives like California’s Low‐Carbon Fuel Standard. On the demand Large corporate flyers like big tech, SAF and offsets creates a market pull that side, incentives around buying choices can financial institutes and consultancies, and incentivises airlines to act. be created by route restrictions, pricing cargo shippers like food and electronics mechanisms and fossil‐fuel taxation ‒ for 3. RESEARCH HIGHLIGHT manufacturers need to lead in creating Leisure passengers must also be encouraged example, a carbon tax or an emissions demand for lower‐emission aviation. Their to play their part, through offers related trading scheme. Long‐term customer demand, own net‐zero ambitions require them to to SAF and offsets that reward customers enabled by recognition mechanisms and reduce emissions from employee travel and for supporting decarbonisation. These The sector does not need to wait for global differentiated propositions, will play transporting goods. Many of these customers rewards can either be functional, such as regulatory alignment – country‐ and region‐ a fundamental role in providing the funding are less price‐sensitive than leisure passengers, priority boarding or meal upgrades, or more based policies that target key transportation and incentives for airlines to invest in because air travel typically accounts for emotional, such as dedicated seats or waiting hubs and flagship routes will go a long way lowering their emissions. a relatively small proportion of their costs. areas. One airline said: “We started offering to creating momentum. Examples can be Aggregating the corporate demand for more loyalty points for customers who use found in recent announcements in the UK to offsets, and adoption grew well beyond the include aviation in the national footprint2, 1% industry average.” and Germany’s synthetic‐SAF roadmap3. 10 DECARBONISING AVIATION: CLEARED FOR TAKE - OFF
Offsets have an immediate role to play in communicate the important role they can play Interviewees flagged “insetting” – where helping aviation to reduce its net emissions. in decarbonisation. It must make sure that funds raised are used directly within the They will be particularly important during all offsets are subject to rigorous standards sector – as an example for how the industry 5. RESEARCH HIGHLIGHT the time it takes to fully develop other ways and assurance mechanisms, and that could keep investments within the sector to to decarbonise the sector. customers know this. Offsets can be made promote R&D and SAF production. Offsets can play an essential role in more emotionally appealing to customers funding the early stages of decarbonisation. Offsets will probably also play a role in the by including more projects that remove But for this to happen, they must be made longer term, while SAF supply and demand CO₂ rather than those that avoid emitting it, more transparent and verifiable. scales, and to address the remaining as well as more projects that are closer to 6. RESEARCH HIGHLIGHT They need to be more emotionally 20–40% of emissions relating to bio‐SAF. passengers’ homes and businesses. The way appealing to passengers, and their offsets are marketed and sold should also be With this in mind, the sector must address the improved ‒ for instance, by moving towards Choosing SAF as the primary impact should be clearer. concerns about offsets. Aviation must better an opt‐out rather than an opt‐in approach. means of decarbonisation will have a disproportionate impact on lowering emissions, because there is no need to redesign aircraft. As a result, investments and R&D efforts can focus mainly on scaling production and lowering cost. Using SAF as the main way to decarbonise in the next 20 to 30 years creates focus. By converting a few production sites to bio‐SAF around key hub airports, entire routes and even regions can be decarbonised relatively quickly. By investing early in synthetic SAF to move production from small quantities in labs to sustained scale production, widespread SAF use can be made possible. Towards 2050, research participants expect bio‐ and synthetic SAF to contribute to over 60% of the reductions in emissions from aviation. Demand for SAF can be significantly accelerated by increasing transparency around feedstock, reducing friction in 11 DECARBONISING AVIATION: CLEARED FOR TAKE - OFF
the purchasing process, greater use of and shipping as well. Synthetic SAF requires certification, simplicity in communications, significant improvements in large-scale and using “book and claim” mechanisms to electrolysers that can produce zero-carbon open up access to those who are far from “green hydrogen” by using renewable points of supply. electricity to split water into oxygen and hydrogen. The steel, road freight, shipping New financing mechanisms should also be and fertiliser sectors also need green developed to create clarity on returns. An hydrogen to help their decarbonisation efforts. indexed investment fund could help investors More efficient technologies are also needed spread technology risk across multiple for capturing CO₂, which will be required to projects and help attract institutional investors produce synthetic SAF. These technologies in the early stages of the transition. include carbon capture storage and utilisation (CCSU), where CO₂ comes from other industrial processes, such as steelmaking, and direct air capture (DAC), where CO₂ would be extracted directly from the air. These 7. RESEARCH HIGHLIGHT technologies will also have wide‐ranging applications beyond aviation. Collaboration with other sectors is essential to the successful deployment of SAF. Companies across different sectors should It can drive down the cost of required pool their resources and direct them to technologies, such as hydrogen the most promising R&D projects. Those production, direct air capture and biomass companies or organisations operating across conversion, and ensure effective use of these sectors like energy providers, financiers scarce resources. and research institutes will need to play a critical coordination role. In this way, the required technologies are likely to develop more quickly than if each sector worked Many of the technological developments on them alone. While collaboration will be needed to produce SAF at scale and lower critical to accelerate progress, cross‐sector its costs will also be useful for other sectors. coordination and policy measures will be For example, bio‐SAF requires exploration of needed to help ensure limited feedstocks new bio‐feedstocks and innovation in new are directed to where they can have the production pathways – both of which can largest impact. help decarbonise sectors such as chemicals Shell’s Energy and Chemicals Park Rheinland, Germany, home to Refhyne European consortium PEM hydrogen electrolyser. Photo credit: © Dieter Jacobi/welcome for Shell International Ltd. 12 DECARBONISING AVIATION: CLEARED FOR TAKE - OFF
04 Decarbonisation pathway – sector sentiment Comparison with typical Main differences compared industry report with typical industry report 2,200 Aviation net CO₂ emissions (Mt) Efficiency Efficiency gains taken for granted 1 Net zero by 2050 2,000 Emissions at 2019 efficiency gains 2 2 Efficiencies not taken for granted 3 Additional operations and infrastructure 1,500 improvements 3 Bio-SAF potential limited Bio-SAF CORSIA Carbon-neutral growth off 2019 baseline 4 Synthetic SAF scale-up sooner Significant deployment of bio-SAF 1,000 4 5 High-quality Synthetic 5 High-quality carbon offsets and offsets and insets Major adoption of new propulsion SAF insets 500 technologies H₂, e Goal on path towards net zero 1 Target -50% by 2050 compared 0 with 2005 (IATA) 2010 2015 2020 2025 2030 2035 2040 2045 2050 Sources: interviews; ATAG (2020); IATA (2021); ICAO (2019); Shell Energy Transformation Scenarios (2021); Deloitte analysis One airline executive said: “Society does not The pathways for decarbonising sustainable feedstock for bio‐SAF ‒ especially accept aviation’s special status anymore. We aviation are directionally right, in the long term. Investing in both types of SAF need to decarbonise, as do all other sectors, but the details need changing. will make it possible to scale‐up production 8. RESEARCH HIGHLIGHT to remain credible.” and bring down cost to the levels required Airline executive for large‐scale adoption, which can already The pathway to decarbonisation A net‐zero target will require a significant happen within 15 years. needs to be more ambitious and acceleration of efforts, now (see Exhibit 04). Firstly, many interviewees said the sector investments need to start sooner to address should stop taking efficiency improvements Thirdly, aviation must significantly increase societal expectations, reach sufficient SAF Investment must be significantly accelerated ‒ resulting from better aircraft design or the uptake of offsets and ensure that they all volumes and bring down cost to the levels or front‐loaded ‒ compared with typical operations for granted. They are an important meet rigorous quality standards. This will be required for large‐scale adoption within plans, and need to span all currently feasible way to reduce fuel usage and emissions, but especially important in the short term, while 15 years. decarbonisation options – efficiency, bio‐ will become increasingly difficult to achieve. SAF is still being fully developed. SAF, synthetic SAF and offsets. No single option alone can reduce net emissions Secondly, energy companies and other Finally, continued investment in alternative by the required amount and the options aviation stakeholders must accelerate propulsion technologies is needed, to prepare Most research participants take it for granted themselves should be approached differently developing synthetic SAF sooner and at larger the sector for a truly decarbonised future ‒ that a net‐zero emissions target will soon be than at present. scale than previously assumed, because even if such technologies will make limited adopted for aviation. there is uncertainty about the availability of contributions before 2050. 13 DECARBONISING AVIATION: CLEARED FOR TAKE - OFF
Industry stakeholders identified 15 solutions, or in SAF production ‒ particularly in regions SAF use more economically viable. Standards, recommendations for action, to overcome the with the most favourable policy and customer certification and reporting will make it easier barriers to decarbonisation and accelerate environment, for example in USA and North‐ to track progress. Progress will also need to be 9. RESEARCH HIGHLIGHT aviation’s progress. Some of these are already western Europe. Policymakers and financiers made around electric and hydrogen aircraft to being investigated. Others are new, or provide should support initial investments with accelerate the development of technologies Individual initiatives should be a more efficient way to overcome a specific targeted incentives. which can enable zero‐emission aviation. integrated into comprehensive plans barrier (see Exhibit 05). Putting these solutions in place by 2030 will representing all points along the value chain – The “accelerate” phase (2025‐2030) allow the sector to lay the foundation required from energy producers to end‐customers. In the short term (2022‐25), the focus should follows. Net‐zero targets for 2050 are likely to decarbonise by 2050. These plans should be systematically be on solutions that “unlock” progress. to be widely adopted. R&D and supply deployed in areas with favourable policies, This phase includes demand commitments from partnerships will be formed to enable Although each solution is important on its market conditions, and access to SAF. corporate and cargo customers, developing more SAF to be produced, at lower cost. own, the true value lies in their combined offers for leisure passengers that support Operational efficiencies from fleet renewal deployment, applying the principle of sustainability, and improvements around offsets. and optimising the use of airspace will enable “think big, start small, scale fast.” This stage should see large‐scale investments further reductions in fuel consumption, making 05 The "flight plan" for decarbonising aviation Technology Regulatory Customer related related solutions related solutions solutions Corporate and cargo customers’ demand for SAF Offers and rewards encouraging customers to make choices that support sustainability Airports extending influence to promote SAF uptake and fleet upgrades Collaboration with other sectors on SAF R&D Focused “green” financing to support more investment in decarbonisation Airports and airspace optimisation to reduce operational emissions Bio-SAF production Aircraft efficiency improvements and accelerated fleet renewal Synthetic SAF production R&D of electric and hydrogen aircraft Supply-side mandates, incentives and feedstock allocation Net-zero targets and aligned plans Demand-side emission taxation, restrictions and incentives Standards, certification and reporting to assure the quality of carbon reductions from SAF and offsets Carbon offset improvements Unlock (2022 – 2025) Accelerate (2025 – 2030) Note: Timing of solution is related to period in which most activities are expected; however, most solutions require effort across short, medium and/or long term 14 DECARBONISING AVIATION: CLEARED FOR TAKE - OFF
We cannot wait for a technical We just need to have one salvation, we must act now systematic sustainable flight using all the options that are route that operates daily, and available today. very quickly others will follow – Travel agent because they will have to. Energy expert The first net-zero value chains and regularly scheduled net-zero routes can be created Interviewees recognise that the challenge of relatively quickly in some places. They decarbonising aviation is too large for any will require favourable factors such as one organisation or even one stakeholder supportive regulation, a strong connection group to solve alone. But a joint effort will between airports, a significant proportion of allow aviation to launch specific solutions in environmentally conscious business travellers, the short term, and hit crucial targets in the and an ability to increase the production long term. First movers are likely to reap the of SAF. Such an environment could allow benefits of early access to insights that set airlines to use SAF and high‐quality offsets them apart. They are likely to be able to share to launch their first regular net‐zero flights. risks and investments, and influence outcomes Beyond having a marketing effect, such in their favour. Engaging with their customers connections would create scale in demand, and others in the aviation sector during the which would make it cheaper to produce early phases of the transition will pay dividends SAF. They would allow airlines to test for such relationships in the future. As these customer offers that support sustainability early initiatives expand, momentum will build, before putting them on other routes in the and more companies will join to create the expectation that they will gradually become necessary scale and impact across the sector. industry standard. These net‐zero value chains should be systematically expanded In this way, decarbonising aviation will be as technologies mature and market cleared for take-off. conditions improve. 15 DECARBONISING AVIATION: CLEARED FOR TAKE - OFF
Where We Are Today
THE DRIVE TO DECARBONISE The 2015 Paris Agreement defined a bold ambition to limit global warming to below two degrees Celsius above pre‐industrial levels and pursue efforts to limit it to 1.5 degrees Celsius. This is to be achieved partly by getting the world to net‐zero greenhouse gas emissions (carbon neutrality) by 2050. In response, many countries, industries and individual organisations set goals and began developing plans to limit their carbon emissions. Action is being taken at global, national, regional and sector levels. There are many positive signs, but the United Nations Environment Programme still says: “On current unconditional pledges, the world is heading for a 3.2 degrees Celsius temperature rise.” Clearly, more needs to be done. Decarbonisation must be accelerated using more focused approaches that produce real action. Such approaches often need to be adopted by whole sectors. Sometimes ‒ for example, when different sectors face similar difficulties ‒ a more unified, cross‐sectoral approach may be needed. 17 DECARBONISING AVIATION: CLEARED FOR TAKE - OFF
06 Global CO₂ emissions by sector (2019) DECARBONISING HARDER‐ TO‐ABATE SECTORS Six harder-to-abate sectors account for a total of 32% of global CO₂ emissions There are six harder‐to‐abate sectors: road Although most emission‐reduction targets, freight; iron and steel; cement; chemicals; including the Paris Agreement, focus on shipping; and aviation. These sectors carbon emissions that contribute to global accounted for around 32% of global warming, there are also non‐CO₂ emissions 8% Road freight CO₂ emissions in 2019, according to that affect global climate. With aviation, these 7% Iron and steel the International Energy Agency (IEA) include nitrogen, sulphur, soot particles and (see Exhibit 06). They share common the formation of contrails. Their impact on characteristics, such as long asset lifespans, climate is complex, and there is uncertainty high energy dependency and being difficult about how to quantify it4. As a result, 7% Cement to electrify. As a result, decarbonising these while recognising that we need a deeper sectors might be more technically demanding understanding of everything that contributes and costly than other parts of the energy to global warming, this research focuses 4% Chemicals system. As decarbonisation happens more on how to reduce the aviation sector’s rapidly elsewhere, pressure and focus on CO₂ emissions – in other words, how to 3% Shipping harder‐to‐abate sectors will probably increase. decarbonise it. 3% Aviation = 1,019 Mt CO₂ 68% Other Source: IEA (2021) 18 DECARBONISING AVIATION: CLEARED FOR TAKE - OFF
CARBON DIOXIDE EMISSIONS IN AVIATION Where we are: Aviation is fundamental to 18 million indirectly, such as in fuel provision the world economy, global prosperity and and construction8. national development. Aviation also provided vital logistical support Aviation greatly assists the socio‐economic in the fight against COVID‐19. Empty aircraft growth of nations. The sector supports were modified to move personal protective $3.5 trillion (4.1%) of the world’s GDP5. If equipment (PPE), vaccines and other aviation were a country, its GDP would essential cargo across the world to help be the 17th biggest in the world6. For combat the pandemic. decades, there have been year‐on‐year increases in aviation volume, measured in The disruption caused by the pandemic has revenue passenger kilometres (RPK) ‒ the dramatically expanded the possibilities of distances travelled by paying passengers. remote working. Lockdowns, though, have These increases have been caused by the also made many acutely aware of the need globalisation of business and rising economic for human contact and the way air travel can prosperity in much of the world. reunite them with friends and relatives. In addition to the benefits described above, Some groups challenging the sector, such aviation has enabled the emergence of a as the flight‐shaming movement, give the global tourism industry, which contributes impression that the way to reduce aviation’s around 10% of global GDP7. The aviation contribution to global warming is to stop flying sector connects people around the world, altogether. These movements tend to ignore fosters cultural exchange, and provides the significant economic and social benefits global access to goods and services. It that aviation brings to individuals and nations. supports 11 million jobs directly ‒ for example, Research participants indicated that the in airlines and airports ‒ and another unintended consequence of focusing so much 19 DECARBONISING AVIATION: CLEARED FOR TAKE - OFF
attention on flight avoidance, may be less Trains may offer a viable and more 07 Global aviation volume and emissions (2019) focus given to developing solutions required environmentally sustainable alternative to short to reduce emissions associated with flying. flights in some countries. Some governments Passenger volume Cargo volume have recently introduced regulation to 8,680 billion RPK¹(85% of total) 1,580 billion RPK, or 253 billion CTK² (15% of total) Where we are: medium‐ and long‐haul encourage such switches to alternative modes flights drive 87% of passenger aviation of transport, known in the industry as “modal 1,580 (15%) volume and 81% of emissions. shift”. For example, France introduced a ban Cargo on short‐haul domestic flights where there Around 11% of the world population – some are high‐speed train alternatives. Austria and 344 (3%) 800 million people – fly9. On average, each Germany have also announced plans to shift Passenger Regional person takes between five and six flights some short‐haul domestic flight operations to Volume a year, which means that aviation carries the railways. (billion RPK) around 4.5 billion passengers per year. These 10,260 total 3,764 (37%) 4,572 (45%) passenger flights account for 85% of aviation But in most lower‐income countries – and Passenger Wide-body Passenger Narrow-body volume in terms of emissions and RPK10 (see many higher‐income ones – the rail network Exhibit 07). Cargo flights account for the is not developed enough to support a switch remaining 15% of emissions. from flying to train travel. High‐speed trains are only an option on a small number of routes in Short‐haul flights – those under 1,000 km – a handful of places, such as Japan, China and Passenger emissions Cargo emissions account for 13% of passenger air travel (see parts of Western Europe.12 869 Mt CO₂ (85% of total) 150 Mt CO₂ (15% of total) Exhibit 08) and 19% of emissions. The emission intensity of short‐haul flights is the highest, The longer the distance, the fewer the because with each departure, a significant alternatives to aviation. Shifting from air to rail 150 (15%) amount of energy is required for the climb, might, optimistically, only reduce emissions Cargo accounting in many cases for more than by around 45 Mt CO₂13, or around 5% of 372 (36%) 62 (6%) half the total energy needed for the flight11. passenger emissions globally. One airline Passenger Wide-body Passenger Regional However, the majority of emissions – 81% ‐ said: “Modal shift receives a lot of attention Emissions³ originate from medium and long‐haul flights. in certain countries, but its global impact will (Mt CO₂) be negligible.” 1,019 total 435 (43%) Passenger Narrow-body Source: ICCT (2020); IEA (2021); Deloitte analysis Notes: 1) RPK = Revenue Passenger Kilometres, indicates number of kilometres travelled by paying passengers; 2) CTK = Cargo Tonne Kilometres, estimated based on a passenger equivalent freight mass (PEFM) of 160 kg, one tonne divided by 160 kg is 6.25, therefore, 6.25 RPK is the equivalent of one CTK (Chandra et al., 2014), including belly freight and excluding luggage; cargo flights not allocated to specific aircraft class; 3) Metric megatonnes of CO₂ 20 DECARBONISING AVIATION: CLEARED FOR TAKE - OFF
08 Passenger flights volume (RPK) by flight distance (2019) Potential for modal shift Short-haul Medium-haul Long-haul 1,097 billion RPK (13%) 4,285 billion RPK (49%) 3,298 billion RPK (38%) 163 Mt CO₂ (19%) 386 Mt CO₂ (44%) 320 Mt CO₂ (37%) Passenger RPK, billions 2,500 2,000 217 401 1,500 106 1,000 1,182 1,806 1,404 1,536 1,504 500 230 98 16 181 0 Flight distance (km) 0–1,000 1,001–2,000 2,001–4,000 4,001–8,000 8,001–15,000 Total Route example London – Berlin London – Rome London – Beirut London – New York London – Jakarta RPK (billion) 1,097 2,222 2,063 1,790 1,508 Passenger volume = 8,680 billion RPK Emissions (Mt CO₂) 163 210 176 170 150 Passenger emissions = 869 Mt CO₂ Emission intensity 149 95 85 95 99 (g CO₂ / kRPK¹) Wide-body Narrow-body Regional Source: ICCT (2020); IEA (2021); Deloitte analysis Notes: 1) g CO₂/kRPK stands for grams of CO₂ per thousand revenue passenger kilometres 21 DECARBONISING AVIATION: CLEARED FOR TAKE - OFF
Where we are heading: Aviation 09 Drivers of air travel volume (2019, 2030 projected) volume is expected to more than double by 2050, driven by population and economic growth. The growth in aviation volume has been the Air traffic Air traffic per volume fundamental cause of the sector’s increasing CAGR capita¹ (passengers emissions. Aviation volume has historically GDP per (passengers Population carried, = compound developed in step with population growth capita (USD) carried) (millions) thousands) annual growth rate and economic activity. Corporate and leisure travel have both increased in the past 65,298 2.8 328 927 US 0.3% 61,719 2.7 355 957 30 years, when many people have risen from poverty to the middle class ‒ especially in Asia. Euro 38,920 1.8 347 634 3% Area 44,479 2.5 350 859 Air travel reduced significantly during the COVID‐19 pandemic, but this is not expected to have a lasting effect on aviation volume. 16,620 0.5 1,420 660 China 15% 25,461 2.0 1,441 2,942 Most observers expect aviation volume to grow in the coming decades, as global economic development restarts after the 2,100 0.1 1,369 167 pandemic (see Exhibit 09). The growth in India 19% 4,429 0.8 1,513 1,138 aviation volume is likely to be greatest in Asia and Africa, where population and economic growth are most pronounced.14 1,900 0.1 1,308 168 Africa 7% 2,126 0.2 1,688 357 There will be growth in all 11,433 1.5 7,674 4,397 World² 12% regions for the decades to 16,074 1.7 8,551 14,557 come, especially in places with a growing middle class. Engine manufacturer 2019 2030 Sources: African Economic Outlook (2021); Bloomberg (2019); OECD (2021); Statista (2021); World Bank (2021); Deloitte analysis Notes: 1) Air traffic per capita projection based on average historic trendline across all countries; 2) World average for GDP and air traffic per capita, and world total for population and air traffic volume 22 DECARBONISING AVIATION: CLEARED FOR TAKE - OFF
10 Expected aviation volume development (indexed, 2019 = 100) Global economic growth, population growth Global population Volume vs 2019 (%) 250 historic forecast in Africa and Asia, spending power Global GDP x 2.2 ~22,000 billion RPK¹ Passengers 200 Impact of COVID-19 (short-term); reduced business travel Cargo due to remote working; and modal shift (short-haul) Possible impact on lower 150 and upper bounds 10,260 billion RPK Index = 2019 100 50 Sources: Shell Energy Transformation Scenarios (2021); Deloitte analysis 0 Notes: 1) Assuming only small ticket price increases; Including cargo – Cargo Tonne Kilometres are converted into RPK assuming an ’00 ’05 ’10 ’15 ’20 ’25 ’30 ’35 ’40 ’45 ’50 equivalent of 6.25 RPK per CTK A relatively conservative view is that in the Corporate travellers are expected to be more than double by 2050, as aviation emissions by 2050 relative to 2005 levels. next 30 years, passenger traffic will more than relatively slow to return to flying, having volume increases. Industry targets will be This would be equivalent to a 65% reduction double from 2019 levels, to around 22 trillion grown accustomed to remote working and missed and net‐zero will be way off. in net emissions compared with 2019. RPK by 2050 (see Exhibit 10). “Developed” digital meetings during the pandemic. Leisure and “developing” countries are both expected travellers are expected to be much quicker to The aviation industry has set two Many interviewees said these targets did to contribute to this growth; developed start flying again. “People are keen to travel. internationally applicable emissions‐ not go far enough, given society’s growing countries have yet to show signs of saturation, Once the vaccines kick in and restrictions reduction targets. expectations around energy transition. They and in developing countries, people are are lifted, many parts of the world could be thought the aviation sector should be pursuing starting to fly at lower income levels. back to normal next year,” said one industry The UN’s International Civil Aviation full carbon‐neutrality, (net‐zero), by 2050, association executive. As COVID‐19 travel Organization (ICAO) has set an ambition similar to many other sectors. Long‐term projections of aviation volume vary. restrictions are lifted, accumulated demand in to have carbon‐neutral growth from 2020. For example, the IEA predicts 15.6 trillion the leisure segment is likely to help the sector This is to be achieved through the global Historically, the main motivation for efficiency RPK by 2050, while the Air Transport Action quickly recover to pre‐pandemic levels, or Carbon Offsetting and Reduction Scheme for improvements in aviation has been economic. Group (ATAG) estimates 20 trillion RPK. The even exceed it on some routes. International Aviation (CORSIA)15. Reduced fuel consumption meant lower difference between these forecasts is primarily operating costs. Reductions in emissions down to differing expectations of how the Where we are heading: Unless the sector The International Air Transport Association tended to be seen as a welcome by‐product pandemic will affect passenger behaviour. takes action, emissions are expected to (IATA) has made a commitment to halve net of the efficiency gains. The main way of 23 DECARBONISING AVIATION: CLEARED FOR TAKE - OFF
achieving efficiency improvements has traditionally been fleet renewal – changing an airline’s fleet of aircraft. For example, the Boeing 787 Dreamliner is 20‐25% more fuel‐efficient than predecessors such as the 767, because of improved aerodynamics, lightweight construction and more efficient engines16. But interviewees said efficiency improvements will have less impact on total emissions in the coming decades, because their effects will be outweighed by rising aviation volume. At current efficiency levels, and in the absence of fundamental changes to the fuel mix, absolute emissions from aviation are expected to more than double in next 30 years compared with pre‐COVID levels (see Exhibit 11). One airport operator said: “Fuel efficiencies have been outpaced by growth. It is an absolute emissions game, not a relative one.” If we compare net‐zero with business‐as‐usual levels of emissions, the gap in 2050 could be as large as 2,180 Mt CO₂. To put that figure in perspective, it would be similar to India’s carbon footprint in 2018 (2,650 Mt CO₂), which is the country with world’s third‐largest carbon footprint after China and the USA17. It is believed that aviation needs to achieve a 35% reduction in absolute net emissions and a 50% reduction in net emission intensity by 2030 if it is to reach net‐zero by 2050. 24 DECARBONISING AVIATION: CLEARED FOR TAKE - OFF
11 Aviation emission projection and goals (indexed 2019, Mt CO₂ = 1,019) To meet net zero, a 50% reduction in net emission intensity will be needed by 2030. Absolute net Net emission emissions intensity CO₂ vs. 2019 CO₂/RPK vs. 2019 Emissions and goals vs 2019 (%) 250 Mt CO₂ 2030 2050 2030 2050 (% of 2050 emissions) historic forecast x 2.2 2,180 (100%) +30% +114% 0% 0% 200 At 2019 efficiency levels, emissions could Emissions at 2019 more than double by 2050, directly efficiency¹ following volume 150 1,019 (47%) -0% -70% -23% -53% Index = 2019 1,019 Mt CO₂ 100 Carbon-neutral growth 10,260 billion RPK (CORSIA) 325 (15%) -0% -90% -23% -85% 50 -35% in 2030 towards net zero -50% by 2050 (IATA)² compared to 2005 0 0 (0%) -35% -100% -50% -100% ’00 ’05 ’10 ’15 ’20 ’25 ’30 ’35 ’40 ’45 ’50 Net zero³ Sources: IATA (2021); ICAO (2019); Shell Energy Transformation Scenarios (2021); Deloitte analysis Notes: 1) Emissions at 2019 efficiency directly follow volume; 2) IATA target starting from 2035 due to parallel commitment to CORSIA carbon-neutral growth until 2035; 3) Pathway towards net-zero target assumed to start from 2022 emission levels to prevent intensified burden to emission reductions at a later stage 25 DECARBONISING AVIATION: CLEARED FOR TAKE - OFF
Where we are: Aviation is a highly Many study participants said this 12 Market shares in aviation concentrated industry, which makes it easier concentration can help aviation to to make progress around decarbonisation. decarbonise. On the supply side, the high market shares of key engine and aircraft Engine Aircraft If we examine the global aviation fleet, manufacturers, airports and airlines mean Airlines Airports manufacturers manufacturers we find that: decisions can be made relatively quickly and have significant global impact. the top two engine manufacturers ~75% 90%+ 46% 45% account for around 75% of the market; On the demand side, emissions are Top 2 Top 2 Top 25 Top 25 the top two aircraft manufacturers have concentrated among frequent flyers. an over 90% market share; Out of around 800 million air passengers 1,000+ 4,000+ the top 25 airlines account for almost worldwide, 150 to 300 million individuals other other 2 other half of global volume; and account for about half of all aviation emissions 3 other (see Exhibit 13). Aircraft Aircraft RPK¹ (%) Passengers (%) of the 100,000 airports globally, the engines (%) deliveries (%) top 25 account for almost half of RPK The financial and behavioural support and emissions. of this group of passengers will have This means that aviation is a highly a particularly significant role in helping Source: IATA (2020) WATS+; ICAO (2016) Air Navigation Report; ICAO (2019) Annual Report; RoutesOnline (2019) Busiest Routes in the World; Statista (2020) Engine Manufacturer Market Share; Statista (2020) Number of Jets Delivered to Global Fleet by concentrated industry, in terms of manufacture, aviation to decarbonise. Manufacturer; ICCT (2020); Deloitte analysis asset ownership and emissions (see Exhibit 12). Notes: 1) Including cargo – Cargo Tonne Kilometres are converted into RPK assuming an equivalent of 6.25 RPK per CTK 26 DECARBONISING AVIATION: CLEARED FOR TAKE - OFF
13 Concentration of passengers and emissions – ILLUSTRATIVE ~800 million ~150 to 300 million frequent Aviation represents almost individuals fly flyers make up about half of half of the frequent flyers’ aviation emissions individual carbon footprint 7.9B people globally 1,019 Mt CO₂ 16 t CO₂e per person² Frequent flyers 2–4% (5+ flights p.a.) 7–9% Aviation Emissions from flights taken ~50% 45% Occasional flyers (less than 5 flights p.a.)¹ Other travel 9% Emissions from a small petrol car, driven 2 to 5 89% hours per week Home 0 flights p.a. Emissions from energy consumption for heating, 18% ~35% appliances, etc. Food 13% Emissions from diet, consumption at restaurants and take-outs and food waste Goods 15% Cargo 16% Emissions from clothes and footwear, beauty and health products, appliances and other products Share of global Total aviation emissions Emission of aviation in personal population flying footprint of a frequent flyer (5 flights per year) Sources: Centre for Aviation (2015); Gössling and Humpe (2020); ICCT (2019); UNFCCC (2020); WWF Footprint calculator (2021); Deloitte analysis Notes: 1) Occasional flyers include individuals that take flights every few years; 2) Based on UK citizen, in tonnes of CO₂ equivalent 27 DECARBONISING AVIATION: CLEARED FOR TAKE - OFF
WAYS TO REDUCE AVIATION EMISSIONS Where we are: The sector knows how take decades, and may be impossible in to reduce emissions from aviation, and some cases. must increase the use of options available today. Otherwise, it will fail to do enough With electric power, battery weight and in the time left to tackle climate change. volume constraints would need to improve dramatically to deliver the same energy as jet Industry stakeholders expect SAF, efficiency fuel. This may make it impractical to transport improvements and significant increases in an aircraft full of passengers on medium‐ and the use of high‐quality offsets to play key long‐haul routes. Similarly, hydrogen requires roles in reducing emissions before 2050 (see four times the volume of jet fuel even when Exhibit 14). compressed to liquid form and stored at ‐250 degrees Celsius18. One manufacturer Changing to alternative propulsion said: “Hydrogen handling and storage is a technologies such as batteries or hydrogen serious challenge. Fuel cells simply cannot be will be much harder than just switching from scaled to support long‐haul flights, and direct kerosene to SAF. “It will take decades to re‐ combustion will take years to develop.” fleet aircraft and switch to new zero‐emissions technologies,” said one aircraft manufacturer. One industry association executive said passenger and regulator concerns may also It took more than 50 years to reach the slow the adoption of the new technology: current levels of performance and reliability “Even if a new technology is ready, it might in kerosene‐based aircraft systems. Achieving not be socially accepted or approved by similar performance and reliability with new regulators because of safety considerations.” systems based on batteries or hydrogen will 28 DECARBONISING AVIATION: CLEARED FOR TAKE - OFF
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