Sustainable Aviation Fuels and the wider implications of climate … – Clyde & Co

Sectors
Services
Products
Is your business prepared for climate change?
Click each term for related articles
Clyde & Co LLP is a limited liability partnership registered in England and Wales. Authorised and regulated by the Solicitors Regulation Authority.
© Clyde & Co LLP 
clydeco.com
UK & Europe
Aviation
Sustainable Aviation Fuels (SAF) are liquid fuels used in commercial aviation which can reduce CO2 emissions by up to 80% and are produced from feedstock including waste fats, oils and greases, municipal solid waste, agricultural and forestry residues and wet wastes as well as non-food crops cultivated on marginal land and synthetic processes that capture carbon direct from the air.
SAF are described as “sustainable” as their feedstocks do not compete with food crops or output and do not require using resources such as water or land clearance or lead to deforestation or biodiversity loss. Aviation contributes to less than 2% of the world’s carbon emissions but is seen as one of the more challenging sectors to decarbonise as the world seeks to achieve the target of Net Zero emissions by 2050. 
SAF are already in use but not to the extent needed to make a significant impact so there needs to be a massive ramp up of production and availability in the coming decades. IATA has estimated SAF could contribute 65% of the reduction in emissions needed by the aviation industry to reach Net Zero by 2050.  Airlines will need to engage with SAF to allocate resources for compliance with mandates. There will be pressure from the public, as consumers and businesses will increasingly be looking at climate credentials in deciding who to travel with.
The EU Taxonomy Regulations, enacted in July 2020, instituted an EU wide classification system for environmentally sustainable activities aimed at directing investment towards those sustainable activities. There are exemptions for industries like aviation where low carbon alternatives are not yet technologically feasible so long as they meet certain criteria. Delegated Legislation provides further detail on the technical criteria to determine which kinds of aviation-related economic activity would constitute a “transitional activity” for the purpose of the EU Taxonomy Regulations. In relation to SAF, this legislation states aircraft would be required to run on a 100% blend of SAF from 1st January 2028.
SAF is currently 3 to 4 times more expensive than fossil-based jet fuel. It is estimated that prices may still remain twice as high by 2050, even if production is scaled up, so alternative methods of emissions reduction need to be considered by industry stakeholders. 
The alternatives to SAF are:
Sustainability-linked finance is designed to incentivise the borrower’s achievement of environmental, social, or governance targets through pricing incentives. In the Aviation sector the focus has predominantly been on environmental targets. Sustainability-linked loans or bonds are not concerned specifically with how the money is being spent, rather the loan or bond pricing is linked to the overall performance of the company on key performance indicators. The market for sustainability-linked loans and bonds for aviation is gaining traction as lenders and leasing companies grapple with their own sustainability targets with a focus on newer technology aircraft and engines, reduction in emissions and proportion of SAF used as part of an operator’s annual aggregate fuel usage in terms of key performance indicators. This approach also follows the guidance of industry bodies such as the LMA and LSTA in terms of structuring sustainability linked loans. 
There have been some cases of airline statements on sustainability being successfully challenged by advertising and regulatory bodies as constituting false advertising. Claims airlines make about their green credentials cannot give the impression that, for example, their flights are carbon neutral or that flights are 100% SAF when this is impossible in the current environment. 
In the context of expanding sources of climate change regulation and scrutiny of corporations and airlines, it is becoming increasingly important for airlines to be aware of developments in this fast-changing area and implement a strategy to mitigate the risks from the inevitable challenges on the horizon.
End
Share:
Partner
Knowledge Lawyer
Sign up to receive email updates straight to your inbox!
Clyde & Co LLP is a limited liability partnership registered in England and Wales. Authorised and regulated by the Solicitors Regulation Authority.
© Clyde & Co LLP 
clydeco.com

source