Is aviation net zero an impossible target?

IBA today outlined the challenges that the aviation industry will face in the coming decades from the cost of reducing carbon emissions. In a webinar entitled “Net Zero for Aviation – an impossible target?”, the leading aviation market intelligence and consulting company considered the industry’s plans to de-carbonise and the cost of those actions.

Using its NetZero solution, a new element of its award-winning Carbon Emissions Calculator, which models risk by simulating and forecasting the cost of future emissions mitigation, IBA has set out the parameters in which the industry will need to operate if it is to achieve net zero emissions by 2050.

Great carbon efficiency, but emissions rebounding

The aviation industry has achieved a 5.9% reduction in emissions per seat per mile since January 2018, as many airlines accelerated the retirement of older aircraft during the pandemic. 

However, air traffic volumes are recovering fast and driving a rebound in emissions levels. IBA forecasts that carbon emissions for 2022 will be 800 million tonnes (CO2) - 36% higher than 2021 – and that emissions in 2023 will match the previous peak of 916 million tonnes in 2019.

No readily available technology to de-carbonise aviation

Electric power units for aircraft are also developing but the current limits in battery and charging technology mean that it isn’t suitable for large aircraft flying long distances. IBA estimates that only small aircraft of less than 19 seats could be battery powered by 2030 and, by current comparisons, jet fuel delivers 14 times more power than equivalent mass of batteries. 

While hydrogen has four times the volume of jet fuel, it is three times lighter, making it a potentially suitable replacement for carbon fuels. However, the capital-intensive cost of completely redesigning commercial aircraft, and the changes required to airport infrastructure, make this only a long-term possibility. Airbus has set a target of 2035 for introducing hydrogen powered aircraftbut, considering certification and production, IBA believes 2040 is more realistic.

Heavy reliance on SAF

Sustainable Aviation Fuel (SAF) is the only current ‘drop in’ route to continuing emissions reductions but, while its availability is increasing, its supply levels remain limited, with only 125 million litres produced in 2021 – less than 0.1% of total annual jet fuel consumption last year - and it is three times more expensive on average than Jet A1.

The aviation industry has already planned a heavy reliance on SAF on its journey to net zero by 2050. IATA’s plan calls for 65% of carbon reduction to be achieved by using SAF, while just 13% is achieved from new technology and 19% from offsets and carbon capture.  EUROCONTROL’s plan assumes 41% reliance on SAF and the FAA’s is 70%.

Offsetting the only medium-term solution

To enable airlines to continue the journey of reducing net emissions without waiting for higher SAF availability and new aircraft technology, IBA believes the only solution is increased levels of carbon offsetting.

This approach comes with significant financial risk for the aviation industry, given the variance in carbon prices, and caps in emissions trading schemes across the globe. Currently, UK and EU carbon costs are much higher than any other scheme, at US$101.9 and US$89.8 per tonne respectively, compared to US$8.8 in China.

Carbon taxes have major economic and operational impacts

Carbon taxes are set to materially increase the cost of flying within Europe within the next decade. IBA forecasts that, depending on the carbon cost, the price of a one-way ticket from London to Madrid could rise between US$26 (EUR26) and US$34 dollars (EUR34) by 2030.

This impact on prices may also cause airlines to use aircraft seasonally and more tactically, given that higher year-round utilization to offset fixed costs will be less economic, and as demand for discretionary leisure travel will drop, especially in the ‘off season’. Less efficient aircraft are likely to be used on shorter sector lengths and, while demand for more efficient aircraft is likely to increase, lower cashflows from reduced ticket revenue may hinder airlines’ ability to purchase them.

IBA estimates that carbon taxes could cut growth in European passenger demand by up to two-thirds in the coming decade. In the 10 years leading up to the pandemic, growth was on average 4.5%. However, taxes that drive carbon costs to US$75 per tonne could reduce this growth rate to 3.5% per annum, while carbon costing US$150 per tonne could slash the annual growth rate to just 1.5%.

This reduction in growth would cause material damage to not only the aviation industry in Europe but also to its countries’ economies. With free carbon allowances set to be phased out from 2027, higher costs are set to be passed on to consumers and drive a reduction in passengers of between 124 million and 240 million by 2030 (depending on individual market carbon price levels). This in turn is set to drive down aviation’s contribution to European GDP by between US$110 billion and US$215 billion.

Where next for the aviation industry?

The risk to the world’s economies may lead some governments to cushion the cost burden the aviation industry is set to bear with measures such as slower phasing out of carbon allowances, new allowances for the use of SAF, and reductions in other aviation taxes.

The reporting burden on the aviation sector is set to increase as voluntary ESG disclosures that are increasingly the norm will be superseded by mandatory reporting in Europe from 2024, and possibly earlier in the US.

Ian Beaumont, CEO of IBA, says: “For airlines and lessors, forecasting future emissions is now a key part of the business planning process, if they are to plan and build a realistic strategy to achieve net zero by 2050.”