One of the world’s largest oil and gas companies is betting that the future of flying is carbon-neutral.
That may seem an audacious notion from a company whose business model for well over a century has centered around bringing fossil fuels to market — and is banking on petroleum being a key, albeit declining, fuel for decades to come. And it may seem unlikely that an industry as carbon-intensive as aviation — a hard-to-abate sector, in the argot of the climate policy crowd — somehow might emerge with its green credentials flying high in a climate-constrained world.
But we’re collectively traversing uncharted territory during unprecedented times, creating unparalleled opportunities to transform some of our most unsustainable systems.
Over the past year, I’ve been working with Royal Dutch Shell’s aviation division — a relatively small slice of the $344 billion (2019 revenue) energy behemoth — to develop a series of video interviews focusing on what it will take to make aviation sustainable. (I was paid by Shell for this work but not to write this article, which has not been reviewed by the company.) Along the way, I’ve spoken with airline consultants, fuel producers, carbon offset experts and industry critics, as well as with Shell executives, to understand the technologies and market drivers that could, over time, enable aviation to align with other industries in meeting the terms of the 2015 Paris climate agreement.
While I’m not yet convinced aviation can become truly sustainable, I’m encouraged that there is at least a flight path pointed toward that destination.
It’s been a fascinating journey. And while I’m not yet convinced aviation can become truly sustainable, I’m encouraged that there is at least a flight path pointed toward that destination.
In some respects, this couldn’t have been a worse time for these conversations. Although it certainly wasn’t planned, the interviews I conducted during 2020 largely coincided with the aviation sector’s worst downturn in history. The global industry has been losing tens of millions of dollars a day and has shed hundreds of thousands of jobs. Passenger volumes took a nosedive, down precipitously from 2019 levels. The global market for business travel is projected to decline 54 percent during 2020, according to data by ResearchAndMarkets.com, which predicts a robust recovery for the industry — by 2027. Leisure travel was down even more. Only the air cargo business is up.
And yet the conversation about sustainable aviation continues to maintain altitude.
Some of that is driven by CORSIA, the Carbon Offsetting and Reduction Scheme for International Aviation, a 2016 agreement governing international flights, developed by the 191-nation International Civil Aviation Organization (ICAO), a United Nations body. CORSIA applies only to international flights, which account for most of aviation’s carbon footprint and around 1.3 percent of global greenhouse gas emissions, according to ICAO. The goal was to have carbon-neutral growth beginning next year — that is, to decouple greenhouse gas emissions from increases in air travel.
Thanks to the pandemic, ICAO changed the baseline of CORSIA to include only 2019’s emissions, as opposed to the original plan to use an average of the sector’s emissions during 2019 and 2020, which would have set the emissions cap much lower due to the 2020 downturn.
Fuels rush in
CORSIA has helped catalyze a new generation of biofuels and carbon offsets, the two primary tools for reducing the aviation industry’s contribution to climate change.
Shell, which has been in both the biofuels and offsets business for years, saw an opening. Its aviation division — which has provided fuel and lubricants for airports and airlines almost since the dawn of commercial aviation, and today serves about 900 airports in 60 countries — began a concerted effort to seize the moment. The push to become a sustainable aviation solutions supplier also aligned with the company’s ambition, announced to investors in April, to become a net-zero-emissions energy business by 2050.
Shell is just one of several oil companies eyeing new business opportunities in sustainable aviation, particularly at a time of flat or declining outlooks for petroleum-based fuels. In addition to Shell, oil majors including BP, Chevron, Eni, Neste, Phillips and Total are vying for a piece of the action in sustainable aviation, often in partnership with smaller renewable fuel producers, including Aemetis, Fulcrum BioEnergy, SkyNRG, Sundrop Fuels, Velocys and World Energy.
"We have been focusing with the industry to make sure we are ready when our customers need us and we can go back and fly again," Anna Mascolo, president of global aviation at Shell, told me. "At the same time, what is also becoming very clear is that society, individuals and companies also feel an obligation to make sure that we look at long-term targets and ambitions like sustainability."
Part of Shell’s quest is to become a leading purveyor of sustainable aviation fuel — SAF, for short — that is slowly but surely making its way into the airplane-fueling pipeline. SAF can be made from a variety of materials and byproducts, from agricultural waste and specially grown crops to used oils, inedible fats and everyday household trash.
SAF is what’s called a drop-in fuel, meaning it can substitute one-to-one for traditional, kerosene-based jet fuel, known as Jet A, though current technologies limit the percentage of SAF to no more than about 50 percent on a given flight. That’s a largely theoretical limit. Because of SAF’s higher price and limited availability, most planes flying with SAF operate with a blend of less than 1 percent SAF — barely enough to justify bragging rights. Most SAF is deployed in Europe and in California, where policy initiatives provide incentives for SAF and other low-carbon fuels.
Supply, meet demand
Even with incentives, SAF can be a tough sell. "Historically, what CEOs and aviation companies have done is send demand signals through their willingness to enter into offtake contracts with potential producers," explained Bryan Sherbacow, chief commercial officer at World Energy, which produces SAF at a facility about 15 miles east of Los Angeles International Airport.
"The issue," he said, "is that the price sensitivity within those contracts is such that they’re saying, ‘If you can produce it at a price that’s comparable to my current opportunity, then we’ll buy as much as you can produce.’ So, while the demand is there, if we can’t drop the price to be competitive with existing fuels today, that demand diminishes."
The "price sensitivity" Sherbacow speaks of is no small thing. A gallon of SAF can cost up to five times that of Jet A, according to S&P Global Platts Analytics, and it’s unlikely that market forces alone can bring that down to the point where the demand for SAF could justify dramatically scaling up production. Given that fuel is an airline’s second-biggest expense after labor, SAF’s price premium is pretty much a show-stopper, at least without incentives.
Incentives notwithstanding, getting the price down will take the engagement of Big Oil, Sherbacow told me — "an incumbent industry that has entrenched relationships, entrenched cost structures, entrenched incentives."
World Energy has become a key partner of Shell Aviation. Earlier this year, the two companies signed a multiyear agreement to develop a scalable supply of SAF. It’s one of several partnerships in which both companies have participated. In November, for example, Shell, World Energy and Amsterdam-based SkyNRG announced they would partner with aircraft engine maker Rolls-Royce to test the potential for using 100 percent SAF in future engines.
There is no shortage of collaborations seeking to jumpstart markets for SAF.
There is no shortage of such collaborations seeking to jumpstart markets for SAF. For example, there’s the well-pedigreed Clean Skies for Tomorrow Coalition, with the goal "to align on a transition to sustainable aviation fuels." It is led by the World Economic Forum, Rocky Mountain Institute and the Energy Transitions Commission, along with industry players Airbus, Boeing, KLM Royal Dutch Airlines, Amsterdam’s Airport Schiphol, London’s Heathrow Airport, Shell, SkyNRG and SpiceJet. There’s also the Jet Zero Council, a U.K. government initiative led by Airbus, Rolls-Royce and Shell "to fast-track zero-emission flight."
"Collaboration is really going to be key," Mascolo said.
That applies to more than passenger airlines. Another significant Shell partnership is with Amazon. In July, the logistics and retail giant announced plans to buy 6 million gallons of SAF from Shell over 12 months. The fuel will be produced by World Energy and made from agricultural waste fats and oils, such as used cooking oil and inedible fats from beef processing.
"As our operation continues to expand and continues to become more visible — whether that's with trucks on the road, vans on the road or with aircraft — our carbon footprint is becoming more visible," Raoul Sreenivasan, director of planning and performance at Amazon Air, explained during a panel at the VERGE 20 conference in October. "And our research does tell us that for customers, specifically in the U.S. and in Europe, this is a top-of-mind issue." Amazon’s two biggest U.S. competitors, UPS and Fedex, are similarly ramping up SAF for their cargo planes.
Amazon's SAF purchase is likely a drop in the bucket of its overall aviation fuel spend — the company doesn’t disclose its annual fuel consumption — but these types of demand signals are critical in creating long-term markets for SAF.
Going neutral, naturally
Fuel is only part of the sustainable aviation equation, especially in the short to mid-term.
"The technologies and the fuels are not available in quantity today to enable the airlines to get immediately on the trajectory of transforming to net-zero," explained Annie Petsonk, who focuses on aviation issues in her role as international counsel for the Environmental Defense Fund. "So, you need offsets as a bridge to help them to get to that trajectory. But the offsets have to meet rigorous quality standards. Otherwise, they won't actually be helping the planet."
The technologies and the fuels are not available in quantity today to enable the airlines to get immediately on the trajectory of transforming to net-zero.
The demand for high-quality carbon offsets has been growing steadily in recent years, thanks in part to the spate of net-zero commitments put forth by companies, industries, cities and nations. And that’s just for voluntary offsets. There’s a much larger compliance market, where utilities and other regulated entities buy and "retire" offsets to meet certain mandatory caps. The most active compliance program is the United Nations Clean Development Mechanism, the source of offsets for Kyoto Protocol signatory nations, as well as buyers in the European Union Emissions Trading Scheme.
Nearly 20 years ago, in 2001, Shell set out to become a player here, too, establishing a network of offset trading desks around the world.
"My day starts in the New Zealand market," Bill McGrath, general manager of global environmental products at Shell, explained to me recently from his base in London. He oversees the company’s offset trading operations, which are housed in London, Shanghai, Singapore and San Diego. Traders follow the sun, making deals during the business day in Australia, Korea, China, Europe, South Africa and, finally, the Americas.
One of the main drivers for all this activity is Shell’s own global operations, many of which sit within jurisdictions that are part of emissions trading schemes. To meet its obligations in those places, Shell needs access to tens of millions of tons of offsets annually.
"We have refineries that are emitting 5 million or 6 million tons of carbon dioxide per annum, and we have to manage the allowance system around that and trade with other entities to ensure that we can comply with the requirements of those systems," David Hone, Shell's chief climate change adviser, explained. "It's quite a big business."
The central focus of Shell’s offsets are what’s known as nature-based solutions — afforestation, reforestation and various other ways to remove carbon dioxide from the atmosphere using natural processes, Hone said. "We are channeling something like $300 million of investment into our own forestry projects and turning that into units that we can provide to the aviation industry to offset their emissions."
Offset prices are all over the map, from $3 per ton to $40 or more, with the price often, but not always, synonymous with quality. And while organizations are setting de facto global standards for offset quality, they are not yet universal. Both price and quality issues have hindered the market uptake of offsets, although that's changing.
As the market for voluntary offsets ramps up, McGrath believes price and quality will become more predictable: "One of the things that spurs developers is getting clarity about what the forward price and forward volume of demand is. When that arises, investment flows. So, one of the things that may emerge by 2025 is far greater clarity about the volume and price that offsetting commands on the buy side, so that the supply side can respond."
Carbon offsets aren’t universally loved, and the markets can be complicated and unnecessarily opaque. And they may not be needed to make aviation sustainable as much as some people think. Last week, United Airlines committed to zero out its greenhouse gas emissions by 2050 — without using offsets. (The company also announced that it holds more than half of all "publicly announced future purchase commitments to using SAF.")
Still, offset markets will become an increasing fact of life for more industries and companies that set their sights on net-zero emissions. That’s especially true for those seeking to offset aviation emissions — from fuel providers to airlines to the flying public.
Just the ticket
Which brings us to another important piece to the sustainable aviation puzzle: passengers. It wasn’t lost on pretty much everyone I interviewed that the flying public will need to begin doing its part to help make aviation sustainable.
"Our research indicates that consumers would prefer to fly on airlines that are actually investing in high-quality offsets, and that are delivering real climate and social and health benefits in local communities," EDF’s Petsonk said. "They're willing to pay more for that air ticket if they're convinced that the airline is serious about making the investment."
Airlines for years have offered ticket buyers the ability to offset the emissions from their flight, with minimal customer uptake — single-digit percentages, by most estimates. And in an era when some airlines nickel-and-dime passengers for just about everything, it’s understandable that chipping in for offsets likely won't be high on most flyers’ list — at least, not voluntarily.
There’s a role here for travel aggregators — the Orbitzes and Expedias and Kayaks of the world — which can help make offsetting a flight an opt-out exercise instead of opt-in. Also, travel influencers — people with an online presence who encourage their followers to travel to particular places or on particular airlines.
"The Instagrammers, the people who have large followings in the leisure travel community, they can be enormously influential as they become more aware of the need to protect the beautiful places that they're encouraging people to travel to and to protect the climate in order to save those beautiful places," Petonk said.
The Instagrammers can be enormously influential as they become more aware of the need to protect the beautiful places that they're encouraging people to travel to.
Of course, there’s also a significant role for corporate travel buyers.
"Companies are starting to ask airlines, ‘How are you going to help me reduce my Scope 3 travel-related carbon emissions?’" said Angela Foster-Rice, senior vice president at Everland, which markets and sells forestry-based offsets, and who previously spent 16 years in environmental and sustainability roles at United Airlines.
While at United, Foster-Rice spoke to a number of key corporate customers. "That was a few years ago, and we were already seeing demands by customers: ‘I see that you're engaging in great, long-term innovations to decarbonize, but what can you do for me today? How can I compare airlines? How can you help me have a lower footprint?’ There's a growing demand and interest — particularly by business customers, but also with general consumers — around airlines needing to reduce their footprint in order to help passengers reduce their footprint."
Technology, policy, finance
If aviation offsets don’t get sufficient uptake voluntarily, perhaps they will be forced on flyers. One recent proponent of such measures is John Holland-Kaye, CEO of Heathrow Airport: Passengers should pay higher flight taxes if their plane uses traditional fuel instead of SAF, he said.
Levying a passenger fee is just one of many measures that could provide favorable tailwinds for sustainable aviation initiatives.
"The biggest piece that we need is policy," Foster-Rice said. "Because the technology exists. There's a real demand by airlines to have SAF, but the costs are just too high. And in order to address that, this is still a very fledgling industry. And the only way to really get there is to have the right policies in place."
Petsonk agrees: "What we think is needed is a joint effort involving governments, the airlines and their largest customers to develop innovative financial instruments and government support to bridge the gap between conventional jet fuel and sustainable aviation fuel, provided that that sustainable aviation fuel meets very rigorous quality standards."
That sentiment was another through line among nearly all of the interviews I conducted.
Bryan Sherbacow: "We’ve had significant interest, and we have access to capital. The issue is that to deploy that capital, investors want to have security into the future of consistent policy that’s going to support our activity and the return on their investment. Today, we don’t have that. It’s uneven with regard to what types of fuels are being incentivized. It’s also uneven as to whether they’re going to be able to rely upon that policy on a consistent basis into the future sufficient enough for investors to feel comfortable."
Even with policy incentives, an arguably tougher challenge in transitioning aviation toward carbon neutrality is lining up the various parts of the aviation ecosystem — including both the fueling and the offset value chains — within the industry’s complex web of interests.
Anna Mascolo feels that Shell has a key role to play in this regard beyond merely selling sustainable aviation fuels and offsets.
"I think the role that we can play is actually a really good role. It's not an easy one, and it's one where we will have to maybe step out a little bit of our comfort zone. We need to look at the whole ecosystem. We need to look at airlines. We need to look at producers. We need to look at logistics providers. We need to look at manufacturers. We need to look at airports. We need to look at government regulators. Everybody needs to play a role, because the challenge is too big to be tackled by one single company on its own."