By Natalie Lonergan, Partner and Dylan Matthews, Associate, Mills Oakley Energy & Resources team.

1. INTRODUCTION
   1. Australia has made various commitments to sustainability and reducing carbon emissions across various industries, including aviation. The aviation sector is one of the fastest-growing emitters of greenhouse gases, contributing significantly to global climate change. Globally, aviation accounts for approximately 3% of global emissions, with a predicted jump to 22% by 2050 as more people begin to use air travel and other sectors pursue decarbonisation initiatives. Airservices Australia has set a target of reducing CO2 emissions per flight by an average of 10% by 2030.[1]
   2. Sustainable Aviation Fuel (SAF) represents a pivotal innovation in the aviation industry’s efforts to reduce its environmental footprint. Unlike ground transportation, there are limited alternative fuel options for the aviation sector meaning airlines are reluctant to invest in those alternative fuel options until they become cheaper and more readily available.
   3. Further, sustainability is vital for assessing the viability of SAF and ensuring a thorough methodology for assessing emissions life cycle improvements and broader sustainability considerations. The economics of SAF remain one of the key challenges for faster adoption, and policy intervention is seen as important for building the global SAF market.
2. WHAT ARE SUSTAINABLE AVIATION FUELS
   1. SAF is not a new concept. Previously terms such as biofuel and renewable aviation fuel have been used to describe SAF. A biofuel is an alternative to fossil fuel and is a type of fuel that is derived from organic materials. SAF is a biofuel with characteristics similar to conventional jet fuel but a lower carbon footprint that is used to power airplanes.
   2. When compared to traditional jet fuel, SAF can significantly lower life cycle greenhouse gas emissions, depending on the feedstock and production processes.[2] It can be created using different combinations of technology and raw materials and can result in a net-negative greenhouse gas impact. This reduction is achieved through several mechanisms, including the absorption of CO2 by plants used in biomass during their growth phase, which offsets the CO2 emissions produced when the fuel is burned.
   3. Additionally, because SAF is almost chemically identical to traditional jet fuel it can be used as a drop-in substitute meaning it can be blended with jet fuel without requiring engine or infrastructure changes. However, currently SAF must still be blended with conventional kerosene in relatively low ratios of SAF to ensure compatibility with aircraft, engines and fuelling systems.[3]
3. WHAT ARE THE BENEFITS AND THE IMPACT OF SAF
   1. The environmental benefits of SAF are substantial, offering a significant reduction in greenhouse gas (GHG) emissions of up to 80% compared to traditional fossil-based aviation fuels. Additionally, SAF emits fewer harmful pollutants enabling aircraft engines to burn fuel more cleanly than conventional fuel which can assist in improving air quality around airports and along flight paths. This clean-burning characteristic makes SAF a critical component in the aviation industry’s efforts to mitigate its environmental impact.
   2. Technologically, SAF functions as a “drop-in” fuel as it is compatible with existing aircraft engines and fuel infrastructure. This compatibility is crucial for widespread SAF adoption, as it circumvents the need for significant investments in new technology or infrastructure, allowing airlines to seamlessly incorporate this low-carbon alternative into their fuel mix. Advances in technology and innovation in the aviation industry has led to the development of commercial jet engines that can function entirely on SAF, however, these are not yet used commercially.
   3. Economically, while SAF is currently more expensive than traditional jet fuel due to limited production and higher feedstock costs, advances in production technologies and scaling up operations are expected to reduce costs. Governments and international bodies are also providing incentives and setting mandates to accelerate SAF adoption. The increasing demand for SAF necessitates a corresponding increase in supply, which can create economic opportunities, including new jobs and revenue, particularly in rural communities where feedstock cultivation occurs. Additionally, the expansion of SAF production plants will lead to infrastructure employment opportunities, further driving economic benefits.
4. CHALLENGE OF SAF
   1. While SAF offers numerous environmental benefits, it also presents several significant challenges that hinder its widespread adoption. One of the primary concerns is the cost of widespread production and implementation. Currently, SAF is considerably more expensive than conventional jet fuel. This price disparity is largely due to the limited production capacity and the higher costs associated with feedstock procurement and processing. Although advancements in technology and increased production volumes are expected to reduce costs over time, the current economic burden remains a significant barrier for airlines, which are sensitive to fuel price fluctuations.
   2. The limited availability of feedstock for SAF production is another critical issue. SAF can be produced from various renewable resources however, the supply of these feedstocks is limited and often subject to competing demands from other industries. Ensuring a consistent and sustainable supply of feedstock is essential for scaling up SAF production, but this requires careful management to avoid negative impacts on food security and land use.
   3. Regulatory and certification barriers also pose significant challenges to the adoption of SAF. The aviation industry is heavily regulated to ensure safety and performance standards, and new fuels must undergo rigorous testing and certification processes before they can be used commercially. This certification process is time-consuming and expensive and creates significant obstacles to the introduction of new SAF technologies and blends. Furthermore, varying regulatory frameworks across different countries can complicate the global deployment of SAF, as airlines and fuel producers must navigate a complex web of compliance requirements. This creates considerable issues for carriers and operators who operate internationally.
   4. Limited availability of infrastructure and logistics required for SAF production are additional hurdles that need to be addressed. Although SAF can be used as a “drop-in” fuel, significant investments are still required to build new SAF production facilities and distribution networks. These facilities must be strategically located to optimise the supply chain, considering the proximity to feedstock sources and major airports. Additionally, integrating SAF into existing fuel supply systems requires modifications and upgrades to storage, handling, and blending equipment, all of which incur additional costs and require further logistical planning.
5. ADOPTION OF SAF IN AUSTRALIA
   1. Sustainable Aviation Fuel Funding Initiative
      1. The Sustainable Aviation Fuel Funding Initiative (SAFFI) is a strategic program designed to accelerate the development and deployment of SAF in Australia. SAFFI aims to address key challenges related to SAF, including the high production costs, limited feedstock availability, regulatory hurdles, and the need for new infrastructure, by providing financial support and incentives to stakeholders across the SAF supply chain[4]. By offering grants, loans, and other financial incentives, the initiative encourages both domestic and international companies to establish or expand SAF production capabilities in the country.
      2. SAFFI plays a critical role in aligning Australia’s aviation industry with global sustainability goals. Australia’s vast agricultural and waste resources present significant opportunities for SAF production, and SAFFI aims to capitalise on these by facilitating the development of a robust SAF supply chain. SAFFI also focuses on supporting research and development activities aimed at improving SAF production technologies. This includes exploring new feedstock options, optimising conversion technologies, and developing more effective methods for integrating SAF into existing aviation fuel supply chains.[5]
      3. SAFFI also helps to address the regulatory and certification challenges associated with the adoption of SAF in Australia. By working closely with aviation authorities and international bodies, the initiative seeks to streamline the approval processes for new SAF technologies and blends, ensuring they meet stringent safety and performance standards. Further, the initiative is expected to create new jobs and stimulate regional development, particularly in rural areas where feedstock cultivation and processing facilities are likely to be located.
   2. ARENA Bioenergy Roadmap
      1. The ARENA Bioenergy Roadmap is a comprehensive strategic framework developed by the Australian Renewable Energy Agency (ARENA) to enhance the development and deployment of bioenergy technologies in Australia. This roadmap outlines the key priorities and actions needed to support the growth of the bioenergy sector, with a particular focus on harnessing Australia’s abundant biomass resources to produce renewable energy and fuels, including SAF.
      2. The primary objective of the ARENA Bioenergy Roadmap is to create a cohesive strategy that addresses the barriers to bioenergy development in Australia. The roadmap emphasizes the importance of developing sustainable supply chains, enhancing feedstock availability, and optimizing conversion processes to produce high-quality biofuels, including SAF.[6]
      3. One key component of the roadmap is its focus on innovation and technology development. ARENA provides funding and support for research initiatives that explore advanced bioenergy technologies, such as pyrolysis, gasification, and anaerobic digestion.[7] By fostering collaboration between research institutions, industry stakeholders, and government agencies, the roadmap aims to accelerate technological advancements and improve the efficiency and sustainability of bioenergy production.
      4. The roadmap also addresses the regulatory and certification challenges associated with SAF. By working with aviation authorities and industry stakeholders, ARENA aims to streamline the approval processes for SAF production and use, ensuring that new fuels meet the necessary safety and performance standards. This approach helps to build confidence in SAF among airlines and fuel producers, promoting its broader adoption within the aviation sector.
   3. Australian Jet Zero Council
      1. The primary objective of the Australian Jet Zero Council is to create a collaborative platform that drives the aviation sector towards net-zero emissions. This includes setting clear targets for emissions reductions, identifying and supporting innovative technologies, and facilitating the adoption of sustainable practices across the industry. [8]
      2. One key component of the Jet Zero Council’s strategy is the promotion of SAF with a key focus on addressing the challenges associated with SAF adoption. By providing funding for SAF research and development, supporting pilot projects, and promoting industry partnerships, the council aims to increase the production and use of SAF in Australia. Additionally, the council advocates for policies and incentives that encourage airlines to transition to SAF, thus reducing their carbon emissions.
      3. The council also collaborates with international partners to align Australia’s SAF standards and practices with global best practices. This ensures that Australian-produced SAF can be used in international aviation, further promoting its adoption and contributing to global emissions reduction efforts.[9] The Jet Zero Council aims to position Australia as a leader in sustainable aviation. The initiatives of the Jet Zero Council are expected to have significant economic impacts through the creation of jobs, and stimulation of regional development, particularly in areas involved in feedstock production and fuel manufacturing.
   4. Qantas Partnership with Air BP and Airbus
      1. The Qantas and Air BP Sustainable Aviation Fuel Partnership represents a significant collaboration between Australia’s flagship airline, Qantas, and global energy supplier, Air BP. The agreement includes Qantas’ commitment to purchase 10 million litres of SAF in 2022 with an option to purchase up to a further 10 million litres in 2023 and 2024 for flights from Heathrow. Discussions are also underway between Qantas and Air BP for Qantas to access SAF at its other overseas ports, including Los Angeles. The airline also signed a memorandum of understanding to use SAF for flights from San Francisco from 2024[10].[11]
      2. By leveraging the expertise and resources of both companies, this initiative seeks to establish a sustainable supply chain for SAF, support innovation in fuel technology, and set a benchmark for the industry. The primary objective of the Qantas and Air BP SAF Partnership is to integrate SAF into Qantas’ operations, thereby reducing the airline’s GHG emissions and enhancing its environmental sustainability.[12] This partnership involves several key components, including the procurement and supply of SAF, the development of local SAF production capabilities, and the promotion of SAF usage within the aviation sector.

6. GLOBAL USAGE OF SAF
   1. North America:
      1. The United States and Canada have implemented policies to support SAF production and use. The US Federal Aviation Administration and the Department of Energy have launched initiatives to fund SAF research and development. Major airlines, such as United Airlines and Delta Air Lines, have committed to purchasing SAF and investing in production facilities.
      2. In the US, the Sustainable Aviation Fuel Grand Challenge is a government-wide approach to work with industry to reduce cost, enhance sustainability and expand production to achieve 2 billion gallons (rather than the planned 3 billion) per year of domestic SAF production. It aims to achieve a minimum of a 50% reduction in life cycle greenhouse gas emissions compared to conventional fuel by 2030, and 100% of projected aviation jet fuel use, or 35 billion gallons of annual production, by 2050.
   2. Europe:
      1. The European Union has set ambitious targets for SAF as part of its “Fit for 55” climate package. The Renewable Energy Directive II (RED II) includes mandates for SAF blending, and several European countries, including the UK, Germany, and France, have introduced national policies to promote SAF. Airlines like British Airways and KLM are actively incorporating SAF into their operations.
   3. Asia-Pacific:
      1. In addition to Australia, Japan and Singapore are advancing their SAF agendas. Japan Airlines and All Nippon Airways are exploring SAF options, while Singapore’s Changi Airport has announced plans to become a SAF hub.
   4. International Collaboration:
      1. Organisations like the International Civil Aviation Organization (ICAO) and the World Economic Forum are fostering global collaboration on SAF. The ICAO’s Carbon Offsetting and Reduction Scheme for International Aviation aims to stabilise aviation emissions at 2020 levels, with SAF playing a key role in achieving this goal.

7. FUTURE PROJECTIONS FOR SAF.
   1. According to the International Air Transport Association (IATA), the global SAF market is expected to grow from approximately 0.1% of total aviation fuel consumption today to around 2-5% by 2025, and potentially up to 50% by 2050. This growth is driven by increasing regulatory support, airline commitments, and technological advancements. Further, advances in biotechnology, such as genetically engineered algae and improved fermentation processes, are expected to enhance SAF yields and reduce costs.
   2. Stronger policy frameworks and international agreements will be crucial in driving SAF adoption. Governments are expected to introduce more ambitious blending mandates, tax incentives, and subsidies to support SAF production and use. This will provide a larger incentive on airlines and encourage the use of SAF to achieve the airlines ambitious targets for SAF usage. One such target is Delta Airlines aim to replace 10% of its jet fuel with SAF by 2030, while Lufthansa has committed to achieving a 5% SAF blend by 2025.
8. ADDITIONAL CONSIDERATION IN THE AUSTRALIAN CONTEXT
   1. Australia has the potential to become a major producer of SAF feedstocks, leveraging its vast agricultural resources. Developing dedicated energy crops and utilising agricultural residues can provide a sustainable and reliable supply of feedstocks for SAF production. The expansion of the SAF industry in Australia can create significant economic opportunities, particularly in rural and regional areas. Investments in SAF production facilities, research and development, and supply chain infrastructure can generate jobs and stimulate economic growth.
   2. Australia should continue to collaborate with international partners to advance SAF technology and policy frameworks. Engaging in global initiatives and partnerships can enhance Australia’s capabilities and position it as a leader in the SAF market. Increasing public awareness and acceptance of SAF is crucial for its widespread adoption. Educating consumers and stakeholders about the benefits of SAF and its role in the net zero transition can build support and drive demand.

[1] https://www.unisa.edu.au/media-centre/Releases/2024/renewable-aviation-fuels-prepare-for-take-off-in-australia/

[2] https://www.chooose.today/insights/what-is-sustainable-aviation-fuel

[3] https://www.chooose.today/insights/what-is-sustainable-aviation-fuel

[4] https://www.energy.gov.au/news-media/news/sustainable-aviation-fuel-funding-initiative.

[5] https://www.energy.gov.au/news-media/news/sustainable-aviation-fuel-funding-initiative

[6] https://arena.gov.au/knowledge-bank/australias-bioenergy-roadmap-report/

[7] https://arena.gov.au/knowledge-bank/australias-bioenergy-roadmap-report/

[8] https://www.infrastructure.gov.au/infrastructure-transport-vehicles/aviation/australian-jet-zero-council

[9] https://www.infrastructure.gov.au/infrastructure-transport-vehicles/aviation/australian-jet-zero-council

[10] https://www.bp.com/en/global/air-bp/news-and-views/air-bp-news/ongoing-saf-supply-for-quantas-on-its-kangaroo-route.html

[11] https://investor.qantas.com/FormBuilder/_Resource/_module/doLLG5ufYkCyEPjF1tpgyw/file/annual-reports/QAN_2023_Sustainability_Report.pdf

[12] https://www.qantas.com/content/dam/qantas/pdfs/qantas-group/icf-report-australia-saf-policy-analysis-nov23.pdf