IBA's Sustainability Watch: March 2024

IAG secures 14-year contract with advanced e-SAF producer

IAG has signed an agreement with Twelve to supply over 981 million litres of E-fuel to its five European airlines. The deal is to take place over 14 years, starting deliveries as early as 2025. This agreement secures one-third of IAG's required SAF to meet its 2030 targets, reinforcing its commitment to sustainable aviation. This move aligns with IAG's goal to utilise 10% SAF by 2030 and is in line with the European Union's ambitious 'Fit for 55' proposal, aiming for 0.7% eSAF usage by 2030 and 28% by 2050.

Twelve is a science and engineering company using renewable energy to combine water and CO2 into what it calls E-Jet, a SAF that can reduce lifecycle greenhouse gas emissions by up to 95% compared to conventional jet fuel. E-SAF is a synthetic fuel derived from renewable energy, promising up to 95% reduction in lifecycle greenhouse gas emissions compared to conventional jet fuel. Collectively, IBA has noticed a previous offtake agreement of about 373 million litres between Aemetis and Velocys to be delivered within 17 years.

EU carbon price trend downwards as the EU plans to leverage investors for decarbonisation

Avid readers of IBA’s Sustainability Watch will recall an optimistic reference to the EU’s carbon price scaling the heights of €100/tCO2 in February 2023. A year on, the carbon price is hovering around €60 and is down 24% since the turn of the year. Much of the reasoning behind this drop is outside of aviation’s influence, with the Russia-Ukraine war encouraging uptake in renewable energy production and poor economic conditions leading to a scaleback of stationary fossil power supply. Both these factors mean that fewer permits are being purchased by power producers, resulting in a surplus of allowances and a dropping price. For airlines, with free allowances continuing to decline en route to 0% by 2026, this will be welcome news for those with a high exposure to intra-EU/UK flights.

For a successful decarbonisation, the news is less good: with a declining price comes a declining incentive to invest in lowering your emissions. To get the price back on track during unfavourable macro conditions, the EU plans to bring forward the release of permits earmarked for issuance from 2027 onwards. This means supply will be tighter from 2027-2030, raising the price, and creating additional opportunities for both airlines and financial investors to capitalise on today’s low prices by hedging against future demand. While the YoY decrease in carbon price exposes the fragility of the EU carbon market, IBA is encouraged to see the EU applying innovative interventions to engage multiple stakeholders in growing the price once more.

Latest reports indicate increased interest in aviation sustainability from passengers

Environmental consciousness is increasingly influencing business and leisure travel decisions. Business travellers and companies are opting for sustainable travel options such as eco-friendly airlines, hotels with green certifications, and carbon offsetting programs. Leisure travellers are also beginning to go for more eco-friendly airlines, destinations and tech-driven sustainability solutions. These are evident in reports by the Euromonitor Sustainability Index, stating that about 80% of passengers are willing to pay at least 10% more for sustainable travel features.

Also, SITA’s passenger insight 2023 report shows that 64% of passengers are more aware and interested in using technology to reduce airline emissions. The report also revealed that nearly 60% of passengers are keen to understand the concept of Sustainable Aviation Fuel. IBA sees this as an upward trend gradually impacting the industry. We see more research being carried out as efforts into awareness continue to grow.

ESG Consulting – How can we help?

IBA's ESG Consulting team supports with advice on sustainable finance, ESG ratings, ESG strategy and understanding emerging technologies in aviation. Our expert insight is powered by cutting-edge insights from our award-winning IBA NetZero aviation emissions reporting platform.