Back to Articles & Analysis

Next Article

Previous Article

09/07/2024

IBA's Sustainability Watch: July 2024

Environmental, Social, and Governance (ESG) issues are now seen as a key risk to aviation investments, and authorities worldwide are demanding more transparency and stricter reporting standards. It’s never been more important to understand the pathways to net zero emissions and their real-term impacts on all key players across the industry.

 

Each month, IBA’s ESG Consulting team share key insights and the latest news from the growing world of sustainable aviation.   

Share this article

LinkedInTwitter

Lufthansa passes sustainability costs to passengers

Lufthansa is set to become the first European airline to pass on the costs of new environmental regulations to its passengers. Starting next year, it will add a surcharge of €1-€7 (short-medium haul) and up to €72 (1st class long haul) to each ticket for flights departing from European countries. The company says this is necessary to cover the "steadily rising additional costs" of new EU rules requiring airlines to use more sustainable aviation fuel (SAF). The announcement has been criticised for lacking transparency regarding the origin of the costs and their distribution across flights. 

 

IBA’s analysis found that Lufthansa had a relatively low exposure to EU ETS and UK ETS-regulated flights. This is coupled with an average mandate SAF blend of only 1.43% (2023), compared to up to 6% for other European competitors. With similar exposures, IBA predicts that the 2030 SAF uplift shouldn’t account for more than 2.1% of the fuel budget, implying only a marginal impact on ticket prices.  

 

In positive times, you could expect these costs to be absorbed. IBA Airlines data shows Lufthansa is projected to produce a net profit of €1.8Bn in 2025. Is Lufthansa's surcharge a wake-up call for greater transparency in environmental reporting, a plea for more modest environmental policies, or a warning that the baggage of mandatory environmental tariffs may become the norm? 

 

American Airlines invests in carbon casting technology

In a significant step towards legitimate and impactful carbon offsetting in US aviation, American Airlines has committed to purchasing 10,000 tons of carbon removal credits through Graphyte, a carbon removal startup. The credits will be actioned through Graphyte's "Carbon Casting" process, dubbed the low-hanging fruit of carbon removal, which involves taking carbon-rich biomass products and storing them underground, offering a solution to permanently remove and store carbon dioxide, whilst utilising available biomass products.

 

Comparing this US-based facility to similar European ones, in its first year, Graphyte captured 15,000 tonnes of CO2, whilst the heralded Climeworks plant in Iceland annually captures 1,000-4,000 tonnes of CO2. As carbon removal technology improves, it allows for rapid expansion in the industry. But what does this mean for aviation, an industry that creates a high level of carbon emissions? In short, not a lot (for now anyway). 

 

The International Civil Aviation Organisation (ICAO)’s Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) is the link between the aviation industry and carbon offsetting (outside of general CSR). Currently, it permits airlines to purchase offsets for under $1 to comply, a stark contrast to the $300 price tag associated with DAC. This discrepancy highlights the confusing and disjointed relationship between aviation and the Voluntary Carbon Market. 

 

Universal Hydrogen shuts down due to funding issues

A 2020 startup that set out to prove hydrogen flight was possible within a decade, has shut down its programme after running out of funding. Universal Hydrogen, had acquired some reputable investors, including GE Aviation, American Airlines, and Airbus’ venture capital arm, amounting to over US$100m in funding, but failed in a recent eleventh-hour merger with regional airline Silver Airways. 

 

The company’s collapse signals the difficulty in proving an experimental concept to investors while grappling with the development of a hydrogen drivetrain, developing fuel infrastructure at airports, and a severe lack of green hydrogen supply. Solving all three problems proved too much, with ZeroAvia the only company remaining looking to retrofit aircraft with hydrogen drivetrains. 

 

Perhaps most worrying is the lack of long-term confidence in Biden’s Inflation Reduction Act (IRA) subsidies, which, along with economic headwinds, were enough for investors to cool their interest, according to Universal Hydrogen’s ex-CEO Paul Eremenko. As a large purchaser of green hydrogen, the company backed the IRA’s Clean Hydrogen Production Tax Credit to support suppliers with up to $3/kg, or around a 20% reduction in production costs. Without certainty for its continuation, investors were unsure whether Universal Hydrogen would have sufficient supply for scaling its development.

 

Back in January, Jeni Stanley, IBA’s ESG Manager, spoke in Dublin about the impact of elections on technology development and regulatory stringency, and it would appear that the looming US election was detrimental to Universal Hydrogen. With the US a critical stakeholder in SAF and hydrogen development, there must be certainty for investors and companies throughout the turbulence of a potential change in government. 

 

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.

 

To find out more, please get in touch.

Back to Articles & Analysis

Next Article

Previous Article

 

Newsletter sign up