It always feels like somewhat of an oxymoron when a fossil fuel company like Shell talks about sustainability. However, it is also - to a great extent - the existing energy companies that possess the technical know-how and the financial means to support a transition away from our carbon dependency, contradictory though it may be.The aviation industry has largely agreed that sustainable aviation fuel (SAF) will account for a very large part of the decarbonization of air transport, and yet it still makes up far less than 1% of all jet fuel produced. So with so many climate targets being set, why are things not happening faster? Speaking at the World Aviation Festival in Amsterdam on Wednesday, the President of Shell Aviation, Jan Toschka, likened it to a chicken and egg problem. What comes first - supply or demand?

"What needs to happen directionally to gain momentum? So I call it the chicken and egg problem because there is very, very little demand. And I understand this because it is very, very expensive. Now it remains expensive as long as there is a very limited supply. Because we don't scale it up. We don't have the synergies and all of this. So basically, you can say who blinks first - it's a prisoner's dilemma. Do I ramp up my supply without having demand? Or do I commit to demand, without knowing what the cost of supply will be?"

Over a trillion dollars in investment needed to replace

When trying to replace a current demand of 300 million tonnes of jet fuel, and also taking into account the predicted growth of the industry of 2-3% annually, the investment needed to scale SAF enough by 2050 is somewhere along the lines of $1.45 trillion. Yes, trillion. This is why collaboration - but also predictability - is crucial to the shift towards SAF going forward.

Shell has confirmed the production of roughly a million tonnes of SAF over the next couple of years, going to airlines that have already committed to the uptake. Just a few days ago, the company announced that Korean Air had agreed to purchase sustainable fuel for its operations out of airports in Asia-Pacific and the Middle East from 2026.

In August this year, Shell and Lufthansa signed a Memorandum of Understanding (MoU) to "explore" a supply of SAF that could reach up to over 20 million tonnes between the years 2024 to 2030. If they reach a binding agreement, it would be one of the most significant commercial collaborations for SAF in the industry, and Shell’s largest SAF commitment to date.

Uncertainty leads to slow uptake

When looking at an airline's economics and understanding - particularly from the last six months of jet fuel price fluctuations - how sensitive this is to fuel costs, it is not surprising that buying fuel at three times (roughly) the cost of regular jet fuel is not financially viable. It is also a cost that cannot be passed down to the passenger without impacting the commercial viability of the operation. Toschka said,

"The dilemma is the airlines cannot pay for it. (...) How certain are airlines that they can pass on the cost? The corporates can pay for it - but what about the leisure travelers? This is where policy needs to come in, and regulators and governments. As a matter of fact, as long as there is uncertainty about whether the airlines are expected to pay for it, we will only see a very slow uptake."

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How do you think the cost of scaling SAF should be divided? Regulation, airlines, passengers? Should companies like Shell take on some cost, especially as they have been part of the high-carbon economy for so long? Leave a comment below and share your thoughts.