INTERVIEW: Loganair’s Andy Smith on commercial aviation’s route to decarbonisation

INTERVIEW: Loganair's Andy Smith on commercial aviation's route to decarbonisation

William Hallowell sits down Andy Smith, head of sustainability strategy at Loganair, the Scotland-based regional airline, to discuss the future of sustainable commercial air travel.

Looking at the UK’s SAF industry, Loganair’s Andy Smith provides a fascinating industry insight into the challenges and solutions presented by the potential of alternatives to traditional jet fuel.

Whilst SAF manufacturers continue to lobby for investment in infrastructure, and the government looks to step-up incentives for production, how can airlines themselves be encouraged to swap to SAF to meet the UK’s 10 per cent mandate by 2030? And can the UK be the “SAF superpower” the government wants it to be?

What are the barriers for medium and long-haul operators, compared to those smaller airlines? And how can the uptake of alternative fuels be best targeted to achieve the aviation sector’s sustainability goals?

For Loganair’s sustainability chief, the danger is that without greater government support or financial investment, costs will be passed on to passengers – the prospect of being unable to meet the mandate remains real.

How do we encourage airlines to use more SAF to meet the UK’s mandates/levels of SAF production?

SAF remains and is projected to remain very expensive relative to the cost of jet fuel plus your ETS [emissions trading system] costs for the carbon.

There’s still a huge gap and that is a real barrier to more widespread uptake. The fact that gap exists is really why we need the mandate because that’s the only way to get production moving and starting to decarbonise the fuel source for the whole industry.

But if there wasn’t that gap, we wouldn’t need that mandate because all the airlines I’m speaking to are incredibly motivated. They want to find a way to decarbonise, but at the minute SAF costs can be up to three times what it costs for straight jet fuel. That is clearly a barrier.

And if we were to put that full cost through to the customers, that would make a number of routes unviable.

Even at some of the levels that are being talked about for the SAF mandate, initially starting at 5 per cent and then growing to 10 per cent, one of the proposals that was in the UK government’s consultation was, within that number, putting a cap on HEFA [hydro-processed esters and fatty acids] as a source.

HEFA is one of the cheapest, and I understand airlines’ concerns. It’s what we’d consider a first generation fuel, and there are absolutely risks about the raw feedstock coming from potential food sources, which nobody wants to happen.

So, whilst we understand the direction of travel of wanting to move away from HEFA towards second-generation fuels that are intrinsically more sustainable, the problem is that, again, those second-generation fuels are significantly more expensive than HEFA right now.

For the airlines, it’s a real concern that even meeting the cost of the mandate will have an impact on ticket prices – and it’s worth pointing out the way the UK and the EU are approaching this is different.

Under the EU’s ETS scheme, the revenues that devolve to the EU governments that are raised by ETS, 50 per cent is supposed to go back to the industry to help it decarbonise. After Brexit, the UK Treasury removed that aspect.

At the minute, EU airlines are saying ‘we’ve got the mandate coming in, but that will be partly subsidised by the return of some ETS raised funds, which will mean that we can decarbonise without having to pass the full cost of that onto the customer’.

Whereas in the UK, it’s still under consultation – I don’t think any final decision has been made. But certainly within the UK, it’s a real concern that the costs of this transition are going to fall on the customer, and particularly for our regional routes, we’re extremely concerned about that.

Without more support from the UK government, then, would you say airlines passing on costs to passengers would be the likely outcome? And are things like government subsidies, therefore, likely the best way to help airlines to encourage the uptake of SAF in order to decarbonise?

I think at the minute, the proposals that currently seem to be the government’s ‘Plan A’ [means] the costs of that are going to be passed onto the airlines, whilst the obligation sits with the fuel supplier.

Therefore the airlines are going to have to pass that cost onto the customer. As I see it at the minute, ‘Plan A’ is that the cost of this transition is going to fall on the customer.

But actually, the airlines are not asking for a subsidy to sort this. There is a solution here, and it’s the sort of position of Airlines UK, the industry body, which is that the government recently consulted on the EU’s ETS, and UK ETS, the UK version of it.

And within the ETS, participants in the scheme have been allowed an amount of free allowances. So, if they emit a thousand tonnes [of CO2] and they have to pay for a thousand tonnes, to ease the transition, they’ve often had an allowances of maybe 200 tonnes. So, they’re only had to pay for 800.

Now, the government’s been reducing those and the idea is that they do reduce, as the businesses have to pay the full environmental cost of their activities.

But with regard to airlines, there’s a proposal from the UK government – it’s, again, still under consultation – that from 2026 free allowances will be removed from all airline operators.

The view from the airlines is that if you do that, obviously the costs of ETS are going to go up for the airlines.

But with that extra revenue that the government is going to generate by doing that, if you just took that element and recycled it back into the industry to allow us to offset the costs of sustainable aviation fuel, that would be a really neat solution that is ultimately cost-neutral to the government because we’d be paying them more, but it would be recycled back.

So, ultimately, airlines are still paying it because they will be paying more when the free allowances go.

At least from the Treasury’s point of view, there’s no extra cost, but a significant sum could be put towards subsidising the cost of this fuel because, particularly from our perspective, we operate a lot of very thin routes that are economically challenging and a significant increase in the cost of flying those, because of things like the loss of free allowances or the SAF mandate, can have a significant impact on whether they’re viable or not.

Is the UK’s 10 per cent SAF mandate for 2030 achievable, or is it an unrealistic goal set by the government to purposefully be seen as being ahead of the EU’s 6 per cent target, by comparison?

Certainly, I believe the UK government is right in wanting to be ambitious in setting the mandate – and the mandate has two purposes.

One is to ensure a minimum level of decarbonisation of the industry, and the aviation industry as a whole wants to be able to grow and to do that.

It needs to be showing that it’s doing so in a responsible way and managing its own emissions. Everyone’s going to have a view as to what is a reasonable level, but that’s what the industry is trying to achieve.

The other thing that the mandate does is provide a strong signal to prospective investors in constructing these SAF plants and it’s going to take hundreds of millions, if not billions, of pounds of capital investment, to create the necessary plants to produce all of this fuel.

So, I can understand the reasons for being aggressive on the timescales and the volumes. Our concern is that because it is legally mandated, if the supplier can’t source enough SAF to meet that 10 per cent obligation in 2030, what happens under the mandate is that they can buy out their obligation.

But the government is trying to set the buy out price obviously quite high because it doesn’t want people to buy out, it wants them to produce SAF.

The problem is that the timescales are so tight to meet that production capability that we need to be a long way, beyond spades in the ground, we need to be quite advanced in construction [of the SAF plants required to scale up production] – and we aren’t.

If you talk to people on the supply side, they’re very concerned. Certainly, the noises I’m hearing are that they’re very concerned about the pace of progress in getting their final investment decisions and actually starting production.

The worst-case scenario for everybody really is that if supply falls short of the mandated amount by 2030, it means the incentive hasn’t worked or hasn’t worked in a timely way.

Consequently, fuel suppliers could buy out their obligation, which means an even higher cost to the end customer via the airlines.

And the the tragedy of it is the CO2 that we were hoping would be abated isn’t being abated. So we’re very concerned about that scenario.

There’s currently quite a lot of activity going on between the Department for Transport, the suppliers and the airlines to try and put in place a revenue certainty mechanism, or some other mechanism, that the investors in these plants are saying is required to unlock the capital needed to start building these plants.

We think it probably is going to need some form of a government overseeing mechanism, but that’s obviously complicated. It takes time and potentially legislation, which is challenging to get into the calendar.

But that’s the solution really to unlock this investment to start building the capacity. One plausible scenario is that if we don’t have enough UK-based SAF production capacity, potentially we’ll be importing SAF from the EU to meet the UK obligation, which is obviously, again, adding cost to the system.

From the airlines’ point of view, we don’t tend to normally get this involved that far down the supply chain. Normally it is the fuel suppliers who manage where they’re going to source their raw product from, where they’re going to refine it and that sort of thing.

But it is becoming an issue [for airlines] because at the minute we can see the costs ending up being added to the ticket price, which is going to cause all sorts of problems, potentially.

In light of Virgin Atlantic’s Flight100 demonstration last year, one industry leader I spoke to said that for short-haul air travel the widespread roll-out of SAF is much more a achievable at the moment than it would be for long-haul flying. What’s your take on that?

I think in the short-term, the next three, four, five years, SAF is really the only game in town, whether you’re long-haul or short-haul because, currently, there aren’t any commercial airliners certified to operate with battery electric propulsion or hydrogen propulsion.

[And even if there were], in terms of the impact that’s going to have on the industry’s overall emissions is very, very small to the point of being negligible … you could reasonably say that hydrogen or alternative forms of decarbonisation of the industry are unlikely to have a meaningful environmental impact …

Although, by 2050 it will be quite an important part of the overall industry’s decarbonisation, it’s only going to apply to the smaller aircraft [operating] shorter routes until it might get up to the size of being able to work on an A320-sized aircraft by the 2040s.

So between that period, and given that the majority of EU and UK aviation emissions come from medium and long-haul aircraft, long-haul aircraft, a study by Eurocontrol said 6.2 per cent of all flights that are over 4,000km account for more than 50 per cent of all of the EU’s aviation emissions. Just because if you fly longer you create more [carbon].

Short-haul, conversely, was something like 30 per cent of all the flights, but only 4.3 per cent of all the emissions. That’s flights under 500km.

Hydrogen, Loganair is seeing actually as a preferred option for us, and we have set ourselves a target of achieving net zero [carbon emissions] by 2040. We see that primarily being achieved by converting all of our fleet to run on hydrogen by 2040.

That’s challenging, but it seems feasible based on what the manufacturers are telling us their time scales are for certifying these products. But again, that in the grand scheme of overall UK aviation emissions is a fairly small chunk.

SAF, for the core wide-body, long haul, even medium-haul flights, is going to be pretty much the only game in town, and because that’s where the bulk of the emissions come from, it’s absolutely critical that it is supplied there [rather than for short-haul flights].

The UK’s mandate does throw up some quirks, in that if you take a flight from London to Los Angeles and back, you’ll uplift it, but it’s not mandated in the US. So, on the return flight, [SAF] won’t be [used]. Whereas if you fly with us from Glasgow to Kirkwall, you’ll be paying for it both sectors.

The reason we see hydrogen as the solution is because we are quite concerned about the long-term costs of SAF and the availability of feedstocks.

Our assessment is that where you’ve got the opportunity to use hydrogen directly on the aircraft, not only is it genuinely zero-emissions at the tailpipe, which has its own significant attractions, we believe that in the longer-term, it’s also going to be the cheapest route of decarbonising.

There’s a long way to go and different people in the industry will have different takes on that. In the short-term, we’re extremely concerned about the costs of SAF, even though we recognise how important it is and how central it is for the industry as a whole to decarbonise.

This transcript is an excerpt from an interview with Airline Routes & Ground Services. 

Image credit: Ronnie Robertson/Flickr