Biofuels for aviation

Transcription

1 Biofuels for aviation

2 Biofuels for aviation By: Carlo Hamelinck, Maarten Cuijpers, Matthias Spoettle, Arno van den Bos Date: May 2013 Project number: BIENL13187 Ecofys 2013 by order of: Ministry of Infrastructure and the Environment ECOFYS Netherlands B.V. Kanaalweg 15G 3526 KL Utrecht T +31 (0) F +31 (0) E info@ecofys.com I Chamber of Commerce

3 Summary Background Aviation is the fastest growing transport modality worldwide with a projected growth of 4.5% annually up to If fuel use and GHG emissions increase at the same rate this results in a sixfold increase by Actual growth will be smaller because of operational and technical improvements, but still, a threefold increase is expected by In 2012, the Air Transport Action Group (ATAG - representing the combined global commercial aviation sector) presented a number of options that should, together, reduce the impact of aviation: (1) energy efficient technology, (2) improved operations, (3) improved infrastructure and (4) biofuels 1. At that time, the interest in biofuels for aviation, both in the Netherlands and around the world, was already rapidly increasing. This report In this report we advise the Dutch government on stimulating the uptake of bio jet fuel in the Netherlands. A broad group of Dutch stakeholders and international experts was consulted by way of individual interviews and a workshop. International initiatives and ideas have been studied to understand opportunities and restrictions for what can be developed in the Netherlands and to inspire ways forward. The research focussed on the practical and economic aspects and development pathways for large scale application of bio jet fuels. As the sustainability of biofuels is discussed in many other studies, we have assumed that biofuels sustainability can and shall be ensured. The report was commissioned by the Dutch Ministry of Infrastructure and the Environment. Opportunities for the Netherlands The strong combination of progressive Dutch public and private stakeholders, the important position of the Netherlands in fossil jet fuel trade, strong logistics and infrastructure and the foresight of a growing international market reaching full commercialisation after 2020 offer unique strategic opportunities for the Dutch economy and stakeholders to maintain and strengthen its international position in this evolving business. The opportunities for the Netherlands especially reside in unique starting points: The Netherlands holds an important position in the European aviation sector; o Schiphol is the fourth largest European airport; o Air France-KLM is one of the largest European airlines; The ports of Rotterdam and Amsterdam are key logistic hubs in European jet fuel trade; o Both ports supply Schiphol with jet fuel, via advanced pipelines; o Other major airports in North Western Europe, Germany in particular, can be provided with jet fuels via the Central European Pipeline System; 1 ATAG, 2012, A sustainable flightpath towards reducing emissions, Air Transport Action Group. iii ECOFYS Netherlands B.V. Kanaalweg 15G 3526 KL Utrecht T +31 (0) F +31 (0) E info@ecofys.com I Chamber of Commerce

4 Neste Oil has a plant in the Rotterdam harbour that can produce bio jet fuel, although it is currently only used to produce biofuels for road transport; The Dutch company SkyNRG is currently the global market leader in bio jet fuel trade, having supplied over 20 airlines worldwide. Start of a growing market Currently, bio jet fuel trade volumes are still very small, with most airlines having performed only single test flights. We expect a strong market growth up to 2020 in line with the European Advanced Biofuel Flight Path 2020 and ICAO goals. The EC projects that this will result in 2 million tonne of bio jet fuel consumption in 2020, which equals 1% of the total world jet fuel consumption in After 2020 the market will commercialise to grow towards the European Commission s (EC) long term goal of 40% low carbon fuel use in aviation by Several projects are now being shaped that will enlarge the Dutch market for bio jet fuels in the coming years: the recently announced series of KLM flights between JFK International Airport and Schiphol Airport, the KLM Corporate BioFuel Programme that enables corporates to fly on bio jet fuels, as well as the ambition of KLM to use 1% bio jet fuel by 2015 throughout their entire fleet. Dutch stakeholders also participate in international initiatives, such as ITAKA (Initiative Towards sustainable Kerosene for Aviation), which aims to produce bio jet fuels from Spanish camelina and will demonstrate a complete supply, including distribution via existing fossil jet fuel infrastructure and use in KLM aircrafts. Barriers Dutch R&D policy, e.g. the Topsector policy, allows government and industries to jointly accelerate research, development and innovation projects in the field of bio jet fuels. In parallel to starting up projects, a number of barriers will have to be removed to capitalise the opportunities: High costs bio jet fuels are 2-4 times more expensive than fossil jet fuels, as a consequence of the early stage of conversion technology as well as higher operational costs associated with incidental batches. Also the limited availability implies that there is not yet a competitive market for bio jet fuels. The cost/price will decrease once the production volume increases and more producers enter the market; In the short run, the price gap must be overcome. Instruments such as biotickets in the Netherlands, and the Emission Trading Scheme could only bridge a part of that gap; While the European Union Renewable Energy Directive (EU RED) allows bio jet fuels to be counted towards the RED obligation, so far the Netherlands have been the only Member State to make this explicit in their national transposition of the RED. Once more Member States implement such measures, the level playing field with road biofuels will improve, and larger volumes of bio jet fuels will be applied, which will reduce their cost and price; There is great willingness, but low market power with airlines. Many airlines have shown interest in flying on bio jet fuels, but lack the financial resources to overcome the price gap. Single 2 EC DG ENER, Choren, Lufthansa, 2011, 2 million tons per year: A performing biofuels supply chain for EU aviation. This technical paper explains the European Advanced Biofuels Flightpath initiative. 3 EC COM(2011) 144 final, White Paper Roadmap to a Single European Transport Area Towards a competitive and resource efficient transport system. iv ECOFYS Netherlands B.V. Kanaalweg 15G 3526 KL Utrecht T +31 (0) F +31 (0) E info@ecofys.com I Chamber of Commerce

5 airlines cannot afford to pay a higher price for bio jet fuels, because that would impact their competitiveness with other airlines. A sector approach is required; Financing challenges exist in scaling up bio jet fuel production capacity. At the moment, investments are limited because of the difficult current economic situation, overcapacity of existing biofuel production plants in Europe and the lack of a convincing stable long term bio jet fuel market perspective; Some production technologies under development still have technical challenges and would need larger upfront investments for first-of-a-kind installations before they could deliver cheaper fuels; Concerns about sustainability airlines are prudent in their actions in the field of bio jet fuels as biofuels are frequently the subject of sustainability debates and airlines are particularly vulnerable to public opinion. Full sustainability aspects of bio jet fuel supply chains must be demonstrated by certification schemes, including both the direct and indirect effects. Advice to the government To position the Netherlands as a key player in the upcoming bio jet fuel market, supply and demand should be developed in the same pace. Ecofys advises the Dutch government to take a number of actions and implement a set of policy options in the short term ( ) which will create a Dutch market for bio jet fuel. In the medium term ( ) the market in the Netherlands should be scaled up by further stimulating demand of commercial airlines in the Netherlands and in the EU, while at the same time developing bio jet fuel production capacity in the Netherlands. In the longer term ( ) the market will reach full commercialisation, where volumes will go up and advanced production technologies will have to be used to meet the increasing demand for bio jet fuels. Stable long term policy The Dutch government should ensure, throughout the short and medium term, that R&D is performed on the bio jet fuel supply chain and (new) production technologies of bio jet fuel so that advanced production technologies can be deployed once the market reaches full commercialisation. Ecofys recommends that throughout the process of stimulating the bio jet fuel market the Dutch government continuously advocates the use of bio jet fuel on a European level and aims to increase the volumes of bio jet fuel trade internationally. Stimulating the market growth outside the Netherlands ensures that other countries follow in the traction created by the Dutch frontrunner companies, so that demand increases and the price goes down. Dutch first movers can expand their activities to the international market and the Netherlands can become a hub for bio jet fuels, just as it is already a hub for regular jet fuel. v ECOFYS Netherlands B.V. Kanaalweg 15G 3526 KL Utrecht T +31 (0) F +31 (0) E info@ecofys.com I Chamber of Commerce

6 To remove the barriers and to capitalise on the opportunities for the Netherlands we propose the following set of policy recommendations and short term actions for the Dutch government. In the table below the short, medium and long term actions are summarised for different regions. Short term Medium term Long term Create the Dutch market Improve sustainability demonstration Scale up Dutch bio jet fuel demand Connect to other markets Production capacity and supply chain in the Netherlands Establish a fully commercial market Deploy new production technologies NL Launching customer role Double counting of biofuels put in to aviation in NL Facilitate HVO bio jet fuel project plan in NL Stimulate R&D in new technologies Facilitate regular communication between key NL stakeholders Support the implementation of the HVO bio jet fuel project in NL Continue to stimulate R&D in new technologies and facilitate pilot plants utilising new technologies Create incentives for airlines using biofuels/rewarding systems Support new technology bio jet fuel project in NL EU Stimulate inclusion of bio jet fuel in transposition RED other Member states Separate mandate for biofuel in aviation World Shape international sustainability criteria Explore cooperation with other nations (Bilateral) agreements with other nations Investigate support for feedstock projects (in developing countries) vi ECOFYS Netherlands B.V. Kanaalweg 15G 3526 KL Utrecht T +31 (0) F +31 (0) E info@ecofys.com I Chamber of Commerce

7 Table of contents Summary iii Table of contents vii 1 Introduction 1 2 Background Relevance Production technologies Costs Volumes Environmental aspects European legislative framework 10 3 International developments Bio jet fuel flights Bio jet fuel networks Certification and qualification Stakeholder positions in the bio jet market Market power, drivers and followers 23 4 A Dutch perspective Fossil jet fuel supply chain Bio jet fuel supply chain Bio jet fuel supply chain for the future Feedstock production Linking to Dutch government initiatives Opportunities 29 5 Role of the Dutch government Barriers for the commercialisation of bio jet fuel Policy recommendations 35 Appendix A Central Europe Pipeline System 42 Appendix B Workshop attendees and interviewees 43 vii ECOFYS Netherlands B.V. Kanaalweg 15G 3526 KL Utrecht T +31 (0) F +31 (0) E info@ecofys.com I Chamber of Commerce

8 1 Introduction The aviation sector is responsible for at least 2% of the global manmade greenhouse gas (GHG) emissions, which is a fairly small share when compared to other modes of transport such as road transport. However, it is in fact the fastest growing transport modality with an projected average growth of 4.5% annually up to The latter would lead to a sixfold increase in GHG emissions without any efficiency improvements and a threefold increase if current efficiency improvements of 1.5% annually are maintained. The aviation sector recognises the growing and urgent need for society to address the global challenge of climate change and understands that the sector has a role to play. The global aviation industry stated that it will halve its GHG emissions by 2050 compared to 2005 levels, in a position paper presented at the climate negotiations in Doha of November The long-term low emission strategy is based on four pillars that will jointly help the industry reach their ambitious targets. Energy efficient technology; Improved operations; Improved infrastructure; Biofuels. The largest contribution to reaching the targets in 2050 should come from the use of biofuels, which per unit can reduce GHG emissions by up to 80% compared to fossil fuels. The use of biofuels could also protect airlines from the high and volatile fossil jet fuel prices which have taken up an increasingly large share in the costs of airline operations. In year 2005/06 the fuel costs were 19% 5 of total operating costs, to over 30% in In this report we will focus on drop-in biofuels, excluding other alternative jet fuel options such as gas to-liquid (GTL). The Netherlands holds an important position in the European aviation sector; Schiphol is the fourth largest European airport, Air France-KLM one of the largest European airlines and the harbours Rotterdam and Amsterdam are key logistic hubs in European jet fuel trade. It is therefore important to consider what the biofuel for aviation (or bio jet fuel) development described above means for the situation in the Netherlands. In this report we will answer the questions: 1) What are the current international bio jet fuel developments and what do they mean for the Netherlands? 2) How does bio jet fuel fit within the existing logistic, institutional and economic framework in the Netherlands? 3) What barriers exist for 4 ATAG, 2012, A sustainable flightpath towards reducing emissions, Air Transport Action Group. 5 Ecofys (Van den Heuvel), 2011, European airlines enter the biofuels market. 6 IATA, 2012, Special Report Fuel - Slick Oil. BIENL

9 the commercial deployment of a bio jet industry? and 4) What role could/should the Dutch government play in removing the barriers identified? Outline of the report In Chapter 2 the technical, economic, environmental and legislative aspects of biofuels in aviation are described. This allows us to understand the basic drivers for the use of bio jet fuel in aviation. In Chapter 3 an analysis of the international playing field is made, including the most relevant airline activities, biofuel producer activities and networks launched worldwide. It is important to take a global viewpoint as the starting point for extracting lessons for the Netherlands for the following reasons: (1) aviation and biofuels are inherently global sectors; (2) internationally many activities have already been undertaken from which important success factors can be extracted; (3) the Netherlands is a densely populated area with limited land availability to cultivate biofuel feedstock, therefore Dutch bio jet supply chains will often be international. Drawing on the results from the international analysis from Chapter 3, in Chapter 4 we take a Dutch perspective. In this chapter, important Dutch stakeholders are identified and roles, drivers and positions discussed. The main opportunities and barriers for the development of biofuel supply chains in the Netherlands are mapped and analysed. Furthermore, possible supply chains for biofuels in the Netherlands for the very short and medium term are discussed. In Chapter 5, we look at the most important opportunities and barriers and we discuss how the Dutch government could play a role in facilitating the development in Dutch biofuel value chains in the Netherlands. Important inputs for this chapter are the stakeholder interviews and the workshop we have held with the stakeholders identified in Chapter 4. BIENL

10 2 Background 2.1 Relevance In addressing the increasing demand for carbon reduction, the aviation industry itself declared it would work towards a sustainable development. In 2009 the International Air Transport Association (IATA) set an ambitious target to proactively contribute to a sustainable low carbon development, through improvements in infrastructure, operations and technology, and with an important contribution from renewable energy. Whereas road transport could use a variety of energy sources from electricity and hydrogen to gas and solar, the aviation sector depends on energy intensive liquid fuels. Biofuels provide the only midterm feasible option for airlines to reduce the carbon intensity of its fuels. According to IATA, plant oil derived aviation biofuel could reduce the carbon footprint of the industry by up to 80%. Furthermore the use of biofuels will reduce the dependence on fossil fuels and as they can be produced from a wide range of abundant biomass resources, they improve fuel security. In the long run, alternative fuels may limit fuel price increases, when cheap feedstock can efficiently be converted into aviation biofuel. For the near future, the aviation sector is mostly focussing on drop in fuels that can be blended with fossil kerosene up to the ratio defined in the fuel specification and are compatible with existing infrastructure and aircraft engines. The innovation developments in the (potentially) promising production technologies are discussed in this chapter. 2.2 Production technologies There are currently four principally different chemical routes to produce bio jet fuel which use a variety of feedstocks. Two of these routes, the Hydrogenated Vegetable Oil (HVO) and the Fischer- Tropsch (FT) have been certified to be used in commercial aviation and can be used in the short term. In the medium to long term Hydrogenated Pyrolysis Oil (HPO) and other biomass-/sugar-based bio jet fuel will become certified and commercially available. It is possible that no single production route will ever prevail over the other routes as there is limited feedstock available and all routes may have to be used. Furthermore using a mix of production technologies and feedstocks would lower the risks of bio jet fuel price shocks. In Table 1 an overview of bio jet fuel production routes is given. BIENL

11 Table 1: Overview of bio jet fuel production routes. Bio jet fuel Certified to be Current state of Type of feedstock production route used in aviation technology Vegetable oils, Hydrogenated waste streams from Vegetable Oil (HVO) Proven and applied food industry, byproducts of or Hydroprocessed Yes commercially Esters and Fatty (except for algal oil) vegetable oil Acids (HEFA) refining, algal oil Woody Proven but not Fischer-Tropsch (FT) Yes (lignocellulosic) applied biomass commercially Woody Hydrogenated Pyrolysis Oil (HPO) No (lignocellulosic) Pilot phase biomass Other biomass- /sugar-based No Sugars, Starches Pilot phase biofuels Remarks Currently the most popular route to produce bio jet fuel BA and Solena are cooperating to open a FT bio jet plant in 2015 Alcohol-to-Jet route under consideration for ASTM certification Hydrogenated vegetable oil (HVO) or Hydroprocessed Esters and Fatty Acids (HEFA) HVO 7 (or HEFA) is produced by hydrogenating vegetable oils, waste streams from food industry or by-products of vegetable oil refining. The oils can originate from plants, algae or can be microbial oil. Hydrogen demand for hydrogenation of different feedstock qualities varies, resulting in conversion cost advantages for certain raw materials like palm oil and animal fats. In absence of technical restraints, market forces and legislation are the main forces for raw material selection. HVO production processes using plant oils such as palm oil have been heavily criticized as being unsustainable. Our view is that HVO processes using plant oils can be sustainable, but clear sustainability criteria are needed as a prerequisite. HVO production is already proven on full commercial scale. Neste Oil operates two 190,000 tonne/year HVO plants in Finland, an 800,000 tonne/year plant in Singapore and another 800,000 tonne/year HVO plant in Rotterdam. The Neste Oil plants are now primarily used to produce renewable diesel but can also, in principle, be used to produce bio jet fuel, which has also already been done in one of the Finland plants. UOP Honeywell and its customers have announced several HVO projects worldwide. In Europe both ENI and Galp Energia have plans for HVO plants each with a capacity of 330,000 tonne/year but these are yet to be constructed (EC, 2011). 7 HVO for jet-fuel are also known as Hydroprocessed Renewable Jet (HRJ) and have recently received the designation HEFA (Hydrotreated Esters and Fatty Acids) by ASTM. BIENL

12 Algal oils can also replace vegetable oils in HVO or similar processes but these will not be commercially available within the next 5-8 years. Due to very high infrastructure cost for industrial algal cultivation it is unclear when competitiveness vs. conventional plant oil or other advanced biofuels cost will be achieved. However, due to the fact that in principle there are no issues related to land use, algal oils have attracted significant interest from the aviation sector (EC, 2011) Synthetic Fischer-Tropsch (BtL) Synthetic Fischer-Tropsch fuels, also called BtL fuels (biomass-to-liquids), is produced by a two-step process in which (mostly woody) biomass is converted to a syngas rich in hydrogen and carbon monoxide. After cleaning, the syngas is catalytically converted through Fischer-Tropsch (FT) synthesis into a broad range of hydrocarbon liquids, including synthetic diesel and bio jet. This type of fuel is already approved for a max 50% blend with JET-A1 by ASTM (SWAFEA, 2011). FT technology often uses lignocellulosic waste streams for the production of biofuels, a feedstock which leads to few concerns about sustainability. The FT synthesis has been applied in industrial scale processes for decades, based on synthesis gas produced from coal and natural gas. StoraEnso and Neste Oil as well as UPM and Carbona have formed consortia to realise BTL plants on the basis of biomass gasification and FT in Europe. Neste Oil and Stora Enso carried out a testing program where biowax was produced from forest waste by gasification technology at their joint-ownership plant in Varkaus, Finland, during years The technical performance of the plant was excellent but the investment in a commercial scale plant was found to be unprofitable. UHDE, together with a number of French companies, announced the realisation of BioTfuel, a small pilot scale FT plant using biomass and/or torrified material. In the UK, Solena is developing a waste to bio jet facility using patented plasma gasification technology combined with FT. The planned capacity is 50,000 t/year bio jet, with full production by 2014 (EC, 2011). Note that upscaling to commercial volumes of FT products can be problematic as illustrated by the recent failures by German company Choren Industries to bring their technology to scale 8. The most favoured concepts for Europe based industrial biomass gasification plants, producing FT kerosene, are targeting an output of about 200,000 tonne/year FT-fuel. Roughly 70% of the produced FT product can be converted to aviation fuels. The size of FT equipped biomass gasification plants is normally limited by the commercial availability of sustainably produced feedstock at the production site. From a sole conversion cost perspective, FT plants should be built as large as possible. One alternative to the use of raw lignocellulosic biomass via gasification is pyrolysis oil or torrified biomass. Those storable intermediates can be transported from numerous distributed pyrolysis or torrefaction plants to a large centralised unit for FT fuel production. However, total conversion efficiency of this approach is considerably lower compared to direct use of raw biomass and cost advantages are unclear (EC, 2011). 8 Energy Trends Insider, 2011, What Happened at Choren? Column. BIENL

13 2.2.3 Hydrogenated Pyrolysis Oil (HPO) HPO is based on pyrolysis oils from lignocellulosic biomass. Pyrolysis oils can be hydrotreated either in dedicated facilities or co-processed with petroleum oils in refineries. Today, pyrolysis oil is between research and demonstration level. Worldwide, several initiatives that develop fast pyrolysis processes exist. A few of them (e.g. Ensyn/Envergent Technologies (a joint venture between UOP Honeywell and Ensyn Corp from Canada) and BTG in the Netherlands) are implementing the pyrolysis process on a commercial scale to produce crude pyrolysis oil. Contrary to vegetable oils, pyrolysis oil contains a few hundred different chemical components. For application in the transport sector the crude pyrolysis oil needs further upgrading to produce HPO. One or more hydrogenation steps are required to achieve the desired product quality. The scale of operation for producing the pyrolysis oil can be quite different from the upgrading activities. The latter one might be combined with current refinery operations. Envergent/UOP, for example, is conducting a demonstration project for pyrolysis and an upgrading technology to transport fuels at the Tesoro refinery in Hawaii. Contrary to FT and HVO fuels, HPO will still contain a certain amount of aromatic compounds which are currently needed in jetfuel to avoid engine sealing problems. Therefore, HPO may complement HVO and FT (EC 2011) Other biomass-/sugar-based biofuels In recent years, several novel biofuel conversion routes have been announced, such as the direct conversion of sugars into synthetic diesel fuels 9. These include: The use of micro-organisms such as yeast, algae or cyanobacteria that turn sugar into alkanes, the basic hydrocarbons for gasoline, diesel and jet fuel; The transformation of a variety of sugars into hydrogen and chemical intermediates using aqueous phase reforming, and then into alkanes via a catalytic process; The use of modified yeasts to convert sugars into hydrocarbons that can be hydrogenated to synthetic diesel. So far, none of the above processes has been demonstrated on a commercial scale. Sugar to hydrocarbon fuels are technically feasible but will not play any significant role by Following recent announcements and the progress made by US biofuel start-ups such as Virent, Amyris and Gevo whose fuels are now considered by ASTM, these pathways are certain to be included in future studies (SWAFEA, 2011) and projects. In France a project subsidy was recently 9 IEA, 2011, Technology Roadmap - Biofuels for Transport. BIENL

14 granted to the ProBio3 project 10 that investigates microbial conversions on specific fatty acids of carbon substrates from renewable non-food resources and industrial by-products. In the Netherlands the University of Wageningen researches algae cultivation and biorefinery. In the AlgaeParc the University of Wageningen aims to develop cost-effective and sustainable microalgae production methods outdoors Other non drop-in fuels For the longer term, other fuels such as liquefied natural gas or liquid hydrogen (both referred to as cryogenic fuels) are sometimes put forward (EC, 2011 quoting Airbus, 2010). Also electrically propelled aircrafts like the CE-Liner 11 seem to be seriously developed by Bauhaus Luftfahrt, with a projected entry into service in 2035 to However these initiatives are still in very early stages, and should not be counted on to meet the objectives of the European Flight Path The SWAFEA project concludes that Drop-in fuels are the only current candidates for aviation: any perceived production cost advantages of non-drop-in fuels do not stack up against costly incompatibilities with the current equipment and infrastructure. 2.3 Costs The biggest hurdle for the introduction of aviation biofuel in scaling up commercial flights is the price gap between fossil jet fuel and aviation biofuel. Currently aviation biofuel is at 2-4 times the price of fossil jet fuel, with only limited volumes available and as the aviation biofuel demand by airlines remains small and incidental, there is currently little incentive for biofuel producers to scale-up the production. For airlines the security of supply and price competiveness are crucial for further development. As bio jet fuel is not produced on a commercial scale, it is difficult to estimate production cost. In this chapter we will give a brief overview of current production costs for the different bio jet fuel types and compare them with fossil jet fuel prices. The cost structures of certified HVO and woody biomass-based FT and HPO processes are fundamentally different: HVO requires a modest upfront capital investment and production cost is highly dependent on vegetable oil feedstock prices with approximately 60-75% of the final biofuel cost being made up of feedstock costs 2. In November 2012 crude palm oil, being the cheapest suitable oil, is trading at around 779 USD/tonne 12 (about 600 Euro/tonne). Another challenge is the price volatility of his feedstock, which for the last three years has been similar, if not higher, than the price volatility of oil. The HVO industry expects that the availability of inedible oils (camelina, jatropha) and later on algal oils will mitigate today s high feedstock price fluctuations in the longer term. Generally, the cost of the raw material will be the critical factor in the HVO production economics as it is such a large share of the final costs. 10 LISBP, 2012, Probio3 project, winner of the"investissement d'avenir" news item at 11 Bauhaus Luftfahrt, 2012, Ce-Liner concept study for electro-mobility in aviation presented news item at 12 Palm oil price at BIENL

15 Ligno-cellulose based FT and HPO biofuels have lower exposure to raw material cost. Based on a raw material price of 80 /tonne dry matter, the feedstock price component of FT fuel is about 0.3 per litre 2. However, FT fuels face higher conversion costs than HVO s due to more complex production processes. This is particularly relevant at the current initial stage, as from engineering practice the costs of a new product start to reduce significantly from the 3rd plant of a new technology. The European Commission (2011) estimates that, depending on specific site conditions, the conversion cost share of biomass based FT-fuel will decrease from roughly 1 /l in industrial first-of-its-kind projects to a range of /l with learning curve effects and economies of scale if several large scale gasification/ft plants are realised by The EC states that additional conversion cost reduction is expected after 2020 based on general process optimisation and industry typical investment cost reduction referring to a progress ratio of about 85% with each duplication step of cumulative capacity. Anticipating that raw material prices for HVO and FT biofuels are subject to a similar dynamic, it can be anticipated that FT fuels will start achieving production cost advantages compared to HVOs from 2020 onwards 2. Up to 2020 IAE Bioenergy assumes a cost range for FT jet fuel from 1500 /tonne 1800 /tonne and for HVO jet fuel from 1200 /tonne 1300 /tonne in its report on bio jet fuel published in September Given current prices for fossil jet fuel of 765 /tonne (993 USD/tonne) 13 in November 2012, the price difference is enormous. Currently prices for bio jet fuel are 2-4 times higher than for fossil jet fuel. Bio jet fuel will only become fully commercially competitive if the price for biomass per energy content is at the same level as the price per energy content for crude oil. 2.4 Volumes In 2011 representatives from the European Commission, the paraffinic biofuel producers and the aviation sector published the technical paper 2 million tons per year: A performing biofuel supply chain for EU aviation ( European Advanced Biofuels Flight Path Initiative ). This paper outlines a flight path to achieve a minimum annual replacement of 2 million tonne fossil kerosene by sustainable produced biofuels in To put this number into perspective currently about 200 million tonne of fossil jet fuel are consumed annually of which 53 million tonne are in Europe. In 2011 about 13.9 million tonne of biofuels were consumed in Europe (Biofuels Barometer 2012). In their 2009 Review of the potential for biofuels in aviation for the UK Committee on Climate Change (CCC) E4tech concluded that biofuels could represent up to 1.6% of the fuel mix for the aviation industry in 2020 with 65-70% greenhouse gas savings compared to fossil jet fuel. Given the highest scenario of expected aviation fuel demand with 287 million tonne (Unlimited skies scenario ULS), this would result in 4.6 million tonne of biofuels. The low scenario, taking significant consumer lifestyle changes and high environmental consciousness into account, (Down to Earth scenario DtE) 13 Price was quoted as 3.00 USD/ gallon, for U.S. Gulf Coast Kerosene-Type Jet Fuel. Spot Price FOB. See BIENL

16 expects 198 million tonne of aviation fuel in 2020 (Consave project 2005). In this scenario the biofuel share would sum up to a maximum of 3.2 million tonne. The 2 million tonne of biofuels for aviation in 2020, proclaimed by the European Flight path initiative would be 0.69% in the ULS scenario and 1% in the DtE scenario of the worldwide jet fuel consumption. 2.5 Environmental aspects Currently aviation is responsible for at least 2% of the total manmade GHG emissions worldwide. However IATA estimates that the worldwide aviation sector will grow up to 4.5% per year, which could result in six times more CO 2 emissions in It is IATA s vision to reduce net CO 2 emissions by 50% by 2050, compared with 2005 levels (see Figure 1). Furthermore, all industry growth shall be carbon neutral from 2020 onwards. As stated above, this ambitious target could be achieved with bio jet fuel, however it needs to be ensured that the used biofuels are produced in a sustainable manner and indeed save greenhouse gases (GHG) in comparison to fossil fuels. Figure 1: Air Transport Action Group scenario to 50% GHG emission reduction in In addition to direct GHG occurring in the production of biofuels, indirect impacts will also have to be taken into account, thereby adding to the GHG balance. The most complex and prominent aspect of biofuels sustainability is Indirect Land Use Change (ILUC), which currently dominates the EU debate on transport biofuel sustainability. ILUC is the effect caused when existing cropland is used for biofuel feedstock production, so previous land use is displaced and as a result there is an increased risk that BIENL

17 non-agricultural land, e.g. primary forest, is converted into cropland elsewhere. ILUC can therefore lead to higher GHG-emissions and loss of biodiversity. The discussion on which feedstocks and production processes are or are not sustainable takes place in other studies. It is key that the selection is based on measurable and comparable sustainability criteria for feedstocks, production processes and complete chain performance, rather than a priori classifying certain feedstocks as (un)sustainable. Still, the lingering discussion on the sustainability of biofuels is not good for the development of any biofuels market, let alone for bio jet fuels. It is therefore very important that all stakeholders seek to optimise and demonstrate the sustainability effects. 2.6 European legislative framework The biofuels policy of the EU is regulated by the Renewable Energy Directive (RED) and Fuel Quality Directive (FQD) 14, which both came into force in The RED requires that EU Member States ensure 10% renewable energy in transport in This 10% is formulated as follows: 10% = All Renewable Energy in all forms of transport Petrol, diesel, biofuels, electricity In road and rail transport In all transport The denominator is currently mainly based on energy use in the road sector, since petrol and diesel and biofuels are primarily used in road transport, and electricity use in transport is still small compared to the first three elements of the denominator. The numerator includes all forms of renewable energy in all forms of transport. So, in principle, bio jet fuel counts towards the RED target. This means that when bio jet fuels are deployed in a Member State, that Member State is allowed to count it towards its national target. (The same holds for biofuels in shipping, or in rail transport). However, this does not automatically mean that bio jet fuels are incentivised, as EU Member States are free to decide which biofuel they incentivise in what manner. To stimulate the deployment of biofuels in aviation, since December 2012, the Netherlands has included in its legislation that bio jet fuels sales are indeed included in meeting the biofuel mandates of economic operators, see next section. The Netherlands is at present still the only Member State that appreciates bio jet fuels in the frame of the RED. Companies that sell bio jet fuel in the Dutch market earn biotickets that (other) operators with a biofuels obligation can use to fulfil their 14 Directives 2009/28/EC and 2009/30/EC respectively. BIENL

18 obligation (for details, see below: Implementation in the Netherlands). Thus bio jet fuels get the same value as other biofuels in the Dutch market. Germany and the United Kingdom also seem interested in including bio jet fuels in their biofuels mandates. Biofuels marketed in the frame of the RED have to meet specific sustainability criteria; otherwise they cannot be incentivised and cannot count towards the national targets: Not all land can be used for biofuels feedstock, there are restrictions with regard to carbon stock change and biodiversity; The greenhouse gas savings threshold for biofuels compared to fossil fuels is currently 35%, increasing to 50% in 2017 and 60% from 2018 onwards. The fulfilment of these criteria can be proven by accepted sustainability schemes. As of December 2012 the European Commission has recognised 13 sustainability schemes. More environmental and social criteria may be included later. In the FQD, technical regulations for petrol, diesel and gas-oil, are mainly laid down, however, it also includes a target for lifecycle greenhouse gas emission reduction of the complete product spectrum in 2020 compared to Fuel suppliers have to reach a 6% reduction in the greenhouse gas intensity of all fuels delivered to the market in This can be achieved by improving the oil extraction, refining and transport practices, but this is difficult, since new fossil oil resources are more carbon intensive. Also, refining to meet stricter environmental requirements (mainly sulphur content) slightly decreases refining efficiency. So, effectively, the only way to reduce the lifecycle greenhouse gas emissions is to replace part of the fossil fuels with a sustainable alternative, i.e. biofuels or renewable electricity. A 6% reduction could be reached by blending 10% biofuels, if we assume that the average greenhouse gas emission reduction of biofuels is 60% compared to fossil fuels. In October 2012 the European Commission (EC) published a legislative proposal aimed at introducing an ILUC policy measure in the RED and FQD. This would mean that the use of biofuels will be subjected to a more stringent sustainability regime. The main points of the proposal are: 5% cap of total biofuels consumption in 2020 for food crop based biofuels; Promotion of biofuels from waste and residues by quadruple counting of biofuels produced from municipal solid waste, agricultural, aquacultural, fisheries and forestry residues and renewable fuels of non-biological origin; 60% GHG threshold applies for new installations after 1 July 2012; Introduction of feedstock type specific ILUC factors in the RED and FQD for reporting purposes only (e.g. 55gC02eg /MJ for oil crops); no ILUC factor applies for biofuels from waste and residues or if direct land use change can be demonstrated. The ILUC proposal still needs to be approved by the European Parliament and the Council of Ministers, who could amend it. If this proposal is approved as described above, algae as well as waste BIENL

19 and residues based bio jet fuels are very promising for the aviation industry from a GHG saving perspective. As of January 2012 the aviation sector is also included in the European Emission Trading Scheme (EU-ETS). Whereas around 80% of historical emissions are allocated as free allowances to the aviation sector, the remaining 20% (and all emissions above the cap) have to be offset with carbon certificates, if not reduced by other measures. Currently, the carbon certificates are priced at around 3 /tonne CO 2. This translates to about 10 /tonne jet fuel, which is very small in comparison to the additional costs of bio jet fuels in comparison with jet fuels, see also Section Figure 11. In November 2012, the EU commissioner for Climate Action Hedegaard announced that the obligations within the EU ETS will be put on hold for flights to and from the European Economic Area (EEA) for one year to enable the International Civil Aviation Organization (ICAO) to reach an internationally accepted solution to deal with carbon emissions in aviation. The EU has announced, that If ICAO fails, she will impose the EU ETS again after the one year moratorium. The perceived unilateral and extraterritorial introduction of ETS by the EU led to problems with non EU countries. 'Carbon leakage' should be avoided as well as level playing field disturbance for European aviation industry. The European aviation industry pursues a global solution in concert with IATA. ETS is still applicable for intra-european flights including some operators from non EU countries. Implementation in the Netherlands The Netherlands implemented the RED and the FQD in the Dutch Environmental Management Act, which came into force in January In order to achieve the 10% renewable energy in transport the Netherlands implemented a quota obligation for biofuel suppliers, starting from 4.25% in 2011 increasing to 5.5% in Suppliers of petrol and diesel can meet the obligation by supplying biofuels to the market themselves as well as arranging that other companies sell biofuels to the Dutch market. This is organised through a so-called bioticket administration. For each volume of biofuels or renewable energy sold for transport, a company receives a bioticket. Biotickets can be traded between obliged companies to fulfil their RED and FQD obligations. The value of a bioticket is currently primarily established in the biodiesel market as this is where most renewable energy is put into transport. As of December 2012, bio jet fuels can contribute to the fulfilment of this quota obligation. Companies (such as currently SkyNRG) receive biotickets for the volume of bio jet fuel they put in the Dutch market, and they can sell these biotickets to oil companies that need (additional) biotickets to meet their obligation. BIENL

20 3 International developments In 2011 the number of alternative fuel initiatives for aviation announced internationally grew to over 300, compared to just 11 initiatives in This remarkable growth marks the increase in attention for the use of biofuels in aviation. The large number of test flights done worldwide, which have different characteristics in terms of distance, biofuel feedstock, biofuel production process, blend percentages and number of engines powered with biofuel, have shown that using biofuel for aviation is technically viable and can be environmentally beneficial and safe for all airline operations. In this chapter, the international developments on biofuels for aviation are analysed. In Section 3.1 the bio jet fuel flights by airlines are mapped, in 3.2 bio jet fuel networks and their agenda in the international biofuel arena is discussed. In 3.3 we analyse typical bio jet fuel value chains and commercial constructions and we compare this with the fossil jet fuel market. In this part we identify which stakeholders take up which roles in the bio jet fuel market and are even looking to shift their role compared to the fossil jet fuel market. Finally in 3.4 the key stakeholders in the bio jet fuel market are identified by analysing which parties have the power in this upcoming market. 3.1 Bio jet fuel flights Since 2008 commercial airlines have performed flights using bio jet fuel. In 2009 a total of 11 published alternative fuel activities had been identified, rapidly growing to over 300 activities in 2011 (IATA, 2011). Over time the purpose of the airlines performing bio jet fuel flights evolved from single technical test flights to longer series of commercial flights on bio jet fuel. In 2008 Virgin Atlantic was the first commercial airline to perform bio jet fuel testing on a flight between London and Amsterdam. The Boeing 747 used a 20% bio jet fuel blend derived from Brazilian babassu nut oil and coconut oil in one of its four engines. Three years later in 2011 Lufthansa operated the longest series of 1187 bio jet fuel flights between July and December 2011 with one Airbus A-321 between Hamburg and Frankfurt, including 4 return flights per day (8 flights). One of the two engines was powered with a biofuel derived from camelina oil (80%), jatropha oil (15%) and animal fat (5%). The Lufthansa biofuel program was completed by making the first ever transatlantic bio jet fuel flight in January 2012 from Hamburg to Washington. From 2011 onwards a steep increase in the number of single flights can be seen, as well as the first airlines performing longer series of flights. In July 2011, KLM performed the first commercial flight on biofuel, followed in September 2011 with the series (200 flights) between Amsterdam and Paris and in 2012 KLM operated the longest intercontinental flight on biofuel to Rio de Janeiro. Currently two European airlines, Lufthansa and KLM, and one North-American airline, Alaska Airlines, have done a prolonged series of testing. KLM, in a partnership with Schiphol Group, Delta Air Lines and the Port Authority of New York and New Jersey, has recently announced that they will start weekly flights 15 IATA, 2011, Report on Alternative Fuels. BIENL

21 from John F. Kennedy Airport to Schiphol 16. KLM has declared its intention to strive for a 1% mix of sustainable biofuel throughout the entire fleet by Also Lufthansa has indicated that they are considering setting up a new series of flight on bio jet fuel. In Figure 2 a historic overview of bio jet fuel flights is shown, indicating a number of key milestones in the bio jet fuel market such as the first test flight with a selected group of passengers using bio jet fuel by KLM in Figure 2: historic overview of bio jet fuel flights. In the United States the US military was one of the main drivers of bio jet fuel developments. In 2011 the Obama administration steered the Department of Agriculture, Department of Navy, and the Department of Energy to jointly invest $510 million to assist the development and commercialisation of a sustainable industry for aviation and marine biofuels, and to foster mutual cooperation among the federal agencies as well as across the public and private sectors. Within a broader US military biofuel programme, which aims to reduce the US military dependency on foreign countries, the Air Force will remain able to pay a significant premium for bio jet fuel in the coming years. The launching customer role of the US military received a lot of criticism 17. As a reaction the US House Armed Services Committee decided in May 2012 that the military is not allowed to pay a premium for biofuel 18. At the time of writing it appeared that the rules would soon be adjusted again so that the US military can continue its advanced biofuel activities and stay in the role of launching customer 19. In the Netherlands the Ministry of Defence performed an Apache flight in 2010 fuelling one of the two engines with 50% blend bio jet fuel. The feedstock used was cooking oil (90%) as well as algae oil (10%), and the fuel was provided by Honeywell UOP. Partners in the project were Boeing, General Electric, Honeywell UOP, SkyNRG and NLR. Since the Apache test flight the Dutch military has not started new bio jet fuel activities. 16 KLM, 2013, KLM takes steps in sustainable flights news item at nieuws.klm.com 17 Reuters, 2012, U.S. Air Force tests biofuel at $59 per gallon news item at 18 National Defense Magazine, 2012, GOP Amendments Could Derail Military Biofuels Plan blog at 19 Biofuels Digest, 2012, Defense bill done: biofuels survive news item at BIENL