Microsoft Set to Outpace Airlines in Clean Jet Fuel Purchases

Major global corporations that heavily rely on air travel are now making investments in cleaner jet fuel. They are utilizing a novel credit system that enables these companies to assert their contribution towards environmental preservation.

Microsoft Corp. has made one of the biggest commitments. The tech giant has long pledged to become carbon negative by the end of this decade, meaning it plans to remove more climate pollutants from the atmosphere than it emits.

Microsoft has made two recent deals to combat the heat-trapping emissions of its travels: In August, it agreed to work with British Airways owner IAG SA and Phillips 66 to finance the purchase of nearly 5 million gallons of sustainable jet fuel. made from used cooking oils and food waste. It entered into a subsequent deal with clean fuels producer World Energy LLC to buy credits for nearly 44 million gallons of SAF over the next decade.

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Globally, SAF’s share of all jet fuel is now around 0.1%. The 4.4 million gallons a year expected from the World Energy deal could put Microsoft ahead of most major U.S. airlines. That matches the combined SAF usage of American Airlines Group Inc., Delta Air Lines Inc. and Alaska Air Group Inc. last year. U.S. leader United Airlines Holdings Inc. consumed 2.9 million gallons of SAF in 2022 and has targeted 10 million gallons this year.

“Hopefully, our early adoption will create a stronger market, where we will see more widespread adoption,” said Katie Ross, Microsoft’s director of carbon reduction strategy.

Google has also joined a program led by American Express Global Business Travel and Shell Plc’s aviation unit, while this month European shipping giant DHL Group agreed to buy credits for about 180 million gallons of SAF over seven years.

Now, about two dozen companies, including Morgan Stanley and McKinsey & Co., are close to closing deals totaling 100 million gallons of cleaner jet fuel over five years through a group called the Sustainable Aviation Buyers Alliance.

In both cases, the companies do not buy the liquid jet fuel themselves. Instead, they buy certificates that allow them to take into account the lower carbon emissions profile of fuel burned elsewhere. The credits are also intended to encourage LAK production by providing an additional income stream and at the same time to expand the group of buyers.

“These companies are helping to start this market and get it going, which shows that there is end-consumer demand,” said Andrew Chen, director of the Rocky Mountain Institute, an environmental organization that helps SABA operate.

The purpose of the effort is to solve a problem that has plagued the climate community for a long time. Aviation’s share of human-caused carbon dioxide emissions is about 2.5 percent and it has caused 4 percent of warming, when waste is taken into account, among other things. Its share of carbon dioxide emissions may rise to well over 20 percent by 2050, when air traffic is expected to grow and carbon dioxide emissions from other parts of the economy will decrease with the help of electric cars and renewable energy.

The production of SAF costs more than twice as much as conventional jet fuel. It is produced in only a few facilities around the world. Most commercial airlines have pledged to dramatically increase their use of SAF to 10% of fuel by 2030, but progress has been very slow.

The new certificates are designed to stimulate the market by covering the cost premium of cleaner fuel and at the same time give buyers the opportunity to reduce their own greenhouse gas emissions. They divide the cleaner jet fuel into two products: the liquid itself, which can be sold in the traditional way, and the SAF certificate, which represents the environmental benefits associated with the cleaner fuel.

Other financial instruments targeting climate change have stumbled due to credibility problems. The multibillion-dollar market for carbon offsets has produced low-quality trash that has reduced demand. Renewable energy credits, similar in structure to SAF certificates, have sometimes led to incorrect carbon accounting.

It is too early to say whether the new LAK credit programs will avoid these pitfalls, but there is early reason to be optimistic. First of all, the price of SAF certificates is steep – from $250 to $800 for every ton of carbon dioxide avoided. That’s a steep price compared to carbon offsets and renewable energy credits — whose costs, at less than $10 a ton, helped enable the abuse.

SAF proponents also argue that this market is fundamentally different because there is a real shortage of sustainable jet fuel, unlike when renewable electricity credits were introduced.

“These kinds of investments have much more value,” said Chen of the Rocky Mountain Institute.

Still, it’s unclear whether enough companies are stepping up to influence production. Building a clean aviation fuel plant can cost around half a billion dollars. “We’re watching the shape of the market,” said Bruce Fleming, CEO of Montana Renewables, one of two commercial SAF producers in the United States. “It will take a while.”

A growing market for SAF certificates may contribute to a stronger recovery in business travel, which has yet to fully recover from the Covid-19 pandemic. Some companies have drastically reduced the number of business flights to solve climate problems.

However, environmental organizations point out that an increase in business travel would be tragic for the climate. The European non-profit Transport & Environment has called on companies to halve their air travel emissions by 2025. “SAF should not be an excuse to fly more,” said T&E policy director Camille Mutrelle. “We have to be very clear about that.”

Although the rules for the market are still being formulated, certifications should only apply to SAF equipment that is not yet used to comply with legal mandates, such as European Union regulations requiring airlines to use 2% sustainable fuels by 2025. certificates can be tracked by one of a half-dozen nascent registries tasked with ensuring that multiple buyers don’t claim the same SAF. Selling the certificates separately opens up the SAF market to new buyers outside of the usual airlines. It allows companies to participate even if there are no tank trucks full of SAF vehicles nearby.

“Moving low-carbon molecules around for the sake of reducing carbon emissions simply doesn’t make sense,” said Gene Gebolys, CEO of World Energy. World Energy also produces the SAF equipment required by DHL.

Still, it is not clear how companies can take credit for purchasing SAF certificates. The world’s most widely used carbon dioxide accounting standard, the GHG Protocol, currently does not allow companies to report lower travel emissions by using them. It is a weighty proof of whether the change is justified.

According to Brian Ripsin, director of sustainability at Shell Aviation, the ability for companies to use SAF certifications to lower their emissions is key to growing this market. “That’s the next big hurdle we have to overcome to get larger-scale adoption.”

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