The cost of supporting alternative jet fuels in the European Union

Alternative jet fuels (AJFs) are among the few available in-sector approaches to reduce aviation sector emissions. Although the aviation sector has not played a prominent role in fuels policy to date, policymakers are increasingly incorporating aviation fuels into long-term strategies as the road sector is electrified. This report reviews the existing literature on the economics of AJF production and assesses the costs of production for a selection of AJF conversion technologies, incorporating life-cycle greenhouse gas (GHG) emissions accounting into the economic analysis of AJF production and identifying the AJF production pathways that offer the most costeffective carbon reductions.

We find that different AJF technologies have widely varying levlized production costs and carbon abatement potential. AJF production costs can vary substantially, ranging from around €0.88 per liter for hydroprocessed fuels made from waste fats and oils [i.e., hydroprocessed esters and fatty acids (HEFA)] to €3.44 per liter for the direct conversion of sugar to jet fuel; these prices are two to eight times the price of petroleum jet fuel. We estimate that the most costeffective fuel for carbon abatement in the near term is used cooking oil–derived HEFA at approximately €200 per tonne of CO2 equivalents (CO2e) reduced; however, waste fats and oils are already widely used by the road sector and therefore their supply may be limited. The next most effective options are the gasification of municipal solid waste and lignocellulosic feedstocks, which have a cost of approximately €400 to €500 per tonne of CO2e reduced. We find that it is important for policies to incentivize AJFs on the basis of GHG reduction performance rather than volumes of fuel supplied.

Prioritizing aviation fuels within fuels policies can create perverse incentives. For example, the recast European Union Renewable Energy Directive (RED II) applies a multiplier level of 1.2 for AJFs counting toward the target for renewable energy in transport. Because most AJF pathways involve producing a mixed slate of road and aviation fuels, policies such as multipliers that credit one sector at a higher rate than others can prove to be ineffective or even counterproductive. We find that a policy multiplier of around 1.3 would most likely induce existing producers to operate less efficiently in order to produce additional AJF, while this level would not be sufficient to drive investment in new facilities. Multipliers that prioritize the aviation sector can thus dilute the effectiveness of fuels policies while increasing their costs.

Supplementary policies are necessary to mitigate the risk and uncertainty associated with AJFs produced using advanced, capital-intensive conversion technologies. Although the lowest-carbon fuels generally have low feedstock costs, this benefit is offset by high upfront capital expenses that pose a much larger risk to potential investors than technologies with relatively low capital costs, such as HEFA fuels. Even with valuable production incentives, first-of-a-kind projects based on either gasification or alcohol-to-jet processes may require direct financial support, such as grants or contractsfor-difference to mitigate investors’ perception of risk and bring those projects to the market.