UKB0006
Written evidence submitted by Sustainable Aviation
About Sustainable Aviation
Sustainable Aviation (SA) is the coalition of UK airlines, airports, aerospace manufacturers, and air navigation service providers plus sustainable fuel producers and other key business partners, committed to cutting aviation’s environmental impact and building a world-leading aviation sector.
UK aviation was the first national aviation body in the world to commit to net zero when we did so in February 2020. Not only that, but SA published our Decarbonisation Road-Map at the same time, which set out our plan to achieve this. We have since gone further and in June 2021 set interim targets (of a 15% reduction by 2030 and 40% by 2040). We will be publishing an updated Road-Map in Spring 2023.
UK aviation is the third largest aviation network in the world and supports one million jobs here in the country. People rely on flying to see family, friends, enjoy their holidays and for business. We need to decarbonise flying in order to ensure these benefits can be shared by all for future generations. Reaching net zero aviation by 2050 is not only good for the climate but it is inherently pro-business.
In 2019, UK aviation was responsible for 38.4Mt CO2 – around 8% of total UK emissions, whilst being responsible for contributing £22 bn to the UK economy a year. Our plan can achieve net zero by 2050 whilst protecting and enhancing the vital contribution the aviation sector makes to our economy.
The industry has a plan which involves four main components:
- Use less fuel by operating as efficiently as possible and modernising our airspace.
- Rapidly scale up sustainable aviation fuel (SAF).
- Develop hydrogen and electric flight technology.
- Accelerate removals technologies.
Executive summary
SA welcomes the opportunity to respond to this consultation on the UK Infrastructure Bank (UKIB). There are two strategic objectives of the UKIB: helping to tackle climate change and supporting local and regional growth.
The development of a UK SAF industry is an essential part of decarbonising flying, but also can be an important part of supporting regional growth. As such, supporting SAF plants should be a key objective of the UKIB. Indeed, it is our fundamental belief that the UKIB should be supporting decarbonisation projects that would otherwise struggle to obtain commercial funding – if SAF plants could just go to commercial banks for funding, there would be no need for the UKIB’s intervention.
SAF is a replacement fuel for traditional jet fuel derived from a variety of feedstocks converted into fuel via industrial processes. It has to meet strict sustainability criteria such as delivering at least 70% less lifecycle emissions vs traditional jet fuel and not displace or compete with food crops. SAF has similar physical properties to traditional jet fuel which means it can be used in today’s aircraft and refuelling infrastructure with minimal modifications. It is proven and commercially ready today.
Our Road-Map shows that SAF will contribute 32% emissions savings by 2050, but this could now be even higher depending on feedstock availability and technology growth. Until zero-emission flight technology develops further, and due to SAFs unmatchable energy density, it is currently the only viable solution to decarbonising medium and longer-haul flights (>1,500km) which account for three-quarters of global aviation emissions.
Therefore, without SAF, we cannot reach net zero aviation by 2050 and the UKIB can play a pivotal role in delivering a UK SAF industry.
Our research has shown that a UK SAF industry could create around 20,000 jobs and £3bn in GVA by 2035 – with the right policy support. The vast majority of these jobs are in areas earmarked for “levelling-up” as you can see here:
It is also worth noting that with traditional jet fuel imports rising, producing SAF in this country is a way to improve our energy security and also support the economy by reducing a balance of payments deficit. If, for example, the UK were to meet the 10% SAF target by 2030 just using imports it would cost the UK around £4bn in imported fuel. That is without factoring in the loss of jobs and investment from not producing our own SAF.
Ultimately, a UK SAF industry ensures we have enough supply of the fuel of the future to support decarbonisation (thus supporting our energy security at a time when jet fuel imports are rising), whilst creating jobs and investment.
Despite the Government’s ambition to have 5 UK SAF plants under construction by 2025, there are several factors holding back potential investment. To attract investment in early SAF facilities we need three things in parallel:
- Capital support for first-of-a-kind projects (loan guarantees, investment, grants)
- Demand signal (a SAF mandate)
- Price stability mechanism
The UKIB can play a vital role in the first point, by crowding in investment into vital low-carbon infrastructure which would otherwise be unable to get timely funding. SAF plants are in many cases first-of-a-kind (FOAK) or if they are reference plants, they would have too little operating experience to meet the requirement of banks for funding.
Specifically, the UKIB could come in the form of loan guarantees, loans, mezzanine debt or equity – the UKIB would have to accept more risk than a commercial bank, but as a state-backed entity this should be its role: to support innovative low-carbon projects that could not otherwise raise funding. For example, a loan guarantee for part of the value of the debt of a project could be highly effective, but only if it does not require a commercial bank to lend pari passu for the remainder.
Indeed, the key role of UKIB funding is to reduce risk for other funders and thus crowd in investment. FOAK plants, such as SAF plants, are very relevant here due to the execution risks involved. Therefore, the UKIB should introduce a process using independent engineers to provide sufficient due diligence to itself without leaning on commercial banks – otherwise we would be in a situation whereby the UKIB only provides funding for projects that do not need it.
If the UKIB were to act as a lender of last resort, then it will not achieve its core strategic objectives. The UKIB has the potential, which it should embrace, to take a leading role compared to commercial banks in supporting projects that may otherwise struggle. SAF plants will bring huge economic and environmental benefits, but the more there is delay the less the benefits are.
The actual price of SAF is relevant here too. One of the biggest barriers to these FOAK plants is the lack of price certainty for investors because there are no historic prices for investors to calculate returns with. As such, one of our main asks of the Government and the Department for Transport is a price stability mechanism, in the form of Contracts for Difference (CfD) which worked so well in scaling up and eventually reducing the costs of renewable electricity generation. The Government have committed to considering this and making a decision by the end of the year.
At present, the UKIB will not lend without a price stability mechanism. However, the DfT has sometimes pointed projects towards the UKIB as an alternative to a CfD; whereas in truth both are needed. The industry needs support to meet the Government’s targets; the UKIB and DfT should discuss this matter and develop a workable strategy to enable SAF plants.
Overall, by supporting FOAK SAF plants – and indeed other such technologies – the UKIB could play a significant role in tackling climate change and supporting local and regional growth. Without the will to support such projects that rely on UKIB support, its influence will be severely limited.
October 2022