Oil industry pioneer wants to lead sustainable aviation revolution. Will it take off?

There is no such thing as guilt-free flying. Neste, a Finnish biofuel manufacturer, is trying to change that.

Passenger jets have hearty appetites. A Boeing 747 will burn about four liters of fuel every second. Assuming the tanks are filled, the fuel alone weighs almost as much as the empty plane. A single transatlantic round trip produces the equivalent of one ton of carbon dioxide per passenger, according to the British oil company BP.

You get the idea. Aviation’s share of global greenhouse gas emissions may seem trivial, at around 2.5%, but the number will increase as air travel becomes more popular – the industry’s growth has always outstripped its efficiency gains. If airlines are to meet their net-zero commitments by 2050 – a goal set in 2021 by the industry’s trade union, the International Air Transport Association – they will need to find a replacement for fossil fuels fairly quickly.

But how? You can’t fly a large passenger plane on batteries – a 250-seat aerial Tesla seems like a fantasy at this point. Ditto commercial hydrogen-powered aircraft or those that run on synthetic fuels. While work on these technologies is ongoing (Rolls-Royce recently did a major to-do to test a green hydrogen-fueled jet engine), they may take decades to become commercially viable. “For the foreseeable future, these technologies will not be the solution,” says Fatima da Gloria, vice president for sustainability at Air France-KLM. “So SAF are very important to us, and we expect them to remain complementary with hydrogen solutions.”

“SAF” stands for “sustainable air fuel”. Neste is well aware of the epic decarbonisation difficulty of the aviation industry and is betting its entire future on transport biofuels.

The oil industry pioneer is now the leading supplier of SAF, which is made from forest and agricultural waste, used cooking oil and – arguably – palm oil and animal fats. The company’s SAF is being bought by airlines worldwide, including Canada’s WestJet and Air France-KLM, which signed an eight-year contract in October to buy one million tons (1.3 billion liters). The Franco-Dutch airline is buying another 600,000 tons from DG Fuels of the United States, making it the airline industry’s main buyer of biofuels.

Air France-KLM claims that the use of SAF will avoid 4.7 million tons of carbon dioxide emissions over an entire life cycle. That’s because Neste claims its SAF reduces global warming emissions by up to 80% compared to regular fossil fuels. The theory is that the plants used to make biofuels absorb carbon dioxide as they grow. When the plants are converted into combustible fuel, the carbon dioxide that is absorbed balances the carbon dioxide.

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SAF sounds like a godsend for airlines. Burning fuel in jets does not require any changes to their engines. It’s just mixed with regular kerosene in the same way that corn-based ethanol is mixed with gasoline in the US and Canada. SAF does not require a unique delivery infrastructure, and costs, while three to four times higher than regular fuel, will come down as SAF production ramps up and economies of scale come into play.

So what’s not to love? More than a little, it turns out.Neste sustainable aviation fuel versus fossil fuels

SAF volumes are small and will remain relatively small even as production increases. In 2021, total SAF production represents only 0.01% of the jet fuel consumed worldwide. Air France-KLM’s goal is to see 10% of its fuel from SAF by 2030 as part of its drive to reduce carbon dioxide emissions per passenger per kilometer flown by 30% by 2030 over 2019 levels. “Decarbonisation is the biggest challenge the airline industry has ever faced,” the Canadian airline group’s chief executive, Ben Smith, said in a statement when he announced the Neste purchase.

In other words, SAF alone will never make air travel fully green. And all biofuel green credentials are never as great as advertised. Feeding crops like corn or palm oil to planes or cars or trucks carries a lot of ecological and political baggage, even more so today when food prices are rising. Shouldn’t all that land, or at least that land that can be agriculturally productive, grow food to feed the hungry instead?

But SAF represents nothing less than a revolution – and a profitable one – for Neste. His remarkable invention bears some resemblance to that of Ørsted, the Danish power generation company that once burned obscene amounts of coal, blackening the sky, to keep the country’s lights on.

In 2008, under enlightened management that saw the potential of emission-free electricity, Ørsted began to transform itself into a renewable energy power plant. It replaced its grubby fossil fuel plants with offshore wind farms that eventually make it the top player in that industry. Along the way, it became a stock exchange and an inspiration for other companies considering a black-to-green transformation.

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Neste – “liquid” in Finnish – is on a similar track.

The liquid that gave the company its name is oil. Neste was founded in 1948 as a state oil refinery in Espoo, just outside of Helsinki. Neste started tinkering with renewable diesel fuel in 2007 and launched the world’s largest renewable diesel plant in Singapore three years later. Around the same time, it built a renewable fuel plant in Rotterdam, Europe’s largest.

Today, Neste is the top producer of sustainable aviation fuel and renewable diesel, but unlike Ørsted, hydrocarbons remain at the core of its business. Its Porvoo refinery in Finland transforms more than 200,000 barrels of oil per day into diesel, gasoline and sulfur marine bunker fuels. But its future is in renewable fuels. Already around 90% of its profits come from renewable energies, even though oil refining remains by far its highest volume business. “We are clearly looking for growth in renewable and circular solutions,” says CEO Matti Lehmus, who trained as a chemical engineer. “Renewable diesel and SAF are decarbonization solutions available today.”

Neste’s transformation can see Porvoo, one of Northern Europe’s largest oil refineries, converted into a renewable fuel operation in the middle part of the next decade; Porvoo is conducting a strategic review. When it stops refining fossil fuels, Neste, like Ørsted, has almost completely buried its hydrocarbon past. Investors seem to like the message. Neste shares have been rising for years and are up 37% in 2022 (as of November 29), giving the company a market value of 37 billion euros. Over the past five years, Neste’s stock has risen 138% versus 11% for its fossil fuel-focused benchmark (S&P Europe BMI Energy Index EUR, as of November 29, 2022).

Neste takes over oil and gas

Neste’s rise to a biofuel power plant has not been glitch-free. Much of the time it was in the news for reasons that made the management cry. In May 2022, Carlos Calvo Ambel, a senior director of the Transport & Environment environmental campaign group, called the band Coldplay “useful idiots for greenwashing” Neste’s image.

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The allegation came after Coldplay signed a deal with Neste to provide SAF with renewable diesel to cut its concert tour emissions by half. A 2020 Profundo research report commissioned by Friends of the Earth Netherlands found that Neste palm oil suppliers were responsible for 10,000 hectares of deforestation between early 2019 and mid-2020. Most of Neste’s palm oil comes from Indonesia and Malaysia.

In response to the Profundo report, Neste said that “we recognize the fact that there are sustainability concerns associated with the palm oil industry,” but said it was careful not to buy fuel whose feed comes from plantations involved in deforestation . The company did not specifically deny that deforestation occurred in its supply chain. “Upon learning of credible serious allegations regarding our suppliers, we put all further purchases from these suppliers or supply chains on hold while we investigate the cases,” Neste said in November 2020.

Despite carefully monitoring its supply chain to ensure that orangutans in Indonesia are not threatened, so that SAF fills aircraft tanks, Neste plans to eliminate palm oil from its mix by the end of 2023. at last count, palm oil supplied only 7% of the company’s biofuel raw material.

Neste knows that current SAF solutions will never be able to provide 100% of the fuel for the aerospace industry – there simply isn’t enough renewable feedstock on the planet to guarantee that. Neste says it is looking for new solutions to expand its feed base and ensure the potential for future growth. It also believes that SAF and renewable diesel can play a crucial bridging role in the long decarbonisation process. Lehmus says the company plans to double its renewable fuel capacity by 2026 (in 2021, production was more than three million tons) while trying to develop new technologies. “I see a lot of long-term potential in new technologies,” he says.

In other words, biofuels are a step along the way, not the ultimate solution to rising aviation emissions. Their existence proves at least the airlines know they need to clean up their act.

Eric Reguly is the European bureau chief for The Globe and Mail and is based in Rome.

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