Is Renewable Diesel The Way Forward For The U.S. Aviation Industry?

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Air travel is one of the leading factors contributing towards the increase in environmental pollution. Airplane exhaust contains a variety of air pollutants, such as carbon dioxide, sulfur dioxide, and nitrogen oxides. By creating the greenhouse effect, these gases lead to global warming and consequently, cause immense damage to the atmosphere. Further, these gases break into tiny particles, which wedge into human lungs and possibly the bloodstream, causing respiratory problems to people. According to the World Health Organization, the most common causes of death due to air pollution are cardiovascular and respiratory diseases, including lung cancer.

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The U.S. Aviation Industry

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According to projections, carbon dioxide emissions from aviation are slated to triple by 2050 if the concerned authorities’ and stakeholders’ approach remains that of “business-as-usual.” The fast-paced increase in demand for air travel will make it unlikely for the air carriers to meet the United Nation’s mandate to reduce cruise fuel consumption of new aircraft by 4%, starting in 2028, compared to 2015 deliveries, unless effective policies are developed by authorities to constrain emission growth and encourage the use of bio-fuels.

Given that fuel accounts for about one-third of an airline’s operating costs, airlines have a tangible incentive to manage their fuel consumption through technological and operational improvements. A look at the diagram below, gives us a picture of how various domestic carriers score in terms of fuel efficiency and if they have taken any steps towards improving their rankings.

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Legacy carriers such as American, Delta, and United score below the industry average, while the low-cost carriers like Southwest, Alaska, and JetBlue perform comparatively better. However, since 2010, United has made significant strides to improve its fuel efficiency. This is attributable to the company’s efforts at getting rid of fuel-guzzling 50 seaters, its re-fleeting program, and optimization of supplier contracts. On the other hand, American has consistently maintained its end-of-the-table ranking through 2011-2014. A study by International Council on Clean Transportation reports that by using existing technology and striving for operational improvements, some of the top 20 transatlantic air carriers can drive down emissions by as much as 51% while still remaining competitive.

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JetBlue’s Renewable Jet Fuel Contract

Following the lead of Southwest, Alaska, and United, JetBlue entered a long-term contract to use sustainable alternative aviation fuel. The move, which can change the dynamics of the aviation industry, entails a ten-year renewable jet fuel purchase agreement with a bio-energy company, called SG Preston. The low-cost carrier will take its first delivery of 33 million gallons of blended jet fuel in 2019. As per contract, the jet fuel will be a blend of 30% renewable jet fuel, made of hydro-processed esters and fatty acids (HEFA) and 70% of traditional Jet-A fuel. Further, the aforementioned amount would account for 20% of JetBlue’s annual fuel consumption at John F. Kennedy Airport in New York, and 4.7% of JetBlue’s total annual fuel consumption. Although, the air carrier isn’t the first to use renewable fuel, the mere quantum and the expected reach of the contract shows JetBlue’s commitment towards a carbon-neutral future.

Workings Of HEFA Fuel

The growing debate and concern over cleaner sources of energy have led to an increase in demand and production of hydroprocessed esters and fatty acids (HEFA) fuels. The fuel, commonly termed as renewable diesel, is nearly indistinguishable from their petroleum counterparts. Further, HEFA fuels are approved by American Society for Testing and Materials International (ASTM) for use in jet engines, at blend rates up to 50% with petroleum jet fuel.

World Production of HEFA fuels

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Renewable jet fuel is produced through feedstock systems, such as vegetable oil, animal fat, and recycled oils. This leads to obvious advantages over traditionally used fossil fuels as these biological sources of energy can be replenished rapidly, without any material impact on the food supply, and that they have a minimal carbon footprint. However, the process is not as cost efficient as the end-consumers would like due to the use of cost-intensive vegetable oils and animal fats as feedstock.

To counter this, the government of the U.S. is taking steps like providing producers with tax incentive schemes and mandating its consumption to encourage blending into diesel fuel and heating oil. Further, a number of studies are underway to find the next alternative jet fuel pathway. One, which is fast gaining momentum, is Alcohol-to-Jet (ATJ). ATJ is cheaper to produce as it begins with an alcohol such as ethanol, which can be produced by fermentation of sugars from corn, sugarcane, and cellulosic biomass.

Renewable Diesel: Implications For JetBlue

The use of renewable fuel will help the carrier lower its carbon dioxide emissions by roughly 50% per gallon before blending, as per their latest news release. Further, the step will put JetBlue on the path to meet the UN’s guidelines to become carbon-neutral by 2020.

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Source: JetBlue News Release

However, the company hasn’t provided much clarity on the financial side. While the management did mention that renewable jet fuel is expected to improve JetBlue’s bottom-line by cutting costs, it remains to be seen how things actually unfold. Since renewable jet fuel is a relatively new source of energy, with hardly any historical data available, any forecast may be uncertain. Further, the long timeline of three years to delivery leave a lot of scope for variables to come into play. For example, the construction of a supplier’s refinery may effect the delivery schedule or a downward fluctuation in oil prices may actually make the use of renewable jet fuel a more expensive, though still a cheaper alternative, for the company.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for JetBlue Corporation

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