Industry Insights with David Kaplan, Oliver Wyman - Drivers for the aviation energy transition
David Kaplan
Principal
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Oliver Wyman
In this interview, David Kaplan, an expert in the decarbonization of hard-to-abate sectors, shares his insights on the key roles SAF, political support, and more nascent technologies will have on driving towards aviation decarbonization by 2050.
Can you tell us a bit about yourself and your role?
I am a principal with Oliver Wyman’s Energy and Natural Resources practice specializing in helping hard-to-abate sectors decarbonize, with a focus on aviation where I am fortunate enough to collaborate with our world-class Transportation and Services practice.
I think that the energy transition is one of the greatest challenges the world faces, or maybe will ever face. We seek to significantly reduce our carbon footprint, even as the world’s demand for power continues to surge, and I am passionate about finding innovative solutions to this. I have spent most of my career working different angles of this challenge, including conversions of refineries from the manufacture of traditional crude products to low-carbon products such as recycled plastics, renewable diesel, and sustainable aviation fuel (SAF). I also work closely with aviation leaders to redefine their investment goals and create partnerships with energy companies to invest in SAF production.
What do you believe will be the biggest contributor to decarbonizing the aviation industry in the next 20 years?
The evident answer here is SAF, although I think it will not be as lopsided in favor of SAF versus other decarbonization levers as many people believe. Part of that will be because of the significant investment for that scale of SAF production to become a reality and the time it will take to expand capacity. Our aviation partners have estimated that at least 55% of aviation' decarbonization could come from SAF by 2050, though many forecasts assume a quarter or more of that SAF impact will arrive after 2045.
At the same time, by 2045, the aviation industry can reasonably expect to improve fuel efficiency 15% to 25% by incorporating more next-generation aircraft into the fleet with more efficient engines and adopting enhanced operating efficiency strategies. That would also represent tremendous progress but would be insufficient to meet net-zero targets. Even now, the additional efficiency from next-generation aircraft is not enough to stop rising jet fuel demand because of the expanding appetite for commercial air travel, which more than offsets the efficiency gains. That trend is expected to continue as competition and more efficient air travel make flying more accessible, which is why decarbonization cannot depend on fuel efficiency gains alone.
Within SAF, I think most of the decarbonization will be driven by three technologies — hydro-processed esters and fatty acids (HEFA), alcohol-to-jet (AtJ), and gasification-Fischer-Tropsch. While e-SAF (Power to Liquid) holds more long-term decarbonization potential and is anticipated to become the majority of SAF capacity over the next two to three decades, these other pathways have significant head starts that will drive larger cumulative impacts over the next 20 years.
Do you see SAF and aviation decarbonization fitting into the political agenda, either in the USA or globally?
Within the US, SAF and biofuels more broadly have become a rare example of a bi-partisan priority. The Blender’s Tax Credit, first implemented in 2005 and extended multiple times under both Republican and Democratic administrations, is considered a key driver of US overall biofuels adoption. It provides a $1 per gallon tax credit to bolster the production of biofuels like renewable diesel and SAF. Similarly, broader renewable fuel targets as set under the Renewable Fuel Standard have continuously increased over the same time period.
More recently, the 2022 Inflation Reduction Act raised the tax credit for SAF to between $1.25 per gallon and $1.75 as a modification to the Blender’s Tax Credit. It also allocated almost $300 million for SAF production, transportation, blending, and storage, as well as development of other low-emission aviation technologies.
Given its strong refining expertise, robust agricultural and waste collection industry, and innovative technology sector, the US could become a global leader in SAF.
How important is public and political support in the acceleration of SAF production, does one come before the other?
I don’t think it’s possible to overstate the importance of this support. Industry is guided by its regulators, customers, and shareholders. Recent consumer and investor pressure to decarbonize, combined with regulation adopted in response, has produced incredible innovation and progress in just a few years. For example, we saw US renewable diesel production triple from 2017 to 2021, to 900 million gallons per year – and then more than triple again between 2021 and 2023 to over three billion gallons.
These kinds of growth rates are what give me confidence that we are capable of scaling up the SAF industry over the coming years with the right government policy. We have demonstrated what we are capable of doing with the proper motivation and resources, and we are now seeing many of the same stakeholders that drove this incredible growth in renewable diesel begin to focus in on the opportunities in SAF.
In 2024 almost half the global population has, or will, vote, with elections held notably in the USA, Brazil, the UK, the EU, and Australia. What impact do you think changes in political leadership could have on the funding and development of SAF production?
I think we are fortunate in that leaders across the world and in many different political parties understand the importance of the energy transition and establishing alternatives to fossil fuel. Where conflict happens, I think it is frequently focused on the pace of change, the ideal mechanisms to drive it, and the focus sectors and products, rather than outright opposition to the development of new technologies, such as SAF. These differences of opinion can result in varied approaches to solving the problem. Approaches include incentives like the US Clean Fuel Production Credit (the next iteration of the Blender’s Tax Credit) that seek to stimulate investment in SAF through attractive tax credits, and SAF blend mandates, such as the European Union’s Fit for 55 rule, that aim to attract investment by providing producers demand certainty over time.
What are the current political and policy challenges in advancing SAF?
The challenges are different in every region, but I think the biggest challenge from a United States standpoint is the lack of long-term policy clarity on SAF’s future. The longest-term policy “guidance” we have in the US is the SAF Grand Challenge, which is a memorandum of understanding among key federal agencies establishing a SAF production target of three billion gallons annually by 2030 and 35 billion by 2050. While this does look into the future, it lacks measures to support achieving those goals — and the key regulations that do support them expire far sooner than these targets.
Specifically, one of the most significant US regulations driving adoption of SAF, the Clean Fuel Production Credit, only extends through the end of 2027, while the Renewable Fuel Standard lacks targets for SAF and doesn’t have any biofuel targets defined beyond 2025.
When we compare these short-lived regulations to the SAF production facilities we need to build, the problem becomes clear: These facilities frequently take five years from ideation to completion and then have operating lives of 30+ years. To de-risk SAF investments and attract further capital to the sector, a long term commitment more concrete than a memorandum of understanding to back up the goals in the SAF Grand Challenge would eliminate some of the regulatory uncertainty.
Selecting a region of your choice, what do you believe needs to happen in policy to enable the aviation industry to meet net zero by 2050?
As an American, let me focus on what I know best. I think the first and most important step is establishing longer-term regulation that helps de-risk the large capital investments required to scale SAF production, regardless of which technology.
I think we have already taken several critical steps to drive investment in key technologies that will be important to e-SAF, with billions of dollars being spent by the federal government on green hydrogen and carbon capture. Advances in these critical underlying technologies will help bring down the future cost of e-SAF. However, I think there is further opportunity for policy to drive investment in other technologies important to aviation’s long-term decarbonization roadmap, including other key immature SAF production technologies, such as gasification-Fischer-Tropsch and alcohol-to-jet. Both are likely to be important complementary components of the overall SAF puzzle we are seeking to solve.
Would you like hear directly from policymakers about federal and state level SAF incentives, and hear more from David Kaplan?