Commitments, Challenges and Contradictions

The COP26 climate negotiations closed with a final document that the UN Secretary-General suggested reflected “the interests, the contradictions, and the state of political will in the world today”. In other words- it’s difficult.

Those working in aviation, whether at airports, airlines, aircraft manufacturers or anywhere else in the aviation eco-system, know that addressing the impact of climate change within aviation is difficult and reducing carbon emissions from flying is a significant challenge. A roll call of those from the industry attending COP26 seemed to be larger than ever, presumably reflecting a greater degree of engagement than ever before, though these days everyone needs to be seen to be working on the problem.

Much of the airline industry had come prepared having signed up to IATA’s commitment to net zero emissions by 2050 just a few weeks ago, the latest in a series of industry commitments to increase aviation's contribution to climate change. Certainly, COP26 ends with a broad agreement across the industry that they will target net zero by 2050, in line with the Paris Agreement.

How aviation will get there remains less clear. The longer-term pathway assumes new technologies will plug the gap and in the shorter-term there is huge reliance on Sustainable Aviation Fuels (SAF), although scaling these up to the level required will be challenging.

Transport Themed Day 10

The 10th day of the event was transport themed so inevitably aviation and climate change was a focus topic, and the day itself was the catalyst for yet more aviation commitments.

Twenty airlines signed up to the World Economic Forum’s Target True Zero initiative which is committed to using new technology to address climate change, such as electric, hydrogen and hybrid aircraft, and with a particular commitment to switch 30% of shorter flights, those under 1,500km in length, to these technologies.

Another commitment came in the form of a declaration by the newly formed International Aviation Climate Ambition Coalition. The coalition of 23 countries, which are collectively responsible for 40% of global aviation emissions, was launched at COP26 and is a “commitment to work together to support an ambitious goal for international aviation CO2 emissions by the International Civil Aviation Organisation (ICAO)”. In fact, one of the take-aways of Day 10 seemed to be the need to push ICAO harder to deliver change.

ICAO is steering the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) which started its three-year pilot phase in January 2021, and aims to keep airline emissions at 2020 levels through a mixture of improved efficiency, purchasing credits to offset increases and by blending SAF with regular jet fuel. Unfortunately, even ICAO’s President understands the limits of CORSIA, commenting, “Only through the introduction of radical, disruptive technology will we be able to decarbonize aviation. Fortunately, innovation is in aviation's DNA."

The Push and Pull of Delivering Net Zero

Like many of the commitments, targets and ambitions which have been announced, achieving them relies on partnership between the public sector and private sector. No single entity can achieve their targets without help from elsewhere in the aviation ecosystem. Commercial entities are looking to governments for regulation so that there is no disadvantage for those companies prepared to invest to reduce emissions, and because they want a clear sense of direction from governments, but they are equally wary of policy instruments that might reduce emissions by imposing new costs and are achieved at the expense of their own businesses.

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Meanwhile, within the industry commercial entities are often looking for others to help them achieve the targets. Airlines rely on airframe manufacturers to deliver the technology needed to reduce emissions from flying. Airports may look to suppliers and airport users to reduce their CO2 emissions in order to reduce overall airport emissions. Airlines, airports and manufacturers look to the world of finance to support them in their initiatives in increasing aviation's contribution to climate change.

Clearly, part of the impetus for change will come from companies wanting to do the right thing, to avoid reputational damage, align their products with future demand and to achieve lower operating costs through improved efficiency. Equally, some of the momentum will be achieved by obligations imposed from outside to reduce emissions. These may come from governments and organisations such as ICAO, but they may increasingly come from the financial world which is paying more attention than ever to ESG investing and looking to funnel investment into low carbon industries. Whether this may reduce access to finance for the industry has yet to be seen, but expect to see funding applications articulated in terms of the carbon emission reductions which could be achieved. Potentially the world of aviation could be more affected by the launch of the Glasgow Financial Alliance for Net Zero, also launched at COP26, and similar initiatives in the world of global investing than by the heft of aviation commitments.

The Funding Contradiction

A key contradiction in all this will be who pays to get to net zero. The airline industry has just been through its most difficult operating period ever and moves forward carrying unprecedented levels of debt. Jet fuel, which accounts for a significant proportion of airline costs, is currently twice the price it was a year ago. Passenger volumes continue to be well below pre-pandemic levels and airlines are having to rebuild networks and markets all while consumer travel confidence remains low due to the imposition or travel restrictions.

If the short to medium term transition to a lower carbon future for aviation is to rely on SAF, but SAF is more expensive than traditional fossil fuel based jet fuel, how will scaling up be achieved? This is another area where the industry will need innovation so that mechanisms such as carbon offsetting via SAF can be used to build demand for SAF.

For now, at least, there seems to be plenty of access to funds to help aid aviation and climate change and there’s a certain irony in the thought that some of those aviation leaders attending COP26 will have travelled from Glasgow on to the Dubai Air Show where billions of dollars of commitments have been made to purchase new aircraft which will contribute to more flying than ever.