Listen in as IATA's senior vice president for sustainability, Marie Owens Thomsen, talks about net-zero transition and sustainable aviation fuel supply challenges. Recorded on location at the IATA World Sustainability Symposium.
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Transcript
Karen Walker:
Hello, everyone and welcome to Window Seat, our Aviation Week Air Transport podcast. I'm ATW and Aviation Week Network Air Transport editor-in-chief Karen Walker. And I am delighted to welcome you on board. Now, this week I'm thrilled to be joined by the senior vice president, sustainability and chief economist, Marie Owens Thomsen at the International Air Transport Association, or as we all know it, IATA. We are here together at the IATA World Sustainability Symposium in Miami.
Now this is the second such symposium that IATA has organized; obviously, it's an incredibly important subject, sustainability. So Marie, thank you again for joining us. It's always a pleasure to talk with you. We've had the first morning sessions and some of the keynote speakers. Can you just tell us a little bit about—I think this symposium is interesting because of who you bring here. So tell us a little bit about that and what you maybe heard this morning that most caught your interest.
Marie Owens Thomsen:
I'm delighted to feel that our emphasis on collaboration is shared by everybody from what we could hear this morning and that we like to call it radical collaboration. And what we mean with this radical collaboration is the kind of collaboration that produces amazing results. And I can think of, for instance, the production, the fact that the world managed to come up with a vaccine against COVID in just under 12 months, whereas usually that takes 10 years or so. That was obviously the result of radical collaboration among scientists from all over the world.
And similarly, I think of the James Webb Space Telescope, which is also absolutely incredible that the world managed to pull off such a feat. And now we can take pictures basically of the Big Bang. I mean, these are absolutely astounding achievements. Of course, I have to point out that air cargo was very instrumental in making all of those things happen. But nevertheless, I think the central point here is this radical collaboration that when humans come together with a shared purpose and focused unity of mind around what needs to be achieved, then they achieve it. And that is clearly not what's happening at the moment because we're still struggling with getting the SAF [sustainable aviation fuel] volumes that we need and many other things that we need. So somehow this needs to happen. And seemingly the people, the 550 people that we have in the room from 62 countries seem to share the sense that this is absolutely necessary today.
Karen Walker:
And of course, what we're talking about being absolutely necessary is predominantly getting to that, achieving that 2050 net-zero goal that the airlines set for themselves. They said they will be carbon net-zero by 2050. And a lot of other new goal setting is coming into place from governments, et cetera, that makes 2030 also an important target, and that's just around the corner. And as you say, sustainable aviation fuel—SAF—is very important to that.
So what you've got here, American Airlines is the host, chief sponsor of this event. And Robert Isom, the CEO, was the opening speaker today. Excellent. So you've got airlines here definitely, but you've got the fuel suppliers, you've got manufacturers, you've got organizations. We've had the Secretary General of ICAO speak this morning as well. So that's the sort of collaboration we're talking about—getting those people in here. We've also got airports, but it's about how airlines alone cannot get to this 2050 goal. It's about everybody getting involved, and that's what I was hearing so far this morning.
Can I ask you from an airline perspective, what are the chief concerns at the moment? I mean, Willie Walsh, the director general of IATA, keeps expressing his optimism. He keeps saying, "We will get there," but he's also said it's going to be incredibly expensive. I mean, he's mentioned something, I think I've got this right, $172 billion additional per year in purchasing SAF alone because it's a more expensive fuel. But even more worrying, there isn't enough SAF. That's what we're hearing from the airlines. So what are the big hurdles right now?
Marie Owens Thomsen:
That figure is the annual average over the whole transition period. So we're not there yet. We're not yet paying those kind of sums. But then also we understand that if it's an average, the additional cost that airlines will face at the end of this period closer to 2050 is obviously multiples higher. So the curve is frightening anyway. And yeah, clearly airlines, first of all, it's not their job yet to make fuel and sort themselves out. That's actually the job of the energy producing sector, is to make this stuff so that we can buy it. And these extra costs are associated with a higher price of the fuel that they are not yet producing in sufficient quantities. So that's clearly one side of the problem where we need everybody's minds to unite and think of ways to help mitigate these extra costs, bring them down to something lower.
The most obvious way to do that from an economics perspective is of course to promote these markets, make more of the stuff. And with scale, the price will come down. That we are convinced of and betting on, but we just need to get to that scale. And we're a long way off of that at the current point in time.
On the other hand, or on the other side rather, we also need the energy producers and project owners to invest in production facilities. And of course, here it's a bit strange that from what I hear, we are the ones that are the loudest advocates for these additional production facilities. But we must all understand that the additional production facilities will produce renewable fuel for everybody. And actually, the output from a refinery today, it's only like 8%, 9% that goes to jet fuel. The rest is diesel and other energies for heating homes and so on. So that will also be the case in the future from the biorefineries that they will produce all of those other products. So I feel really [we’re] doing our part in terms of highlighting all of these problems, doing our part in the global energy transition. And if we can sort out the problems for aviation, well then we will also go a really long way to sorting out the problems for everybody else. So I think that's an important point.
Karen Walker:
I must ask you while we're still on the subject of SAF, is that one of the weird things that seems to have been happening this year is we're hearing two different things from some of the major oil companies. Some of them are saying they're now less certain, that they're not seeing the demand, that they think there's enough already SAF out there for what the airlines need. And of course, we're hearing completely opposite from the airlines the same. "We're using up every drop we can get. We're under mandates in some areas, and we have to have this and there's not enough of it." Which is true and why such different perspectives?
Marie Owens Thomsen:
Well, I think the oil market, for one, already is uniquely sensitive to imbalances in supply and demand. Small variations in supply and demand produce big variations in price. There are various things that make that supply and demand equation right now contemporaneously push the price of SAF down. But I think that's a completely market-driven phenomenon and not structural at all. And it's a totally erroneous base investment decisions on those developments, I believe.
But then we need to try to understand who's investing in what and why, and what are their alternative investments? It's not just the absolute, it's also in comparison to what I could do with this money otherwise. And here we have a situation where the fossil fuel sector is still extremely profitable. Oil and gas exploration and production is currently earning net profits/margins of about 20%. And airlines, our industry, our forecast for our industry this year is a profit margin of 3%. And then the question that we don't really have the answer to is how much profit margin is there in staff production—but maybe somewhere between those two numbers. So, somehow the oil producers need to be motivated to go into this lower margin business and higher risk business. And I think the only way that they can be motivated to make those moves is if governments and regulation changes that ratio.
Karen Walker:
So to put it bluntly, which I will, it's about money, and it's about how much money probably that the oil companies at the moment are saying, "We can make more if we stick with conventional versus putting all this money into a new style," right? With refineries, as you say, governments have got to sort that out. Governments provide a lot of subsidies to traditional oil companies. And can they do that?
Marie Owens Thomsen:
And they promise not to do it over and over again. Meanwhile, they're standing there with their fingers crossed behind their backs at all these photo ops at the COPs [UN climate change conferences] and at the G7 meetings. The G7 is the only group of countries actually that has set a timeline for when they would phase out these harmful fossil fuel subsidies, and the timeline is 2025. So unfortunately, here I have to be pessimistic and think that there's a very, very, very low probability that that timeline will be met. And even less so, of course, when it comes to the other countries. And we should all understand that pretty much every country in the world is giving money to oil companies, in terms of various subsidies and tax breaks and so on. And they are not giving money for renewable fuel production, which is really strange given that they all signed the Paris Agreement.
Karen Walker:
So, one of the things that you're announcing here at this symposium is I think it's called the Matchmaker platform, am I correct? Which I think is quite interesting because it's something that IATA is doing to sort of bridge some of that communications gap maybe between the fuel supplies and the airlines. Just give me a little bit of information about that please.
Marie Owens Thomsen:
Yes, when you want to find a new supplier of a new product that you haven't been purchasing before, that takes research, right? And, of course, larger airlines have the resources to do this and it's not a problem, but there are many, many, many smaller airlines for whom this is a real challenge. And simultaneously, we don't want the fuel suppliers to only focus on the larger airlines. So, it's I think a really good thing that we can allow these people, both the suppliers and the airlines on the demand side to publicize, so to speak, their offering and their demand. And then our platform can match these things. And once the connection has been made, they can go offline and make the deals happen. So, we're trying to reduce the friction that's involved in developing these new markets and make that easier.
Karen Walker:
And then each side can actually understand, instead of scratching their heads and saying, "Why are they saying something completely different from what we believe?" They've got a mechanism. And then also here at the symposium, you've announced a couple of updates, roadmap updates, I believe. Again, can you just give us a top line on those?
Marie Owens Thomsen:
Yeah, so we've deepened and broadened our analysis for the policy roadmap and for the finance roadmap. And hopefully, we think on the policy side that we are trying to produce and provide a bit of a menu of options and clarify a little bit around when and what and how we can use some of these elements on the menu and in which order. I think it's really important that we do speak about the order, because reverse order could produce perverse effects. So this is not prescriptive; it's meant to stimulate debate and policy assessments and assessments of how effective these policies are.
And above all, we recognize that every location is very specific and should policies need to be adapted to those locations. And of course, we need the rich countries to help the poor countries, so that they can be part of this endeavor as well.
And on the finance side, as we've discussed it, trying to put more specific numbers on specific things, again to help the policymakers to understand what are the costs that we're facing and what are the policies that we can use to bring down those costs. And I hope that the numbers in our finance roadmap really focus people's minds on how high the numbers are today and how necessary it is to bring in the policies that can make sure that those numbers come down and we can have a successful energy transition in aviation and beyond.
Karen Walker:
So it's about getting real clear data that you can take to the policymakers, to the general public: "We're doing this. This is what we're achieving, but this is also what it's costing and this is what we project it's going to cost." So people sort of actually understand that.
Marie Owens Thomsen:
Yeah, so one thing for instance is co-processing. Co-processing is when you introduce a liquid bio source of fuel in the process together with the crude oil in the refinery and then you proceed as per usual. And this co-processing, if we maximized on co-processing, we could save ourselves three years’ worth of investment money on our calculations over the whole period. So, we're absolutely not saying that co-processing is a solution, but it's a solution for saving three years’ worth of investment money—that's worth doing, for instance.
Karen Walker:
Is it fair to say ... I mean I was there at the IATA AGM in Boston in 2021 when the 2050 net-zero goal was agreed to by the members. Is it fair to say that—it seems to me that here we are in 2024 coming just about three years onwards, and it seems to me that lessons are being learned now. You're at that sort of stage, where we can say, "Yeah, this is great, but we now need to address this and et cetera." It just seems that we're also getting into that phase where you've got real meaningful stuff that's been happening that you can also learn from.
Marie Owens Thomsen:
Yeah, but there's still a lot of debate out there. I think that what we're trying to say to everybody is that we need all of these possible solutions, as much of them as possible, all at the same time and as soon as possible, rather than making huge bets on single, as-of-yet not-commercially viable solutions. That could mean that by 2050 we don't have a solution. So we're completely against that, and I think there's not necessarily unanimity around that. I hear a lot of governments speaking of leaping ahead, sort of, in the sequencing of levers that we can use in our transition, and we're completely on the side where we need to use every one of these. Let's capture the low hanging fruit, let's do everything we can, and let's not waste 20 years on thinking about the future potentially available solutions. So action today I think is really the name of the game, and I don't know if we really have unanimity around that, as of yet.
Karen Walker:
Marie, it's always fantastic to talk to you, especially on this topic. So, so critical. So thank you very much for your time today in a very busy schedule, I know. Thank you also to our producers, Cory Hitt and Guy Ferneyhough. And of course, a huge thank you to our listeners. Make sure you don't miss Window Seat each week by subscribing to the Window Seat podcast on Apple Podcasts or wherever you listen. This is Karen Walker disembarking from Window Seat.
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