International Airlines Group (IAG) sustainability officer Jonathon Counsell shares his thoughts on European Union sustainability regulations that will take effect from January, as well as e-fuels, CORSIA and contrails.
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Transcript
Victoria Moores:
Hello everyone. And thank you for joining us for Window Seat, our Aviation Week Air Transport podcast. I'm Air Transport World Europe and Africa Bureau Chief, Victoria Moores, and I'm delighted to welcome you on board. This week, I'm joined by Jonathon Counsell, who is group sustainability officer at International Airlines Group, or IAG, which is the parent company to British Airways, Iberia, Aer Lingus, Vueling, and LEVEL. Welcome, Jonathon.
Jonathon Counsell:
Great to be here. Hi.
Victoria Moores:
So, we've both been at the Aviation Carbon Conference at Heathrow, which is a very in-depth discussion about aviation sustainability. And that's very timely right now, particularly within the European market, but also in the broader market. And the reason why I mentioned the European market specifically is, there are lot of things about to kick in from the beginning of 2025. And I'm wondering, Jonathon, if you could just give us a quick run-through of the things that are taking effect at the beginning of 2025.
Jonathon Counsell:
Absolutely. And great to join you today. Yeah, I guess the primary activity, the two SAF mandates. So, we have the EU SAF mandate and the UK SAF mandate both kicking off from January 1st. So, they both start at 2%. So, basically all fuel uplifted in both the UK and Europe from January 1st, had to contain 2% of sustainable aviation fuels. In the EU, that will remain at 2% till 2029 and then climbs to 6% in 2030. In the UK, it's taken slightly different approach. It increases linearly to 10% by 2030. So, that's the biggest change for 2025.
We've also got non-CO2 regulations kicking in, in Europe. Essentially, that's for all intra-European travel, where airlines are required to basically provide data to determine when and if non-CO2 effects are taking place. And essentially what we're talking about there are contrails. And then the third thing, I think, I guess that is really happening in 2024, but will increase in 2025 is CORSIA [Carbon Offsetting and Reduction Scheme for International Aviation], because now that the global industry has hit the baseline level, which was set at 85% of 2019 emissions, which the global industry has hit in 2024, we're starting to build up a liability for CORSIA compliance.
Victoria Moores:
So, that's a lot of administrative burdens that are coming in and also cost as well, adding to your cost base. How do you feel that's affecting IAG as a group of airlines and what are you seeing among the rest of European airlines? Are they ready for these shifts?
Jonathon Counsell:
Well, the good news is that, we have known for a long time about them, so we have been preparing for them. And with the mandates, we start with the mandates, because they're at 2%. We've been talking to many SAF suppliers to ensure that we are in a position to comply. And because the mandates are really, what you need is what they call first generation fuels to comply, or HEFA-type SAF, and there is availability of this SAF. So, for the first few years, we're not particularly concerned about the availability of SAF volumes to be able to meet those targets.
That's not the same when we get to 2030. So, there are some potential pinch points there, particularly with something called the power-to-liquid or eSAF sub-targets in the EU, we start to kick in from 2030. Currently, we don't have any eSAF. So, that's one particular concern that we have. The other is, the UK have capped the amount of HEFA you are allowed to meet the target. That's okay up to late 2020s. But from 2030, 71% of the 10% can come from HEFA. But you've got to find 29% from non-HEFA or 2G SAF. That equates about 350,000 tons a year and today there's very little volume there. So, they're the two future concerns we have around the ability to comply with SAF mandates.
Victoria Moores:
And you mentioned there HEFA, which is sort of the current generation of sustainable aviation fuel; it's based on organic feedstocks. The shift there to power-to-liquids, they're also known as eFuels, that's where you start moving to more of a chemical engineering process ...
Jonathon Counsell:
Exactly.
Victoria Moores:
To get your aviation fuel. And obviously, that forms part of the mandates. Now, just recently, we've had some news from you regarding eFuels. So, that's a second type of fuel, the more chemical-based one.
Jonathon Counsell:
Yeah.
Victoria Moores:
Do you want to share a bit about your rationale behind signing that deal?
Jonathon Counsell:
Yeah, no, absolutely. So, as I say, we've got the power-to-liquid sub-targets. So, in the EU, the overall SAF mandate in 2030 is 6%. Of that 6%, 1.2% has to come from the third generation or eSAF power-to-liquids. That's quite a lot. Depending on how much growth there is in the industry, that could be anywhere up to 500,000 tons of eFuel required today.
Victoria Moores:
And there's none in Europe today.
Jonathon Counsell:
Today, there is none. Today, there is none. Globally, today, there is none. And that climbs quite quickly. When we look out to 2035, the overall SAF mandate jumps to 20%, but 5% of the 20% has to come from eFuels, and that's again anywhere between 3 and 5 million tons. So, we need lots of eFuel in the next 10 years. It is the least mature SAF, so there are longer lead times to get them produced, which is why we have worked hard to partner with eFuels companies. Earlier this year, we signed a 14-year offtake deal with Twelve—again, in the US—and we're very pleased to announce recently a partnership with Infinium. So, we've signed a 10-year offtake agreement with Infinium. And they will look to start producing eFuels from 2026. So, we're quite excited. Our original view was that PtLs will take five to 10 years to produce. So, it's great that we're seeing companies in the US that look like they're going to come online much earlier.
Victoria Moores:
Like you say, the interesting thing is that, this early supply of eFuels is coming out of the US market. So, it's Europe that's putting in the mandates, it's the US that's giving production incentives. So, it means that that European supply is at least initially largely coming from the US. But I'm curious, one of the sticking points on eFuels has been the fact that the producers who are setting up their facilities, really need these long-term fixed-price contracts. And you mentioned 10 years, 14 years. But then obviously as an airline, there's a risk in tying yourself into a high, first-of-a-kind production contract.
Jonathon Counsell:
That is absolutely the challenge. It's hitting that sweet spot where we can provide something that is bankable for the SAF provider, but also minimizes our risk in terms of exposure to being locked into a long-term contract. So, we can talk about bankability and this is absolutely key, this is the key role that airlines can play. They provide long-term offtake agreements, that have committed price in them. So, we call them take-or-pay contracts. And what that means is that, the SAF producer can then go to the capital markets and they can raise finance on the back of that, so those contracts are bankable. You'll hear a lot of airlines announce offtake agreements, generally their memorandum of understanding. They are not bankable; SAF producers can do nothing with those. So, we very much try to set the example that other airlines, if they're going to help develop the SAF market, they have to provide these longer term with a committed price offtake agreements.
For us it was, I mean the key concern is, well, one, are we locking into a price where there may be a future technology that's going to quickly undermine that, so we're locked into a higher price. We think, with the relative maturity of power-to-liquids, you can be pretty certain. We are pretty certain that we don't think there's going to be a technology that's going to supersede that in the next 10 to 15 years. So, we think that risk is pretty safe. I mean they are, in themselves, very innovative fuels. They take CO2, capture it from the atmosphere and they mix it with green hydrogen. So, that's pretty exciting technology. We don't think there's going to be a risk of technology leapfrog with that pathway.
Victoria Moores:
And shifting over to more of the political landscape—obviously we've brushed up against that with some of the European regulation that we've discussed. We've been through the biggest election year in history, I think, with all of the turnovers of power in the European institutions, in the US and other parts of the world. We've also just had COP29 as well. So, there's been decisions coming out of that. How do you think that that political landscape is impacting aviation and does that make it easier or harder to meet net-zero by 2050?
Jonathon Counsell:
Yeah, indeed. If I start with maybe here in the UK, so we had a ... And we were concerned. We spent four years in an industry government partnerships with the Jet Zero council, first developing the mandate and then the uncertainty mechanism. So, with a change of government, there is always a risk that that might, at worse, get dropped or get delayed. But we were very pleased that the incoming government very quickly made a commitment that they will implement the SAF mandate. And in the King's speech there's also reference to the revenue certainty mechanism. So, that was great. So, that gave us the exact certainty that we needed. So, we're pretty comfortable and confident that we're going to get the policy instruments here in the UK, to help the SAF market. The US, of course, they very much have gone down the producer incentives and that's where the majority of investment is going into production capacity.
We believe that, with the change in government, that is all the commentators that we talk to, that is relatively secure, because it's economic opportunity for the US. The US very much sees itself as the primary producer of sustainable aviation fuels for the whole industry. So, there is huge economic opportunity. We think there might be a change in the structure of those incentives. We know that the Inflation Reduction Act will probably change. But overall, the drivers don't change. And particularly a lot of the Midwest states, where a lot of the investment has gone to SAF capacity. There is a lot of local support for that and we think that will remain.
Victoria Moores:
So, overall, looking across that political landscape, do you think the change is positive, negative, or neutral in terms of the path that we're on for sustainability?
Jonathon Counsell:
Yes, for sure. For UK and Europe, I think it's positive. We're pretty certain. So, one of the key items that we always have to address is, how certain are the SAF mandates? Policy uncertainty is the thing that kills investment. All the conversations we've had, that there is extremely low likelihood that the mandates will change. That's exactly what we want to hear, because we need that certainty. The US is probably early days, we'll wait and see. But so far, everything we've heard is encouraging. I so say, because there are huge economic opportunity for the US in terms of SAF production.
COP29 was very interesting. I mean there were a few proposals around the global aviation tax. I think I've heard that at every COP since Copenhagen. So, we'll always hear that noise. And we know taxes, taxes don't drive decarbonization. It's much more focused on carbon pricing through things like CORSIA. So, we're not particularly concerned about that.
The good news was, and it's kind of a technical issue, it's called Article 6. So, part of the Paris Agreement, they created this rule book. And Article 6 is relating to the rules and procedures around global carbon markets. Now, this is essential if we're going to have a fully functioning CORSIA, the global Carbon Offsetting and Reduction Scheme for International Aviation. And we've been waiting for eight years on progress, and it looked like good progress was made. So, we've now got some decisions that are going to help establish the offset market to supply CORSIA. So, that was positive, and we expect to hear news from ICAO on that aspect.
Victoria Moores:
Do you know when that's anticipated?
Jonathon Counsell:
Literally within the next few days. So, decision was made at COP29, so we know that there is certainty around decisions on Article 6. So, we expect, certainly in the coming days and weeks, that ICAO will provide further information in terms of how that's going to benefit the carbon market to support CORSIA.
Victoria Moores:
You mentioned CORSIA there. One of the pieces of conversation that there's been at the conference was the fact that CORSIA really needs to be strengthened to have any impact, it needs to be stronger. Do you agree with that? Do you see that happening?
Jonathon Counsell:
I do agree with it. I was very closely involved with CORSIA in its inception from, I guess, 2010 to 2016. And it was always accepted that it was a compromise to get that global agreement. And the three levels of compromise were, its emissions over a baseline, and it lasts till 2035, and it's an offset scheme. But we felt that was a reasonable compromise, because there's an inbuilt mechanism where we can strengthen CORSIA.
Now, because of various factors, particularly the pandemic, we've had delayed implementation. So, it's probably not the right time now. And we're leading up to the 42nd General Assembly next year, to start overtly talking about strengthening CORSIA, when we haven't even had the first phase of implementation.
So, my sense is, let's go through the two to three years leading up to the mandatory phase in 2027 and then start thinking about the steps to strengthen. And as I say, the key things we're looking for, I mean ICAO, we've all agreed to net-zero emissions by 2050, therefore we have to cover all of our emissions, not just those over a baseline. It needs to clearly go beyond 2035, because we've committed net-zero by 2050. And we think, as well as very robust and fully sustainable offsets, we need to include carbon removals as well.
Victoria Moores:
And that's been another part of the discussion here. However, I think we'll have to put a pin in the carbon removals discussion for now, because I know that some of your group airlines have been very active—
Jonathon Counsell:
Indeed.
Victoria Moores:
—already in the carbon removal space. I'd like to move the conversation instead onto the subject of non-CO2. Obviously we are hearing a lot about contrails, and we mentioned at the beginning of our conversation about the non-CO2 MRV, that's Monitoring, Reporting, and Verification.
Jonathon Counsell:
Indeed.
Victoria Moores:
That's being introduced by the EU from the beginning of 2025. I'm wondering, what are your thoughts in a nutshell on contrails studies and the potential remedies? Where are we up to on non-CO2?
Jonathon Counsell:
Yeah, there's lots of activity on non-CO2. So, one of the things we're looking to do is try and get coordination between the activities. So, we've got complementarity between the various initiatives. I think we now all accept that, while there's still some residual uncertainty, they definitely have a net warming impact. And it varies in terms of assessment, at least equivalent to the impact of CO2. But there are complications. So, for instance, daytime contrails, the ones that we can see, they are net cooling, whereas it's nighttime contrails that are net warming. So, the contrails you really need to avoid are nighttime contrails. So, that adds some complexity around mitigation. But we are getting a much stronger understanding around the atmospheric conditions, that of course, the creation of persistent contrails. So, it's those contrails that will remain for a number of hours.
And it's all to do with the level of super-saturated air. So, there's temperature consideration around, but it's all about the level of humidity. So, one of the things we're getting much better at is understanding precisely what those atmospheric conditions are. And because they're in the upper atmosphere, where they exist and how they're moving. So, then we can start to move to mitigation procedures where we can avoid those atmospheric conditions. So, lots of organizations doing lots of trials on this. I think we're getting, within the next two to three years, where we'll be able to look at proactively running trials, to be able to mitigate, provide operational procedures, where we can avoid those particular atmospheric conditions.
Victoria Moores:
Final question for you, because we are just about up for time. Obviously you've got the five group airlines—is there any initiative underway within IAG on contrails or non-CO2 specifically?
Jonathon Counsell:
Yeah, definitely. So, Iberia, we're part of a global scheme called IAGOS, which is the Inter-Aerial Global Observation Scheme. So, we have equipment on one of our [Airbus] A330s, that helps monitor atmospheric conditions. So, it's helping provide data to understand the humidity levels within the atmosphere. So, that's direct information. We're going to fully comply with the non-CO2 MRV regulations coming out in the EU. We're also talking to people like Google and Breakthrough, who are very active in trying to understand when these contrails are formed. So, we do a lot of modeling with our flights, retrospectively trying to assess if and when they form contrails. And again, provide more integration into, if you like, the global database to better understand what is it that form these contrails, and then we're in a better place to avoid them.
Victoria Moores:
And that's all part of the work package that we're coming into in 2025.
Jonathon Counsell:
Absolutely.
Victoria Moores:
Well, thank you so much for your time today, Jonathon. And also thank you to our producers, Guy Ferneyhough and Cory Hitt. And of course, a huge thank you to you, our listeners, for following Window Seat. Make sure you don't miss us each week, by subscribing to the Window Seat podcast on Apple Podcasts or wherever you listen. Until next time, this is Victoria Moores, disembarking from Window Seat.
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