Countdown to Zero: A race against time to meet decarbonisation targets in the aviation sector

With an increase in natural disasters globally, together with the surge in climate change related protests, it’s no longer an option for the aviation sector to just talk about decarbonisation; now is the time for action.

On the flip side, the public’s growing environmental concerns also need to be balanced with the need for economic growth and the global demand to travel and be connected, especially following the pandemic.

As the aviation sector faces intense scrutiny from the public on how it is tackling decarbonisation, it’s essential for the whole industry to pursue further research, investment and global cooperation.

The current state of decarbonisation in the aviation sector

Aviation is a “hard to abate” sector, facing some of the toughest climate challenges when it comes to decarbonisation. Whilst other sectors are finding it easier to decarbonise, as a consequence, the percentage of the world’s greenhouse gas emissions that the aviation sector accounts for is set to increase.

All parts of the sector are being transformed and now that it is recovering from COVID, sustainability is the biggest single issue in the sector.

All parts of the sector are being transformed with a massive boost in technological advancement creating new types of airplane and new business models.

Aviation is coming under focussed attack for “greenwashing” and perversely, activists leading these claims prevent the sector from sharing its progress publicly and explaining what steps they are taking, which makes investment in decarbonation harder to justify financially.

In 2022, the aviation sector accounted for around 2% of global carbon dioxide (CO2) emissions. In the same year, the International Civil Aviation Organisation (ICAO) member states established a target for the aviation sector to achieve net-zero by 2050; aligning the industry with the goal under the 2015 Paris Agreement to limit global warming to 1.5°C.

To tackle decarbonisation, various companies have entered into contracts with sustainable aviation fuel (SAF) producers. SAF is seen as the short-to-medium term solution to decarbonise the sector. SAF not only has similar properties to fossil fuels and can be used in existing aircraft without many modifications or changes to existing infrastructure, but it can also reduce greenhouse gases by up to 80% compared to fossil fuels. All Airbus aircraft are currently certified to fly using 50% SAF mix, and Boeing has committed that its commercial aircraft will be certified to fly on 100% SAF by 2030.

However, as SAF emits similar amounts of CO2 to fossil fuels, together with the limited supply and costs associated with producing SAF, other alternatives to decarbonise the sector have been considered in parallel. Airbus have been investing in hydrogen-powered aircraft and have a target to fly such an aircraft by 2035. Various companies in the UK aviation sector, including easyJet and Rolls-Royce, have also established the Hydrogen in Aviation alliance to help accelerate the delivery of zero carbon aviation to meet the net-zero target.

The opportunities and barriers for innovation

Companies are not just facing pressure from the public, but also from financiers as aviation banks are under immense pressure to meet their own net-zero targets; with many banks aligning their internal targets to be net-zero by 2050. This has been seen through restricting financing to new aircraft, and also financiers seeking to query airlines on their decarbonisation policies and imposing performance indicators. In 2022, six global financial institutions in the aviation sector, including Bank of America and Standard Chartered, formed the Aviation Climate-Aligned Finance Working Group, which is intended to forge the measurement methodologies, emissions benchmarks, data pathways, reporting and governance structure to help set global best practices on decarbonisation for aviation finance.

There is a lot of industry talk about “green financing” and “sustainably linked financing and leases” but some of this could be greenwashing. We can be leaders in the real progress.

Progress and challenges for decarbonisation from a legal perspective

The EU Emissions Trading System has been in place since 2005 and has contributed to decarbonisation in the sector. However, as it only focusses on emissions within the European Economic Area, in 2015 ICAO introduced the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) which is a carbon off-setting scheme intended to address the greenhouse gas emissions from the international aviation sector. The aim through CORSIA is for airlines to start offsetting emissions from 2024.

While carbon off-setting has a role to play in decarbonisation, the industry has recognised that other investments are needed to meet the net-zero target. This has led to investment in SAF, with the ICAO member states requesting the acceleration of fuel certification and development of SAF.

The ReFuelEU Package – a significant regulatory milestone

In 2021, the ReFuelEU Aviation package was also introduced as a legislative proposal by the European Commission to reduce greenhouse gas emissions, with the aim of increasing the use of SAF in Europe and to promote decarbonisation. ReFuelEU, an initiative part of the ‘Fit for 55’ Package, aims to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels and to ensure climate neutrality by 2050. The initiative seeks to encourage the aviation industry to use sustainable aviation fuels to cut emissions. The European Parliament established an ambitious timeline for the adoption of green aviation fuels. Starting from 2025, EU airports and fuel suppliers must ensure that at least 2% of aviation fuels are green, with incremental increases every five years: 6% in 2030, 20% in 2035, 34% in 2040, 42% in 2045, and 70% in 2050. Synthetic fuels, such as e-kerosene, will constitute a specific proportion of the mix, reaching 35% by 2050.

The definition of "sustainable aviation fuels" includes synthetic fuels, certain biofuels, recycled jet fuels, and renewable hydrogen. Feed and food crop-based fuels, as well as those derived from palm and soy, are excluded. To promote transparency and inform the public, an EU label for the environmental performance of flights will be introduced in 2025, allowing passengers to compare the carbon footprint and CO2 efficiency of different airlines on the same route. The final act was adopted by the EU Council on 9 October and signed on 18 October 2023. The legislation was officially published in the Official Journal of the EU on 31 October 2023. These new rules on sustainable aviation will apply as of 1 January 2024 and some provisions as of 1 January 2025.

On the subject of renewable hydrogen, there is an incentive regime to support the uptake of Renewable Fuels of Non-Biological Origin (RFNBO) with a high decarbonisation potential in the aviation sector. In 2023, the EU adopted two Delegated Acts to define conditions for considering hydrogen as 'renewable,' a key element in the European Green Deal and the REPowerEU plan. The aim is to accelerate the decarbonisation of the energy system and reduce the EU's dependence on Russian fossil fuels. The first Delegated Act defines when hydrogen and its derivatives are considered renewable fuels of non-biological origin (RFNBO). It ensures that these fuels are produced from additional renewable electricity generated simultaneously and in the same area as their production.

The second Delegated Act establishes the methodology for calculating greenhouse gas emissions savings from RFNBOs and recycled carbon fuels, setting a minimum saving of 70% compared to the fuels they replace. The rules will apply to both domestic and third-country producers exporting renewable hydrogen to the EU, with a certification scheme for third-country producers. As it stands, the current EU target for RFNBOs is that by 2030, they need to account for 1% of all the fuels used in the transport sector. As the aviation industry explores cleaner and more sustainable fuel alternatives, these Delegated Acts provide a regulatory framework, shaping the transition to cleaner aviation fuels and contributing to broader decarbonisation objectives.

The EU Taxonomy

In 2021, the EU Taxonomy Regulation entered into force as a way to standardise the criteria for determining which economic activities were considered “sustainable”, with the aim of channelling investments towards sustainable projects. As most aspects of the aviation sector were omitted in this regulation, in 2023 a draft amendment was proposed to include aviation as a transitional activity. As this is a developing area, more clarity is welcomed to ensure that the industry is able to attract funds that it needs to transition away from fossil fuels. Also, similar global initiatives should be introduced globally. For instance, the EU Taxonomy allows the most sustainable new aircraft to be “transition” green financing but there remains considerable uncertainty as to how this will work.

It is promising that the industry is taking steps to tackle decarbonisation. However, the legal landscape looks uncertain due to the competing challenges and views in the industry. As such, it is imperative for governments and all players in the market to work together, through robust legislation and guidance, to ensure that companies can clearly navigate and meet various targets.

The future of aviation and sustainability

The task at hand for the aviation industry to reach net zero by 2050 will be challenging. The EU Commission has also announced its Work Programme for 2024, where a non-legislative initiative is planned to be presented in the first quarter of 2024 - the 2040 climate target. As more initiatives and targets to fight climate change are set, more adaptability from the sector will be required. However, this sector has time and time again shown resilience; from the grounding of aircraft, the pandemic, and the imposition of sanctions. With cross sector cohesion, focused investment and cooperation, the sector should once again showcase its resilience and its ability to tackle decarbonisation.

Given the uncertain future landscape, we can expect more to come from regulation, reporting and disclosure requirements. As there is also an increase in scope for artificial intelligence to assist in meeting the net-zero target, consideration will also need to be given to data, cyber risks, and intellectual property issues. Bird & Bird is well positioned and poised to assist the sector in navigating this changing landscape: whether it’s preparing ESG policies, avoiding greenwashing, leveraging AI, protecting data and intellectual property, or dealing with regulatory issues.

New aircraft types are fascinating and exciting, but these new entrants also face many risks. With our deep expertise in the technology, aviation, commercial and IP spaces, Bird & Bird is well placed to guide new original equipment manufacturers, operators and the whole sector through these uncertainties, and help them unlock the opportunities the future brings.