An examination of the EU and US markets highlights the complex and varied landscape across regions as well as different approaches to spurring adoption of sustainable fuels. European Union. The European Union has set ambitious targets for reducing carbon emissions and is using legislation to support demand. For example, the “Fit for 55” package of legislation, which aims to decrease the European Union’s greenhouse-gas emissions by at least 55.0 percent by 2030, establishes targets for the use of renewable energy in the Renewable Energy Directive amendment (29.0 percent for the transport sector by 2030) and specific feedstocks (5.5 percent for advanced biomass and RFNBO by 2030, of which minimum 1.0 percent RFNBO). 7 Proposed legislation would lay the foundation for SAF demand, mandating a 2 percent share of SAF supply in 2025, 6 percent in 2030, and 70 percent in 2050 (of which 35 percent would be RFNBO). 8 By providing long-term demand signals, including compliance mechanisms, EU leaders have sought to create prerequisites for investment decisions. On the supply side, the European Union and its member states have imposed bans and restrictions on feedstocks that can be used for biofuels. The region is shifting from food crops (such as palm, soy, and corn) to waste and residue streams for advanced biofuels. 9 In addition, it is defining sustainability criteria for e-fuels, favoring biogenic or direct-air-capture carbon and green or low- carbon hydrogen that meets stringent criteria (as laid out in the RFNBO delegated act). 10 A recent proposal to allocate some EU Emission Trading System (ETS) funds from aviation to support SAF adoption could also introduce incentives similar to those found in the US Inflation Reduction Act (IRA). 11
of electricity or hydrogen to produce compliant fuels). Classifications vary by type of hydrogen (for example, carbon intensity or whether electricity source includes nuclear in addition to renewables) and carbon (such as carbon derived from fossil, biogenic, or direct-air-capture sources) and can affect a product’s value in the market. Currently, future producers are concentrating primarily on nonfossil carbon sources such as ethanol, pulp and paper, and waste-to-energy plants. Production can provide opportunities in regions with a high potential for renewables and biogenic- carbon availability, such as Latin America, North America, and parts of Asia and Europe. Africa, Australia, and the Middle East could be major producers of e-ammonia and potentially e-hydrocarbons for markets that allow the use of fossil carbon in e-fuels. The high cost of direct air capture needs to fall dramatically to be competitive with carbon capture from industrial sources. Competing policy approaches to support market development Multiple countries and regions are active in the global sustainable-fuel market. The European Union and North America are at the forefront in drop- in sustainable fuels. Meanwhile, an established significant market for conventional biofuel has experienced growth over the past 30 years, with bioethanol in Brazil, China, and India and biodiesel (fatty acid methyl ester [FAME]) from palm and soybean oil in Latin American and Southeast Asian countries. 6 Asia—Pacific, Australia, China, Japan, India, Singapore, and South Korea are emerging as potential demand hubs for drop-in fuels such as SAF as well as e-methanol and e-ammonia to serve as energy carriers or fuels for the marine sector.
6 “Biofuels,” in Renewables 2021: Analysis and forecast to 2026 , International Energy Agency, December 2021. 7 “Council and Parliament reach provisional deal on renewable energy directive,” Council of the European Union, March 30, 2023; “Interinstitutional File: 2021/0218(COD),” Council of the European Union, June 19, 2023. 8 “Infographic — Fit for 55: Increasing the uptake of greener fuels in the aviation and maritime sectors,” Council of the EU and the European Council, last reviewed July 26, 2023; “Fit for 55: Parliament and Council reach deal on greener aviation fuels,” European Parliament, April 25, 2023.
9 “Biofuels—updated list of sustainable biofuel feedstocks: Annex,” European Commission, May 12, 2022. 10 “Commission sets out rules for renewable hydrogen,” European Commission, February 13, 2023.
11 “Directive (EU) 2023/958 of the European Parliament and of the Council of 10 May 2023 amending Directive 2003/87/EC as regards aviation’s contribution to the Union’s economy-wide emission reduction target and the appropriate implementation of a global market-based measure,” Official Journal of the European Union , May 16, 2023, Volume 66.
Accelerating the journey to net zero
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